Accounting for Managers

This document provides information on accounting principles, revenue recognition, property valuation, audit, and sustainability in the context of Metcash Limited. It also includes an analysis of efficiency, profitability, and debt position.

Running head: ACCOUNTING FOR MANAGERS
Accounting for managers
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Table of Contents
PART A......................................................................................................................................2
Question 1 – principle activities.............................................................................................2
Question 2 – Revenue recognition.........................................................................................2
Question 3 – valuation of property, plant and equipment......................................................3
Question 4 – Audit.................................................................................................................3
Question 5 – Sustainability....................................................................................................3
PART B......................................................................................................................................4
Question 1..............................................................................................................................4
A) Efficiency....................................................................................................................4
B) Explanation of efficiency ratio....................................................................................4
C) Profitability..................................................................................................................5
D) Explanation of profitability ratio.................................................................................5
E) Debt position...............................................................................................................5
F) Explanation of debt ratio.............................................................................................5
Reference....................................................................................................................................6

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PART A
Question 1 – Principle activities
Metcash Limited was established in the year 1920 in Macquarie Park, Australia. It is
based in is engaged in wholesale distributing and marketing for liquor, hardware segments,
foods and grocery. The food and grocery sector of the entity provides wide range of services
and products related to food and grocery to convenient retail stores and independent
supermarket. Company’s liquor segment is engaged into distribution of the liquor products to
hotels and retail outlets (Metcash | Australia’s leading wholesale distribution and marketing
company 2019).
Question 2 – Revenue recognition
The company recognizes the revenue to the extent it is apparent that economic
benefits will be inflow to the entity and the amount of the revenue can be measured reliably.
Further, following recognition criteria shall be met for recognising the revenues –
 Sale of the goods – revenue generated from sales of the goods are recognised after the
significant risks and the rewards related to ownership of goods are transferred to
buyer.
 Rental incomes – rental income received are accounted on straight line basis over the
lease term and are categorized as other income. It is recorded as income under the
period in which it was received (Metcashannualreport.com 2019).
 Supplier income – income received from the suppliers on the basis of purchase
volumes, marketing and promotional or same kind of activities are recognised under
the income statement as income, after sales of product.
Page number – page 93 of the annual report ended for the year 2018

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Note number 17 - Revenue and supplier income recognition (Metcashannualreport.com 2019)
Question 3 – valuation of property, plant and equipment
All classes of the property, plant and the equipment are valued at cost reduced by the
amount of accumulated depreciation and amount of accumulated impairment, if any.
Page number – Page 90 of the annual report ended for the year 2018
Note number 9 – Property, plant and equipment (Metcashannualreport.com 2019)
Question 4 – Audit
Audit for the year ended 2018 was carried out by Ernst & Young.
Auditor shall declare the independence to ensure that audit opinions expressed by
them are not influenced by any of the relationships among them. Auditors are expected to
express honest and unbiased professional opinion regarding the financial reports.
Financial statements shall be audited by the external party for assuring that statements
accurately represents the financial position of the entity and has been prepared in compliance
of set laws. External auditor further provides valuable and independent opinion regarding true
and fairness of the financial reports to the users of the reports (Luypaert, Van Caneghem and
Van Uytbergen 2016, Pp 506-531).
Question 5 – Sustainability
Evidence that proves company’s commitments or initiative towards sustainability –
 As per the information given in page number 9 under Strategic focus, the Successful
Working Smarter program is now in the final years and will be embedded into the
company’s focus for ensuring that they have sustainable cost structure
(Metcashannualreport.com 2019).

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 During 2017, Metcash and its independent retailers decided to eliminate sale and
distribution of plastic bags with single use by 30th June 2018. During 2018 April, the
entity joined Soft Plastic Working Group from Australian Packaging Covenant to
collaborate with the industry partners and government for reducing soft plastic usage.
Various reasons for which the business shall be concerned regarding sustainability are –
 Saving the cost for improving bottom line
 Mitigating the risks
 Employee retention
 Publicity and brand reputation
 Keeping pace with competitors
 Opportunities for new revenues (Khan, Serafeim and Yoon 2016, Vol. 91(6),
Pp.1697-1724)
PART B
Question 1
A) Efficiency
B) Explanation of efficiency ratio
Account receivable ratio – it indicates the number of times the entity is able to turn its
account receivable into cash for the particular period under consideration. As the number
reduced from 13.25 times to 12.29 times efficiency of the company is reduced.

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Asset turnover ratio – it measures the efficiency regarding usage of assets for generating sales
and hence, higher ratio is better. As the number reduced from 3.88 to 3.78 efficiency of the
company is reduced (Sridharan 2015, Pp.2079-2106)
C) Profitability
D) Explanation of profitability ratio
Both the ratios above are used for analysing the profitability position. Gross profit
represents the amount left with the company after paying for goods sold expenses. Net profit
margin represents the amount left with the company after paying all the expenses from
revenues. Gross profit has been increased due to increase in sales and net profit has been
reduced dur to increase in expenses for significant items. Though the gross profit has been
increased, the net profit for 2017 reduced to net loss for 2018. Hence, the profitability
position of the entity deteriorated (Carbó‐Valverde, Rodríguez‐Fernández and Udell 2016,
Pp. 113-143)
E) Debt position
F) Explanation of debt ratio
As both the ratios shown in the above table is indicating that the ratios have been
increased it can be stated that the debt position is deteriorated. It is due to the fact that current
liability that is trade payables of the company increased from $ 1524.3 million to $ 1629.6
million (Fitri, Supriyanto and Oemar 2016, Vol. 2(2)).

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Reference
Carbó‐Valverde, S., Rodríguez‐Fernández, F. and Udell, G.F., 2016. Trade credit, the
financial crisis, and SME access to finance. Journal of Money, Credit and Banking, 48(1),
pp.113-143.
Fitri, M.C., Supriyanto, A. and Oemar, A., 2016. Analysis of debt to equity ratio, firm size,
inventory turnover, cash turnover, working capital turnover and current ratio to profitability
company (study on mining companies listed in bei period 2010-2013). Journal Of
Accounting, 2(2).
Khan, M., Serafeim, G. and Yoon, A., 2016. Corporate sustainability: First evidence on
materiality. The accounting review, 91(6), pp.1697-1724.
Luypaert, M., Van Caneghem, T. and Van Uytbergen, S., 2016. Financial statement filing
lags: An empirical analysis among small firms. International Small Business Journal, 34(4),
pp.506-531.
Metcash | Australia’s leading wholesale distribution and marketing company., 2019. Home -
Metcash | Australia’s leading wholesale distribution and marketing company. [online]
Available at: https://www.metcash.com/ [Accessed 4 Jan. 2019].
Metcashannualreport.com., 2019. [online] Available at:
https://metcashannualreport.com/images/pdf/2018_Metcash_AnnualReport.pdf [Accessed 4
Jan. 2019].
Sridharan, S.A., 2015. Volatility forecasting using financial statement information. The
Accounting Review, 90(5), pp.2079-2106.

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Appendix

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