Introductory Financial Accounting ACCT11081 Assignment Analysis

This assignment, completed for the ACCT11081 Introductory Financial Accounting course, analyzes accounting principles through the lens of a chosen company, Advanced Braking Technology. The student examines the company's annual report, focusing on financial statements such as the income statement, balance sheet, and cash flow statement, assessing the company's financial health and adherence to accounting standards. The analysis includes a review of inventory management practices, depreciation methods, and the use of MYOB software for recording transactions. The student also incorporates feedback from peers and provides journal entries and financial statements generated within MYOB, demonstrating a practical understanding of accounting processes. The assignment covers topics like inventory valuation, depreciation methods, and the application of accounting principles in a real-world business context, providing a comprehensive overview of financial statement analysis and accounting practices.

Running head: ANALYSIS OF ACCOUNTING PRINCIPLES
Analysis of Accounting Principles
Name of the Student
Name of the University
Author note

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Step 7
By reading the book the most interested part that attracts me is that the analysis of the
financial statements. The analysis of the financial statements has raised several questions in
my mind some of the questions are
What is the importance of financial statements?
How the financial statements help in analysing the financial strength of the company?
What benefits the stakeholders will get from reading the annual report?
These are the main questions that come to my mind when I read the book. The authors
also give more emphasis on these factors and this will give answers to most of the questions
that are related with analysis of the financial statement of any company. Another aspect that
attracts me in this study is the analysis of the various strategies that a company adopts to
sustain in the market.
According to my opinion the author has properly explained the process of inventory
management. inventory being a major part for preparing the financial statement. The method
that a company should follow to record its items of inventory has been properly explained
though some questions are still there in my mind regarding the inventory management system
these are
When it will be better to use the LIFO system and not the FIFO system of inventory
management?
Does the weighted average method system is effective and give accurate results?

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Before starting this assignment I would like to give a brief details about my chosen
company which is advanced braking technology. I had completed the reading of the entire
annual report of the year 2018. The company is engaged in the manufacture of the ground
breaking Terra Dura braking system. This unique type of company and is performing very
efficiently since its inception. The company’s growth is increasing in every year and due to
its efficient operation it is showing potentiality to grow further in the future also (Altman et al
2017).
From the details analysis of the annual report of the company I have realised that the
company is following a affective method for recording the accounting transactions and that
brings transparency in the financial statements like the income statements, balance sheet and
cash flow statements.
I have analysed the process of preparing the financial statements and from the
analysis I have observed that the financial statements are prepared in accordance with the
corporation act 2001,Australian accounting standards and interpretation of the Australian
accounting standards board and the international financial reporting standards as issued by
the international accounting standard board. From this I realised the fact that the company by
following the compliances of all the accounting standards specified by different bodies that
govern the accounting standards has been able to maintain transparency and accuracy in the
financial statements. This action of the company has bring more trust among the stakeholders
and that in return help the company to grow rapidly (Robinson et al 2016)
In the first stage of the financial statements I have analysed the income statement
from which I have try to find out the financial strength of the company. The company’s gross

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profit has been decreased from $2806 in the year 2017 to $2714 in the year 2018. This
indicates that the company has not been able to operate properly and that leads to the
reduction of the profit .the company’s cost of sales has been increased and that is the reason
why the firm has failed to increase the profit in spite of increasing the volume of sales.
Further it has been observed that the indirect expenses has been increased from $4319 in the
year 2017 and in the year 2018 it is increased to $5266 this indicate that the management has
not been able to control the expenses and for that reason the company has to face loss
(Christensen et al 2016).
I further realised the fact that the company in the recent years has not been able to
utilise the resource properly and that is the reason that the company failed to generate profit
even though they have bring new technology in the products and that is attracting the
customers (Grant 2016).

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During the course of analysis of the annual report I further observed that except for
cash flow information the financial statements have been prepared on an accrual basis and are
based on historical costs modified where applicable by the measurement by fair value of the
selected non current assets , financial assets and financial liabilities (Lang 2015).

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From the analysis of the balance sheet I have observed that the cash and cash
equivalent of the company has decreased from $1733 in 2017 to $627 in the year 2018 which
is not a good indicator for the company. Though it is also observed that the company has
settled most of its liabilities and that is considered to be a good decision for the company. The
total current liabilities increased from $2001 in the year 2017 to $3224 in the year 2018. The
non-current liabilities like the long term loans are reduced from $1375 to $118 in the year
2018. This indicates that the company has settled most of their loans.
The company has been following all the transactions properly and according to the
guidelines of the accounting standards prescribed by the different accounting bodies. From

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the bank statements I have found that the company is paying most of the loans in the year
2018.the transactions that I have found in the bank statement of the company are narrated
below:
1) Paid office expenses
2) Purchased furniture
3) Paid loan
4) Purchased materials from suppliers
The trial balance summarises all the financial transactions of the company in
accordance with the nature. It is the main report that contains all the transactions and from
that the company prepares the income statement and the balance sheet. The trial balance of
the company is stated below:

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A trial balance is a kind of control used for the double entry recording process to
check that the debit items are matched with the credits. A trail balance is simply a listing of
the chart of accounts of an entity in terms of debit and credits.it also records the convenient
list of the company’s ledger balances that is used to develop company’s financial statement
(Loughran and McDonald 2016).
From the feedback form I received various opinions from various students. According
to some students the company even though incurring losses it will be able to turnaround and
will be able to generate profit in the future. As the company has innovated various technical
tools in the products it has been able to get the attraction of the consumers. One of the student
though stated that he is not very sure about the success of the company in the future as the
company in the last two years is consistently facing loss. According to the student the

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company will not be able to manage the expenses in future also and that is the only reason
why he thinks that the company will again suffer loss in the future.
I also analysed the inventory management system of the company from which I observed
that the company has followed two key methods to record the transactions of the inventories
these are:
1. Perpetual method – under this method they will record each transactions.
2. Periodic method – they will value the cost in specific periods of time.
From the analysis of the inventory recording system I have realised that most of the
companies used to record the inventories in the perpetual method. The companies use the
perpetual method because in this method it is very easy to calculate the cost of sales and the
value of stock the company is already holding. In this method there are a few difficulties to
measure the stock on daily basis.
During the analysis of the inventory method I found that they use various technology like
barcodes tags to count and identify the inventory very easily. The methods that they use are
Specific identification
FIFO (first in first out)
LIFO (last in first out)
Weighted average method
Below I have given the inventory statement of the company for the year 2017 and 2018

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The company has been able to maintain the inventory system very effectively for which the
company has been able to maintain a steady balance in the stock. In this company they are
valuing the inventories at lower of cost and net realisable. From the analysis I have found that
the cost of manufactured products includes direct materials, direct labour and an appropriate
portion of variable and fixed overheads. Such costs are assigned to inventory on hand by the
method most appropriate to each particular class of inventory, with the majority being
calculated on the weighted average basis. Net realisable value represents the estimated selling
price less all estimated costs of completion costs to be incurred as marketing selling and
distribution (Wild 2017).

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Step 8
In this part I have posted several accounting entries based on which the financial statements
of the XYZ &co are prepared. Some of these transactions are enumerated below
1) Started business with $20000
2) Sold goods of $12000
3) Purchased furniture worth $ 2000
4) Paid rent $500
5) Paid telephone expense of $1500
6) Depreciation expenses $300
7) Inventory worth of $4000
In this step I have journalised some basic transactions in the MYOB software. I have
tried to copy all the information to the excel sheet. But I didn’t find a proper way to do that.
Step 9
In this step I have attached all the financial statements that has been generated by
posting the transactions that are mentioned in step 8. The profit and loss statement and the
balance sheet of the company have been attached.

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