Accounting Concepts and Practices

Net profit / sales * 100 (AUD in Million) |Particular |2017 |2018 |Gross profit |18241 |16909 | |Sales|25912 |25667 | |Gross profit ratio |70.40%|65.88%| From the above table it has been determined that gross profit margin have reduced by 4.52% from year 2017 to 2018. Net profit / sales * 100 (AUD in Million) |Particular |2017 |2018 |Gross profit |18241 |16

Accounting Concepts and
Practices

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK ..............................................................................................................................................1
Question 1...................................................................................................................................1
Question 2...................................................................................................................................4
Question 3...................................................................................................................................6
Question 4...................................................................................................................................7
CONCLUSION ...............................................................................................................................8
REFERENCES .............................................................................................................................10

INTRODUCTION
The art of documenting, categorizing, summarizing and analysing the valuable financial
information and presenting outcomes in a meaningful way and in terms of cash, operations and
activities is defined as accounting (Aiken, Lu and Ji, 2013). Accounting practice is the scheme of
processes and checks used to generate and record company operations by an accounting
department. There are different concepts of accounting that help in preparing authentic financial
statement which support different stakeholder to make meaningful decision in context of
respective company. Accounting concepts such as business entity concepts, money measurement
concepts, dual aspect concept etc. are important to prepare financial statement.
In this project, financial information of Telstra have been presented, explantation of
company objective to meet UN sustainable development goals have been discussed. In addition,
write off methods of accounting for bad debts that are used by Centenary ceramics and statement
of cash flow is prepared with the support of direct method.
TASK
Question 1
Overview of company
Telstra is one of the leading Australia telecommunication and technology company that
use to provide number of different communication services to large number of customer.
Company provide 18.3 million portable commercial facilities in Australia, 3.7 million connected
retail packages and separate information facilities and 1.4 million separate voice fixed retail
services (About Telstra, 2019). From the annual report of respective firm different kind of ratios
have been calculated that are discussed below:
Profitability Ratio:
Profitability relates to the company's economic of financial results. Accounting Ratios
measuring profitability of an enterprises are regarded as Profitability Ratios that are denoted in
percentage proportions during an accounting year.
Gross Profit: It is a type of profitability ratio that use to calculate every money of
revenue that is left behind after paying off cost of good sold.
Gross profit / Business revenue * 100
(AUD in Million)
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Particular 2017 2018
Gross profit 18241 16909
Sales 25912 25667
Gross profit ratio 70.40% 65.88%
From the above table it has been determined that gross profit margin have reduced by
4.52% from year 2017 to 2018. This defines that company financial position have reduced
because the sales for the respective financial year have reduced by 1332 AUD in Million.
Net Profit: This is also an crucial accounting ratio that helps to demonstrate the
c0onnection between net profit after tax and net sales for period.
Net profit / sales * 100 (AUD in Million)
Particular 2017 2018
Net profit 3891 3563
Sales 25912 25667
Net profit ratio 15.02% 13.88%
The table above shows the net profitability margin of Telstra, in year 2017 the net profit
was $3981 and sales was $25912, thus net margin is 15.02%. In the next financial year there is
reduction in figure of net profit like $3563 and sales was $25667, therefore net margin also
reduces 13.88%. This shows that profitability of company have gown down due to less sales in
the specific time period.
Liquidity Ratio:
Liquidity proportions are calculations that are used to evaluate an firm's capacity to
disburse its short-term legal obligations. Potential lenders and creditors frequently use this ratios
to make a decision if to grant credit or debt to businesses, respectively (Christensen, Cottrell and
Baker, 2013).
Current ratio: It is crucial financial ratio that helps to define the proportion of an
organisation current assets in context to current liabilities.
Formula: Current assets / current liabilities
Particular 2017 2018
Current assets 7862 7077
current liabilities 9159 8816
Current ratio 0.86 times 0.8 times
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The idle current ratio is 2:1 From the above table it has been determined that company
financial profitability is reducing year by year, because in year 2018 the current liabilities of
Telstra have increase by $ 1739 that can lead to less profit margin.
Quick Ratio:
Quick assets/ current liabilities (Quick assets= (Current Assets – Inventory – Prepaid
Expenses)
Particular 2017 2018
Quick assets 6411.3 5642.24
current liabilities 9159 8816
Quick ratio 0.7 times 0.64 times
The idle quick ratio is 1:1. Then table above interpret that in year 2017 the company
financial position was better as compared to current year because the quick assets of company
have reduced up to $5642.24 in year.
Efficiency Ratio:
Efficiency ratios evaluate a company capacity to produce revenues by using its assets and
debts. A extremely efficient organisation has reduced its net asset expenditure, requiring less
capital and debt to stay in service (Gray, 2014).
Inventory Turnover Ratio: This type of ratio helps to evaluate the number of times
company sold its stock or used within a specific period of time to maintain the proper execution
of production activities.
Cost of goods sold / average inventory
Particular 2017 2018
Cost of goods sold 7671 8758
Average inventory 725 847
Inventory turnover ratio 10.58 times 10.34 times
In the above table it has been calculated that the inventory ratio in year 2017 was higher
as compared to year 2018 that also demonstrate that the profitability have also decreased due to
which is future more losses can be faced by company. In year 2017 inventory ratio was 10.58
that decrease to 10.34 because the cost of selling good increased by $1087.
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Asset Turnover Ratio: This is a kind of efficiency ratio measuring the capacity of a
corporation to produce revenues from its investments by comparing net revenues to average
complete assets.
Net Sales / Average Total Assets
Particular 2017 2018
Cost of goods sold 7671 8758
Average inventory 725 847
Inventory turnover ratio 10.58 times 10.34 times
From the above table is have been identified that in year 2018 the average inventory was
$847 and COGS was $8758, thus the inventory ratio is 10.34 times that defines that company is
not so easily able to use its assets to generate much revenue to meet shot term obligation. This
have a greater impact on the business efficiency and profitability because in situation of
unexpected expenses or liabilities company is not enough flexible to use their inventories.
Stability ratio:
This type of ratio are helpful in determining the profitability such as the total debts that
can be refereed by the business firm to write off debts and equity.
Interest coverage ratio:
This ratio mainly evaluate the capability of an organisation to pay of the total interest
which is calculated on outstanding debts (Khan, 2014). The main user of this ratio are creditors,
investors etc. in order to ascertain the total risk related to lending capital in context of company.
EBIT (Operating ratio) / Interest Expense
Particular 2017 2018
EBIT (Operating ratio) 4219 2866
Interest Expense 482 327
Interest coverage ratio 8.75 times 9.09 times
From the above table it has been determined that in year 2018 the company interest ratio
shows the improvement that demonstrate that Telstra have more capability to pay interest. This
also shows that
Debt to equity ratio:
Debts/ Shareholder's Fund
Particular 2017 2018
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Debts 14832 15327
Shareholder's Fund 14541 15027
Debt to equity ratio 1.02 times 1.02 times
The above table shows that amount of debts in business is more then funds invested bt
shareholders of the company. When debt is high then capital invested by shareholders then it is
not considered financially viable for the company.
Other information
The other information that used to make assessment of Telstra is Statement of change in
equity. The Statement of Equity Changes demonstrates the shift in the equity of an shareholder
over an accounting period this is also named as retained earnings report, or shareholder equity
declaration, that outlines the rotation of funds and makes shareholder total equity.
Question 2
Sustainable development is a way in which resources available in the society are used
without running out of them. United Nations defines sustainable development by meeting the
needs of resources in present without compromising the ability of future generation to meet their
requirements (McVay, Kennedy and Fullerton, 2016). The 2030 agenda for sustainable
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development is adopted by all the member states of United Nations in 2015. A blueprint is
designed for availability of all the resources, now and in future. For achieving sustainable
development 17 goals are decided for all the countries whether developing or developed in
global partnership. To achieve goals and objectives of sustainable development a company
named as Telstra was launched in Sydney, Australia by the UN Global Compact, Global
Reporting Initiative and World Business Council. The basic objective of establishing this
company is to help organisations to align thinking to sustainability development.
Telstra Corporation Limited is an Australian telecommunication company which builds
and operates telecommunication networks, mobiles, internet access, pay television and other
products and services. Technology is the key enabler which will play a central role in
achievement of sustainable development Goals. The UN sustainability goals to transform the
world are- No poverty, Zero hunger, Good health and well being, quality education, gender
equality, clean water and sanitation. Together with this clean energy, economic growth,
innovation and infrastructure, reduction in inequality, sustainable cities, water, life on land,
peace and justice, partnership to achieve the goal are designed to achieve in future. Telstra is
meeting the UN Sustainable Development Goals through involving in all the activities that
required to achieve all the SDG's. For this Telstra has partnered with National Telehealth
initiated by government for providing quality and secured video conferencing services. This
service of Telstra will help to bring specialist medical care services in remote areas. This
initiative will help to achieve (Goal:3) of healthy lives and well being for individuals at different
age group. Through proactive recruitment at Telstra organisation over the lase three years will
help in achieving (Goal:8) of sustained and sustainable economic growth, full and productive
employment work. Telstra has introduced a Reconciliation Action Plan through which $30
million is co-invested with National Telehealth government to deliver new mobiles and
broadband services in the remote areas. As to achieve goals of sustainable development new
investment strategies are introduced by Telstra. This will help in achieving (Goal:9) for build
resilient infrastructure all over the country (Parker and Northcott, 2016).
Telstra is focused on complete digital world so that resources can be utilised in best
manner and economy takes a step towards sustainable development. As providing more and
more services related to online servicing will help in generating more jobs and a new sector for
revenue in economy is created this will help in achieving (Goal:1 and Goal 2 ) of sustainable
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development. Telstra acts as a mediator in the process of providing various services that leads to
absorption of resources that are not required to be spend. When services are provided through
internet without compromising with their actual form then it will leads to savings of alternative
resources that needs to be consumed for the primary one. Goals such as peace and justice,
sustainable cities can be achieved through services provided by Telstra organisation.
Rate of sustainability of Telstra is quite high this can be seen that approach of generating
more and more online services is getting more in demand. In the current scenario it can be seen
that services in each and every field are provided through internet. This will help in development
of economies of all the countries at world level (Weil, Schipper and Francis, 2013). As Telstra is
providing services that will help United Nations to attain sustainable development. Telstra is
using its own resources in such manner that results of which gives benefits in current scenario
and also future generations also gets benefited with the investments made. As services can be
provided through internet and order for goods can be placed through using internet but all the
goods and services can not be made available through internet. This will become a loop hole in
the sustainability of Telstra organisation. Sustainability leads to effective ethical and legal
system in the company that will help in using available resources in such manner that no
resource turns as abandon for future generation. Enhancing consumers experience of receiving
services gives more focus on digital media and when services all over the world is provided
through digital means then motive of establishing goals of sustainable development will be
achieved (Schaltegger and Burritt, 2017). From all the information available through reports it
could be concluded that rate of sustainability of Telstra is high.
Question 3
Exercise 12.1 Presentation and Accuracy of all parts
A)
I)
I)
Debit ($) Credit ($)
Bade debts expenses a/c $4022
To accounts receivable a/c $4022
(Direct written off method is used to
write off bed-debts)
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ii)
The actual amount that was presented as bad debts in the income statements of company was
$4022.
iii)
The amount that are shown for accounts receivable in the balance sheet at the end of financial
year 30 June 2019 was $190958.
Working note:
Net Sales less returns $552 000 –$37 900 514100
Less: Cash collected -319120
Less: Bad debts written off -4022
Accounts Receivable 190958
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B)
I)
Allowance for Bed and doubtful
debts $2645
To Account receivable $2645
(The allowance method is used to write off Bed Debts)
Bad Debts Expense $5141
To Allowance for Doubtful
Debts $5141
(Bad debts provided for 1% of net credit sales)
ii)
The amount that would be presented as bad debts expense within the income statements of
respective firm is $ 5141.
iii)
The total amount for accounts receivable that will be shown in the balance sheet of 30 June
2019 is $ 191216.
Working note:
Net sales less returns [$552 000 –$37 900] 514100
Less: Cash Collected -319120
Less: Allowance for doubtful debts ($2645 –$4022 + $5141) -3764
Accounts receivable 191216
Question 4
Statement of cash flow for year ending on 30 June 2021 with the help of direct method.
Statement of cash flow for year ending on 30 June
2021 with the help of direct method.
Statement of Cash Flows
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2019
Cash flows from operating activities
Cash receipts from customers 715560.00
Cash paid to suppliers and employees 727960.00
Cash generated from operations -12400.00
Interest paid
Income taxes paid -4200.00
Dividends paid
Net cash from operating activities -16600.00
Cash flows from investing activities
Business acquisitions, net of cash acquired -
Purchase of property, plant and equipment -10800.00
Proceeds from sale of equipment 3000.00
Acquisition of portfolio investments -
Investment income
Net cash used in investing activities -7800.00
Cash flows from financing activities
Proceeds from issue of share capital 31000.00
Proceeds from long-term borrowings -
Payment of long-term borrowings -
Net cash used in financing activities 31000.00
Net increase in cash and cash equivalents 6600.00
Cash and cash equivalents at beginning of period 24400.00
Cash and cash equivalents at end of period 31000.00
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