Financial Accounting - Sample Assignment

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Financial accounting
Student Name
University Name

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Table of Contents
Question 1........................................................................................................................................3
Part A...............................................................................................................................................3
Part B: Reasons for impairment testing...........................................................................................3
Part C: Factors to be considered in determining the CGU’s...........................................................4
Question 2........................................................................................................................................4
Part A...............................................................................................................................................4
Part B...............................................................................................................................................7
Part C...............................................................................................................................................8
Question 3........................................................................................................................................8
Question 4........................................................................................................................................9
Part A: Cash flow statement (Direct Method) of Flash in the Pan Ltd............................................9
Notes to Cash flows.......................................................................................................................11
Part B: Cash flow statement indirect method of Flash in the Pan Ltd...........................................12
References......................................................................................................................................13

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Question 1
Part A
Cash Generating Unit or CGU can be defined as a smallest group of assets that helps the
organizations in generating cash flows (Hoyle, Schaefer and Doupnik 2015). This are
independent from cash flows generated from other assets. In the given case, the CFO of the firm
Wentnor Dairy Company Ltd is aiming to evaluate the reasons for impairment testing and factors
to be considered in determining the CGU’s.
Part B: Reasons for impairment testing
Impairment testing is done while comparing recoverable amount of an asset with the higher of
the asset’s value in use and fair value less costs of disposal. It also requires future cash flow
estimation in order to derive the asset and price of bearing the inherent risk factor in the asset
(Scott 2015).
In case of some assets, there are no separate cash flows generated independently from other
assets. (Williams 2014). For example, in case of Wentnor Dairy Company Ltd milk machines
could have been used to separate cream from milk and these are not used in generation of
independent cash flows. These machines could be sold separately, with a fair value less cost of
disposal. But, Wentnor Dairy Company Ltd use the machines rather than selling them and the
value in use is greater than the selling price. Due to this reason, impairment testing requires the
use of CGUs, rather than being based on single assets.

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Part C: Factors to be considered in determining the CGU’s
As per AASB 136, there are several factors to be considered in case of determination of CGU’s
of The Wentnor Dairy Company Ltd. These are as follows:-
 The process through which the organizations operational activities will be monitored
needs to be determined. It may be through product, factory or district. This have been
given in AASB 136.
 The management of the firm should make decisions regarding whether to continue with
separate CGU’s or to sale a part of it (Hoyle, Schaefer and Doupnik 2015).
 In case of Wentnor Dairy Company Ltd, the milk produced by the company can be used
in separate milk products and milk production section can also be used as separate CGU.
It depends upon the organization whether to choose it separately or together.
These are the factors to be considered by Wentnor Dairy Company Ltd in case of
determination of CGU’s.
Question 2
Part A
Woolworths Ratio Analysis
Balance Sheet 2017 2016

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Cash $909 $948
Accounts Receivable 744 763
Inventories 4,080 4,558
Other assets 16 56
Total Current Assets 6,994 7,427
Total Assets $22,915 $23,502
=========== ===========
Current Liabilities $8,824 $8,993
Non current Liabilities 4,215 5,727
Common Equity 9,276 8,781
Total Liabilities & Equity $22,315 $23,501
=========== ===========
Income Statement 2001 2000
Sales $55,668 $53,473
Cost of Goods Sold 39,739 38,538
Gross Profit 15,929 14,935
Net Income $1,593 -$2,347
=========== ===========
Common Ratios 2017 2016
Current Ratio 0.793 0.826

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Acid Test 0.328 0.313
Debt Equity Ratio 0.584 0.626
Receivable Turnover 73.879 140.165
Days sales in receivables 4.878 5.208
Inventory Turnover 0.103 0.118
Net Profit Margin 0.029 -0.044
Asset Turnover 2.399 4.551
Return on Assets 7% -20%
Return on Equity 18% -53%
Debt ratio 0.57 0.63
Inventory Turnover in days 26.75145505 31.11233707
Gross Profit Margin 29% 28%
Rate of return on net sales ratio 3% -4%
EPS 1.194 -0.977
Dividend per share 0.84 0.77
Market Price per Share 25.54 20.89
Dividend Pay Out Ratio 70.35% -78.81%
Dividend Yield Rate 3.29% 3.69%
Table 1: Ratio analysis of the organization Woolworths

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Part B
From the above analysis, several recommendations can be given to an investor of the
organization Woolworths. It can be inferred that the return on equity of the firm has increased in
the current year in comparison with the previous year. This can be considered as a positive sign
for the organization. However, dividend payout ratio can be considered as too high. It can be
inferred that if dividend payout ratio is on the higher side, therefore, the dividend may not be
sustainable for the investor (Weygandt, Kimmel and Kieso 2015). The acid test ratio of the
organization is also on the lower side, therefore, it can be inferred that the liquidity of the
organization is also on the lower side. On the positive sign, it can be inferred that the gross profit
margin of the organization has improved in comparison to the previous year
(Woolworthsgroup.com.au. 2018). This is a positive indication that the organization is improving
in terms of profitability. Apart from this, rate of return on net sales have improved by a higher
percentage, which infers that the returns earned by the firm is quite significant. Receivable
turnover ratio reflects the credit worthiness policy of an organization. In addition to this, days in
receivables turnover has declined in 2017 in comparison with 2016. This reflects that the
organization is not risk adverse and the customers are paying off their bills within a shorter
period of time.
From the above ratio analysis, it can be inferred that the organization is having a higher
receivables turnover ratio. However, the inventory turnover ratio has declined for the firm. This
suggests that the organization is having excess inventory in comparison to the previous year.
The current ratio of the firm has also declined in comparison to the previous year. This reflects
that the firm is not being able to manage its working capital cycle in an effective manner (Zeff
2016). On the other hand, earning per share of the firm has increased considerably, which can be

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considered as a positive sign for any investor who is planning to invest in the organization. In
addition to this, it has been seen that the debt equity ratio of the firm is on the lower side. This
reflects the organization is managing its debts effectively. Net profit margin has also increased
and this can be considered as a positive sign for the firm. On the other hand, the asset turnover
ratio has declined, which further reflects that the firm is not utilizing its assets in its revenue in
an effective manner. The return on equity is on the higher side in comparison to the previous
year and this can be considered as a positive sign for an investor. Therefore, by considering all
the factors, it can be inferred that the firm Woolworths is good for investment due to its higher
return on equity, payout and efficiency ratios. However, it may not be considered as sustainable
for an investor in the long run due to its lower liquidity ratio and too higher dividend payout
ratios.
Part C
The ideal Current Ratio for businesses should be 2:1 and the Acid Test between1.5 to 1 (Scott
2015). However, in case of the organization Woolworths the current ratio for 2017 is 0.793 and
acid test ratio is 0.328. This reflects that the organization is not meeting the industry standards.
This is mainly because the organization is failing to manage its working capital cycle in an
effective manner, as they are not able to meet their debt obligations. This can be a cause of
concern for the firm.
Question 3
The given analysis reflects Note ii (p. 91) of the Qantas Annual Report 2017. This note reflects
foreign operations of the organization by translating foreign currency to domestic currency. The

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transactions of assets and liabilities of foreign operations is on the higher side and therefore it is
mandatory for the firm to record its transactions in its annual report (Investor.qantas.com. 2018).
Due to this reason, they want to translate the amount in Australian Dollars along with the given
dates of transactions. The given difference in the amounts of the foreign currency in comparison
to domestic currency will be recorded in comprehensive income statement and any potential
revenues will be transferred to Foreign Currency Translation Reserve.
Question 4
Part A: Cash flow statement (Direct Method) of Flash in the Pan Ltd
Date and starting cash
For the Year Ending
Cash at Beginning of Year -3549

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Cash Flow Statement
Cashflows from Operations
Cash receipts from customers
Cash collected from customers (debtors) $245,341
Cash paid for
Total Expenses (134,384.00)$
Payment made to suppliers (123,156.00)$
-$
Net Cash Flow from Operations (12,199.00)$
Investing Activities
Cash receipts from
Sale of property and equipment 2,470.00$
Matured Investments -$
Cash paid for
Purchase of property and equipment (24,180.00)$
Purchase of investments -$
Net Cash Flow from Investing Activities (21,710.00)$
Financing Activities
Cash receipts from
Issue of shares 26,000.00$
Cash paid for
Repayment of loans -$
Dividends (10,400.00)$
Net Cash Flow from Financing Activities 15,600.00$
Net Increase in Cash (18,309.00)$
Cash at End of Year (21,858.00)$

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Notes to Cash flows
Notes to Cash flow statement for Flash in the Pan Ltd
Notes to the Statement of Cash Flows 2019
Cash flows from operating activities
Profit before taxation 16,611.00$
Adjustments for:
Depreciation 450.00
Investment income 7,995.00$
Profit / (Loss) on the sale of property, plant & equipment (130.00)
Working capital changes:
(Increase) / Decrease in trade and other receivables (11,539.00)$
(Increase) / (Decrease) in inventories (31,280.00)$
Increase / (Decrease) in trade payables (876.00)$
Cash generated from operations (18,769.00)

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Part B: Cash flow statement indirect method of Flash in the Pan Ltd
Statement of Cash Flows
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Cash flows from operating activities
Profit before taxation 16,611.00$
Adjustments for:
Depreciation 7,995.00$
Doubtful debts 4,420.00$
Profit / (Loss) on the sale of property, plant & equipment (130.00)$
Working capital changes:
(Increase) / Decrease in trade and other receivables (11,539.00)$
(Increase) / (Decrease) in inventories (31,280.00)$
Increase / (Decrease) in trade payables (876.00)$
Increase in tax liability 2,600.00$
Net cash from operating activities (12,199.00)$
Cash flows from investing activities
Purchase of property, plant and equipment (24,180.00)$
Proceeds from sale of equipment 2,470.00$
Net cash used in investing activities (21,710.00)$
Cash flows from financing activities
Proceeds from issue of share capital 26,000.00$
Payment of long-term borrowings (Dividend) (10,400.00)$
Net cash used in financing activities 15,600.00$
Net increase in cash and cash equivalents (18,309.00)$
Cash and cash equivalents at beginning of period (3,549.00)$
Cash and cash equivalents at end of period (21,858.00)$