BUS101: Accounting Fundamentals Take-home Exam: Hotel Analysis

This document contains a student's responses to a take-home exam for an Accounting Fundamentals course, BUS101. The assignment addresses four short essay questions and a business analysis case. The essay questions cover topics such as the impact of changing costing methods from LIFO to FIFO on a company's profitability, the application of the DuPont model in financial analysis, the asset-light strategy in the hotel industry, and the implications of government economic stimulus plans on depreciation for small businesses. The business analysis case evaluates the financial performance of a hotel, including its profitability, liquidity, and debt-equity ratio, and provides recommendations for improvement. The student analyzes financial statements, calculates key ratios, and offers insights into the hotel's strengths and weaknesses. The assignment demonstrates the application of accounting tools to appraise the position and performance of organizations within the hospitality industry, evaluate financial information, and make better business decisions.

Running Head: ACCOUNTING FUNDAMENTALS
ACCOUNTING FUNDAMENTALS
NAME OF THE STUDENT
NAME OF THE UNIVERSITY
AUTHOR NOTE

1Accounting Principles
Answer to the question 1
When there is change in the costing method from LIFO to FIFO then the gross profit and
ultimately the net profit of the firm will increase (Phi et al, 2019). Since, initially in the LIFO
methods the goods that has been received very recently are counted first and therefore the very
recent cost are taken which is comparatively higher, which leads to the increasing cost and so the
gross profit and the net profit gets declined, however, it helps in producing the maximum profit
since it assume normal inflationary conditions (Yadav & Morya, 2019). In FIFO, the inventory
that are getting used for the valuation of COGS might be several years older, which therefore
increase the gross profit. However with more profit there also lies the provision to pay higher
taxes
Answer to the question 2
Dupont analysis or the Dupont model is based on the return on equity ratio. However it
contains three elements which are profit margin, asset turnover and financial leverage (Lado-
Sestayo, Vivel-Búa & Otero-González, 2020). This analysis is done in order to find out the least
productive area as well as the highest productive, the sum of which are creating ROE for the
company. For full sum refer to the excel sheet. As per the model it is clearly seen that the dupont
ratio seemed to be reducing each year. However among all profitability has seen to be reduced a
lot, rest both the asset turnover and financial leverage has shown a positive increase(Koh, 2019).
Therefore the problematic area is profitability and therefore there is extreme necessity for the
reduction of cost.
Dupont analysis= net income/sales *net sales/total avearge assets*total assets/total equity
For the year 2015

2Accounting Principles
net income=
183
0
sales=
550
0
total assets=
700
0
total equity=
465
0
profit margin 0.332727273
total asset turnover 0.785714286
financial leverage 1.505376344
Therefore, Dupont
Model= 0.393548387
Answer to the question 3
Asset light model is an enterprise version wherein groups now instead of buying the land
enter into an agreement with the land owner, in which they share a certain percent of profit
bobbing up out of the enterprise carried out at the land, this allows in saving a large fee of land to
the commercial enterprise. Even though there are many asset-light models, some of the
maximum used are outsourcing, asset sharing, licensing in, and licensing out. Many hotel chains
around the world are using this strategy due to the following advantages
Asset-light models can supply a better return of investment on property, decrease
earnings volatility, provides more flexibility, and higher scale-driven cost savings than asset-

3Accounting Principles
heavy models. allow’s observe those advantages greater intently (Ahlers, Buck-Emden &
Bart,2019).
Asset light companies have the finest capacity For Scalability. The higher management is
consequently able to put more focus on the main risks and possibilities and manage them
properly, thereby extracting most value within the procedure. So, asset light firms are able to
gain scalability and multiply revenue with least incremental value (Huchet et al, 2019).
Answer to the question 4
As per the new plan Coronavirus stimulus plan that has been initiated by the Australian
government has allowed the small businesses to claim the accelerated depreciation deductions
over the eligible assets. The enterprise ought to have an aggregated turnover of much less than
$500 million. Eligible corporations can be able to deduct 50 consistent with cent of the cost of an
eligible asset inside the 12 months that the asset is first used for taxable purpose, with current
depreciation guidelines applying to the balance of the fee in next profits years. Eligible property
are new property that may be depreciated under Div 40 of the ITAA 1997 received after the date
of declaration (12 March 2020) and primary used or hooked up through 30 June 2021. The
degree does not practice to 2nd-hand Div forty assets, or buildings or capital works that are
depreciable underneath Div 43. The basic thing is that they don’t have to lodge their payroll tax
returns for the month of March, April and May 2020, which will enable them to save their profit
by charging less profit (Flegkas et al, 2019).
Answer to 1 a
The company performance is seemed to be decreasing year by year. Since both their
gross profit and net margin have showed a tremendous falls. Apart from this their REVPAR has

4Accounting Principles
also fallen, which shows the revenue generated per room occupancy is very low which is
showing to be $72 in the year 2017, however it was $105 in the year 2015 and $91 in the year
2016. Their net margin has decreased from 33% in the year 2015 to 2% in the Year 2017 (Liao,
Ye & Wu, 2019). Their ROA has reduced from 26% to 1% in the year 2017. It has to be noted
that their sales are not showing very less margin, however, their expenses have increased
manifolds as compared to the increase in sales which is not that higher. They have purchased
more fixed assets that might have contributed to amortization. They are doing huge operating
expenses these years and therefore this has led to the change in the statement of accounts
(Santosa, 2019).
Answer to the question 1b
No, the fantastic hotel doesn’t seem to be in a good financial position if the data is
considered. They have very less current assets , though they have acquired some of the fixed
assets as evident from the year 2015 when they had $6000 fixed assets to the year 2017 when
they are having $11000 assets, however their liquidity is very less their current ratio is showing
just 50%. Their operating expenses has touched heights with almost 84% in the year 2017. Their
debt-equity ratio is so high and it is indicating that they have used more financing of the creditors
than the shareholders and the more people rely on the borrowed money, the higher the chances of
bankruptcy arise (Lee et al, 2019).
Answer to the question 1c
Recommendation will be to lower their operating expenses, they are spending too much
over marketing which doesn’t seem to have much greater impact on their sales since the sales
volume is just average and not too high. Apart from this they are required to have more liquid

5Accounting Principles
funds available. Though the ratio says its 50-50 still they don’t have much current assets which is
helpful for the business in uncertain times. They basically have to reduce their cost to match up
their sales else they are not going to sustain like this for longer. Apart from that they had to
increase their sales as well to balance their expenses.

6Accounting Principles
References
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Profitability and Leverage.

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Santosa, S. (2019). An Analysis of Financial Report on Profitability of Financial Institutions In
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