Accounting Study Material: Assessing Total Value in Consolidated Financial Statements

This study material provides an overview of accounting concepts and focuses on assessing total value in consolidated financial statements. It explains the normal balances for different accounts and evaluates various types of revenues generated by the consolidated group. The study also includes information about JB Hi-Fi Limited, its subsidiary companies, and the value of sales revenue and profit.

Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
PART A...........................................................................................................................................3
1. Assessing total value in the consolidated financial statements...............................................3
2. Determining normal balances for the above listed accounts...................................................3
PART B............................................................................................................................................4
1. Evaluating various type of revenues generated by the consolidated group............................4
2. Assessing how group assets are classified..............................................................................5
3. Determining number of ordinary shares held by JB Hi-Fi Limited in financial year. ...........5
4. Determining group’s current liability for dividends to ordinary shareholders.......................5
5. Dividend payout ratio..............................................................................................................5
PART C............................................................................................................................................6
1. List the subsidiary companies in the JB Hi-Fi Group.............................................................6
2. Determining the value of the group’s sales revenue...............................................................6
3. Determining the group’s final profit.......................................................................................6
4. Evaluating the percentage change in (2) and (3).....................................................................6
5. Determining the total value of inventories on hand................................................................7
6. Calculating profit margins and inventory turnover.................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Accounting is referred to as one of the appropriate process which is useful in
summarizing and interpreting various financial transactions of the company over a specific
period (Birt and et.al., 2019). Accounting helps in summarizing the operations of the company
by understanding its financial position. This study will demonstrate types of revenues which has
been generated within consolidated group. Furthermore, it also demonstrates various range of
questions associated with the JB Hi-Fi Limited.
JB Hi-Fi Limited is considered to be one of the publicly listed Australian retail company
which was founded in the year 1974 by John Barbuto. This company tends to sell various
consumer goods. JB Hi-Fi Limited is listed on the Australian Stock exchange and is also
headquartered in South bank, Melbourne, Australia.
PART A
1. Assessing total value in the consolidated financial statements.
PARTICULARS TOTAL VALUE ($m)
Cash and cash equivalents 72.0
Inventories 891.1
Sales revenue 6,854.3
Other income 1.1
Plant and Equipment 198.0
Interest Expense (16.6)
Sales and marketing expense (695.1)
Occupancy expenses (305.7)
Trade and other payables 665.3
Borrowings 469.4

2. Determining normal balances for the above listed accounts.
Cash and cash equivalents: This account tends to come under balance sheet statement
under the heading assets and sub heading current assets. Decrease in the value of cash and cash
equivalents will affect the credit side of the account.
Inventories: This account tends to come under balance sheet statement under the heading
assets and sub heading current assets (de Lautour, 2018). Decrease in the value of inventories
will affect the credit side of the account.
Sales revenue: The income statement or profit and loss statement of the company tends
to present the sales revenue of the company generated during specific year. Decrease in the value
of sales revenue will affect the debit side of the account.
Other income: The profit and loss statement of the company tends to present the other
income of the company generated during specific year. Decrease in the value of other income
will affect the credit side of the account.
Plant and Equipment: This account tends to come under balance sheet statement under
the heading assets and sub heading non- current assets (Nambukara-Gamage and Peries, 2020).
Decrease in the value of plant and equipments will affect the credit side of the account.
Interest Expense: The income statement of the company tends to present the interest
expense of the company generated during specific year. Decrease in the value of the interest
expense affect debit side of the account.
Sales and marketing expense: The profit and loss statement of the company tends to
present the sales and marketing expense of the company generated during specific year. Decrease
in the value of the sales and marketing expense affect debit side of the account.
Occupancy expenses: The income statement of the company tends to present the
occupancy expense of the company generated during specific year. Decrease in the value of
occupancy expense will affect the debit side of the account.
Trade and other payables: This account tends to come under balance sheet statement
under the heading liabilities and sub heading current liabilities (Collier and Munir, 2016).
Decrease in the value of trade and other payables will affect the debit side of the account.
Borrowings: This account tends to come under balance sheet statement under the heading
liabilities and sub heading non- current liabilities. Decrease in the value of borrowings will affect
the debit side of the account.

PART B
1. Evaluating various type of revenues generated by the consolidated group.
Revenue is the amount of income which in turn has been generated from the normal
business activities of the company (Zaw, 2019). JB Hi-Fi Limited has generated deferred
revenue, revenue from the external customers, interest revenue, revenue from contracts, revenue
generated from ordinary activities, etc.
2. Assessing how group assets are classified.
The common types of the assets mainly consist of current asset, physical asset, non-
current asset, operating asset, intangible asset and non- operating asset. The assets can be
classified on the basis of tangible and intangible assets. Furthermore, Tangible assets tends to
contain set of sub- classes which mainly includes fixed and current assets (Pallegedara and
Warren, 2016). Hence, current assets includes cash and cash equivalents, prepaid expenses,
marketable securities, other current assets, trade receivables, inventories, etc. On the other hand,
intangible assets are the one which in turn are non- physical in nature. The non- current assets
mainly includes intangible assets like goodwill, patent, trademarks, copyright, etc., buildings,
plant and machinery, investment and various other non- current assets.
3. Determining number of ordinary shares held by JB Hi-Fi Limited in financial year.
The major categories associated with the group's equity mainly consists of contributed
equity, reserves and retained earnings (Bielefeld, 2016). For the financial year ending 2018, the
contributed equity is estimated to be $441.7 million. For the financial year ending 2018, the
reserves is estimated to be $42.7 million. The retained earnings for the financial year 2018 is
$463.2 million. Hence, the total equity for the financial year ending 2018 is $947.6 million (JB
Hi-Fi Limited. 2018). The fully paid ordinary shares held by the JB Hi-Fi Limited in financial
year 2018 is estimated to be 114883372.
4. Determining group’s current liability for dividends to ordinary shareholders.
The interim dividend for the financial year ending 2018 is 86.0 cent per share. The
dividend paid to the shareholders for the financial year ending 2018 is $132 million. The number
of ordinary shares owned by the JB Hi-Fi Limited is 100. Current year’s total amount associated
with the dividend per share is $13200 million (JB Hi-Fi Limited. 2018). The dividend paid to the
shareholders is estimated to be $151.6 million per share.

5. Dividend payout ratio.
Earning per share is referred to as the ratio which tends to determine the profitability of
the company as compared to the per share of specific stock. On the other hand, dividend per
share tends to show the amount of dividend that in turn has been paid to the shareholders on the
per share. The earning per share of the JB Hi-Fi Limited in financial year 2018 is estimated to be
$203.1 million. The dividend per share of the JB Hi-Fi Limited in financial year 2018 is
estimated to be $132.0 million (JB Hi-Fi Limited. 2018). The total dividend paid for the financial
year 2018 is 132 cents per share. The dividend payout ratio of the JB Hi-Fi Limited in 2018
financial year is estimated to be 65%.
PART C
1. List the subsidiary companies in the JB Hi-Fi Group.
JB Hi-Fi Group tends to have range of subsidiary companies which mainly includes JB
Hi-Fi Group Pty Ltd, Clive Anthony's Pty Ltd, JB Hi-Fi (A) Pty Ltd, R o c k e t R e p l a c e m e n t s
P t y L t d , N e t w o r k N e i g h b o u r h o o d Pty Ltd, JB Hi-Fi Group (NZ) Limited, JB Hi-Fi NZ
Limited. The consolidated financial statements tends to take into consideration the assets and
liabilities of all the subsidiary companies (Johnson, 2017). Subsidiary companies are the entities
which in turn are controlled by the parent company.
2. Determining the value of the group’s sales revenue.
Sales revenue is referred to as the income which in turn has been received by the
company from its sales of the goods and services within the specific financial year. The sales
revenue generated in the financial year 2017 is estimated to be $5628 million (JB Hi-Fi Limited.
2018). The sales revenue generated in the financial year 2018 is estimated to be $6854.3 million.
The percentage change in the sales revenue for the current fiscal year is 21.78%. This has been
calculated as current year sales revenue minus base year sales revenue, divided by the base year
sales revenue multiplied by 100 (6854.3-5628/5628*100).
3. Determining the group’s final profit.
Profit is referred to as the financial gain of the company after taking into consideration
various expenses, interest and tax. This is considered to as the revenue generated from several
business activity within the specific financial year. The profit generated in the financial year
2017 is estimated to be $172.4 million (JB Hi-Fi Limited. 2018). The profit generated in the
financial year 2018 is estimated to be $233.2 million. The percentage change in the profit for the

current fiscal year is 35.26%. This has been calculated as current year profit minus base year
profit, divided by the base year profit multiplied by 100 (233.2-172.4/172.4*100).
4. Evaluating the percentage change in (2) and (3).
The percentage change of the sales revenue is 21.78% in the financial year 2018. But on
the other hand, the percentage change of the profit is 35.26% in the financial year 2018. This in
turn states that, the sales revenue of the company is comparatively good. JB Hi-Fi Group tends to
have good control over the expenditures of the company. This is the reason profit of the
company is higher when compared to the sales revenue (Thongnoppakun, 2018). The company
must in turn focus on more promotional activities in order to increase the sales of the JB Hi-Fi
Ltd. Company. This in turn leads to higher generation of sales and profitability.
5. Determining the total value of inventories on hand.
Inventory is considered to be the raw material which in turn is required by the company
to produce finished goods. Inventories at the end of the year 2017 is estimated to be $859.7
million. Hence, there is an increase in the inventory levels at the end of the year 2018 is
estimated to be $891.1 million (JB Hi-Fi Limited. 2018). The percentage change in the inventory
levels is estimated to be 3.65%. This has been calculated as current year profit minus base year
profit, divided by the base year profit multiplied by 100 (891.1-859.7/859.7*100).
The percentage change in the sales revenue is estimated to be 21.78%. But on the other
hand, the inventory change is estimated to be 3.65%. The inventory turnover of the company
states that, the company tends to focus on increasing their prices for the product and the
customers are willing to buy products at high price because of the good quality goods and
services (Babich, 2016). This in turn results in higher change in the sales revenue when
compared with the inventory turnover.
6. Calculating profit margins and inventory turnover.
Profit margin is referred to as an amount where the revenue generated from the sales tend
to exceed the cost associated with the business. This profitability ratio is useful in assessing the
percentage of sales which has generated profits for the company (Morgan, 2019). The formula of
the profit margin is net sales minus cost of the goods sold which in turn is divided by the net
sales.
Inventory turnover ratio is considered to be another profitability ratio which in turn helps
in determining the number of times company has replaced inventory during specific financial

period (Howland, 2017). The formula of the inventory turnover is sales divided by the average
inventory.
Profitability ratio analysis
2018
Gross Profit 1470
Net profit 233.2
GP ratio Gross profit / sales * 100 21%
NP ratio Net profit / sales * 100 3%
Efficiency ratio analysis
2018
Cost of goods sold 5384.1
Average Inventory 891.1
Stock turnover ratio (In times) 6.042082819
CONCLUSION
From the above conducted study it has been concluded that, accounting helps in
summarizing the operations of the company by understanding its financial position. This study
examines that, decrease in the cash and cash equivalents and inventories will affect the credit
side of the account. This study demonstrates that, assets can be classified current assets and non-
current assets. Furthermore, it has been summarized that, the profitability of the company is
higher when compared with the sales revenue. The company must focus on more promotional
activities in order to increase the sales of the JB Hi-Fi Ltd. Company. Furthermore, this study
also concludes various profitability ratios.

REFERENCES
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Online

JB Hi-Fi Limited. 2018. [Online]. Available through:<www.jbhifi.com.au/>