Slater and Gordon Financial Analysis

This assignment requires an analysis of Slater and Gordon's financial performance over a five-year period. The provided data includes key financial metrics such as Work in Progress (WIP), Trade Debtors, Goodwill Impairment, Cash Flow, and other relevant financial figures. Students need to analyze these figures to understand trends, potential issues, and the overall financial health of the company.

WEEK 13 TUTORIAL QUESTIONS
CASH FLOW STATEMENT II
BASED ON LECTURE 12
Due Date: Week 13 (GP - Wed, 25/10/17; CAB – Thu, 26/10/17)
PRACTICAL QUESTION (18 marks)
Fast Feet Couriers Limited’s Balance Sheets as at 30 June 2016 and 2017 were as follows:
Fast Feet Couriers Limited’s Balance Sheet as at 30 June
2017 2016
ASSETS $ $
Current Assets
Cash
Accounts Receivable 140,000 260,000
Provision for Doubtful Debts (21,000) (20,000)
Inventory 420,000 240,000
Prepaid Insurance 3,000 4,000
542,000 484,000
Non-Current Assets
Land 230,000 230,000
Buildings 200,000 200,000
Accumulated Depreciation – Buildings (75,000) (50,000)
Plant & Equipment 300,000 280,000
Accumulated Depreciation – Plant & Equipment (70,000) (45,000)
585,000 615,000
TOTAL ASSETS 1,127,00
0
1,099,00
0
LIABILITIES AND OWNERS’ EQUITY
Liabilities
Bank Overdraft 140,000 176,000
Accounts Payable 260,000 260,000
Accrued Wages (Wages Payable) 60,000 40,000
Provisions – Other Operating Expenses 0 20,000
Current Tax Payable 7,500 3,000
Zero-coupon debenture (Non-Interest Bearing Loan) 229,500 200,000
697,000 699,000
Owners’ Equity
Share Capital 90,000 60,000
Asset Revaluation Reserve 20,000 0
General Reserve 60,000 90,000
Retained Profits 260,000 250,000
Total Equity 430,000 400,000
TOTAL LIABILITIES AND OWNERS’ EQUITY 1,127,00
0
1,099,00
0
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The company’s Income Statements for the year ended 30June 2017 and general ledger
revealed the following information:
Fast Feet Couriers Limited’s Income Statement
for the year ended 30 June 2017
$ $
Revenue
Net Sales 300,000
Cost of Goods Sold 160,000
Gross Profit 140000
Other income
Interest 20,000
Gain on Sale of Equipment 20000
(Carrying Amount: $50,000) 180,000
Expenses
Wages Expense 60,000
Other operating expenses 40,000
Depreciation Expense - Buildings 25,000
Depreciation Expense - Plant & Equipment 35,000
Doubtful Debt Expense 2,000
Insurance Expense 1,800 163,800
Net Profit Before Tax 16,200
Income Tax Expense 9,000
Net Profit After Tax 7,200
Additional Information:
 Fast Feet Couriers classifies interest as operating cash flow.
 Fast Feet Couriers issued $10,000 in bonus shares.
 The company measures its plant & equipment at fair value.
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Required:
Using the direct method, complete the schedule below. Use the results from last week to
complete the Operating Cash Flow section. You are now required to prepare the entire Cash
Flow Statement for the year ended 30 June 2017 in accordance with AASB 107. You may
use the reconstruction of the T-accounts or formula method or both. Show all workings.
FAST FOOT COURIERS LIMITED
Cash Flow Statement for the year ended 30 June 2017
$ $
Cash flows from operating activities
Cash receipts from customers $ 420,000.00
Cash paid to suppliers & employees $ (380,000.00)
Cash used in operations $ (40,800.00)
Interest income $ 20,000.00
Income taxes paid $ (4,500.00)
Net cash used in operating activities $ 14,700.00
Cash flows from investing activities
Purchase of Plant and equipment $ (70,000.00)
Add: Sale of Plant and Equipment $ 60,000.00
Net cash used in investing activities $ (10,000.00)
Cash flows from financing activities
Issue of share capital $ 20,000.00
Issue of Zero-coupon debenture $ 29,500.00
Net cash from financing activities $ 49,500.00
Net increase in cash and cash equivalents $ 54,200.00
3

Cash and cash equivalents at beginning of period $ (176,000.00)
Less: Opening Bank Overdraft $ (176,000.00)
Cash and cash equivalents at end of period $ (121,800.00)
Workings
Cash Collections Receipts from Sales
Particulars Amount
Sales
$
300,000.00
Add: Opening Balance of Accounts Receivable
$
260,000.00
Less: Closing Balance of Accounts Receivable
$
(140,000.00)
Cash receipts from customers
$
420,000.00
Cash paid to suppliers & employees
Particulars Amount
Cost of Goods Sold $ 160,000.00
Less: Opening Balance of Inventory $ (240,000.00)
Add: Closing Balance of Inventory $ 420,000.00
Add: Opening Balance of Accounts Payable $ 260,000.00
Less: Closing Balance of Accounts Payable $ (260,000.00)
Add: Wage Expenses $ 60,000.00
Add: Opening wages payable $ 40,000.00
Less: Closing Wages Payable
$
(60,000.00)
Cash paid to suppliers & employees $ 380,000.00
Income taxes paid
Particulars Amount
Operating Expenses $ 40,000.00
Add: Insurance Expenses $ 1,800.00
Less: Opening Prepaid Insurance $ (4,000.00)
Add: Closing Prepaid Insurance $ 3,000.00
Cash used in operations $ 40,800.00
Cash used in operations
4

Particulars Amount
Income Tax Expenses $ 9,000.00
Add: Opening Balance of tax payable $ 3,000.00
Less: Closing Balance of tax payable $ (7,500.00)
Income taxes paid $ 4,500.00
Plant and Equipment account
Particulars Debit Particulars Credit
To Balance b/d $ 280,000.00 By Asset Sold $ 50,000.00
To purchases $ 70,000.00
BY Balance C/d $ 300,000.00
$ 350,000.00 $ 350,000.00
Accumulated Depreciation account
Particulars Debit Particulars Credit
By Balance b/d $ 45,000.00
To Asset Sold $ 10,000.00 BY Profit and loss $ 35,000.00
To Balance C/d $ 70,000.00
$ 80,000.00 $ 80,000.00
Asset Sold account
Particulars Debit Particulars Credit
To Plant and Equip $ 50,000.00 By Accu Dep $ 10,000.00
By Profit and Loss (Gain) $ 20,000.00 By Bank Account $ 60,000.00
$ 70,000.00 $ 70,000.00
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CRITICAL THINKING
Required:
Based on your readings on Slater and Gordon throughout the semester and your
understanding of the accounting issues involved, answer the following questions:
What happened to Slater and Gordon?
What were the main reasons for this?
Using the AREA framework, evaluate the trends shown in Table 1 (see next page) and in the
latest news on Slater and Gordon.
ANALYSE
Identify the issue and why it matters. Determine what you need to find out.
RESEARCH
Present relevant facts and evidence, or issues.
EVALUATE & ANSWER
Provide your opinion based on your discussion of relevant facts, evidence, or issues.
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The accounting issue involved in case of Slater and Gordon, a publically listed legal firm in
Australia, is misleading the investors about iris financial position between the year 2014
and 2016 as depicted in its financials of the past 5 years. The analysis aims to demonstrate
the accounting problems that lead to decline of Slater and Gordon and the significant
reasons for the occurrence of the identified problems.
The Slater and Gordon suffered a decline in its share price after acquisition of Quindell
professional services divisions at about £637m. This was mainly due to overstatement of
profits in 2014 by Quindell that has been confirmed by its management leading into
criminal investigation. The accounting irregularities in the Slater and Gordon due to
Quindell acquisition and also due to other significant accounting mistakes lead to loss of
investor confidence in the company’s financial position. It has been alleged that Slater and
Gordon accounting mistakes lead to mis-representation of its financial profits to its
aggrieved shareholders. The financials of the company in the past 5 years also indicated
that the company financial performance is on decline between the time periods of 2014-
2016. This is due to failure of the company in identification of its intangibles during its
acquisition of Quindell Group and accounting mistakes in recognition of its revenue due to
its non-compliance with the accounting standards.

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As analyzed from the decline financial performance of Slater and Gordon between the
years 2014 to 2016, it can be said that the company need to implement proper strategies
for improving its business performance and regaining its goodwill in the market. The
company needs to restructure its business activities in order to overcome the significant
losses arising from its ill-fated acquisitions and accounting mistakes. The company needs
to conduct a strategic review of its business procedures and activities for identifying the
accounting irregularities in order to develop specific strategies for overcoming them.

Company Performance 2012 2013 2014 2015
2016
Restated
Revenue ($'000) 217,704 297,963 438,228 598,185 908,185
Profit before tax ($'000) 36,494 61,341 95,747 85,408 -1,029,468
Profit after tax ($'000) 24,992 41,521 68,236 62,374 -1,017,595
Basic earnings per share (cents) 16.20 23.90 33.80 26.46 -289.10
Diluted earnings per share (cents) 15.70 23.30 33.2 26.27 -289.1
Dividends per share - paid during final year
(cents) 5.8 6.3 6.85 8.5 5.5
Total dividends paid during financial year
($'000) 8,786 10,647 13,770 17,620 19,330
Share price at 30 June ($) 1.85 2.78 5.16 3.56 0.39
WIP ($'000)
248,14
3
302,19
6
473,33
9
676,6
94
58
7,533
Trade Debtors ($'000)
77,12
1
75,80
8
111,54
9
371,1
38
29
9,502
Impairment of Trade Debtors ($'000)
4,79
4
5,95
1
8,69
0
104,3
27
9
2,824
Total Goodwill ($'000)
96,58
0
93,50
4
108,49
2
1,269,4
56
33
2,868
Impairment of Goodwill (expense) ($'000) - - - -
87
9,506
CA Cash ($'000) 4,373 20,007 25,270 96,985 82,494
Receipts from Customers ($'000) 202,929 322,439 442,609 520,954 1,056,757
Net Operating Cash Flow ($'000) 15,959 32,680 54,435 40,762 -104,244
Net Investing Cash Flow ($'000) -70,383 -18,778
-
125,596
-
1,404,127 -28,243
Net Financing Cash Flow ($'000) 54,260 2,025 76,295 1,410,035 125,530
Net Increase/Decrease in Cash ($'000) -164 15,927 5,134 46,670 -6,957
Table 1 - Slater and Gordon Financials of the past 5 years
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