Advanced Financial Accounting: CBU, Qantas, and Cash Flow Analysis

This comprehensive financial accounting report delves into several key areas of business finance. It begins by defining Cash Generating Units (CBU) as per AASB 136, discussing their significance in asset impairment, and analyzing Wentnor Dairy Ltd. The report then examines Qantas Ltd, calculating and interpreting significant financial ratios for 2017 to assess the company's performance in areas such as profitability, solvency, and efficiency. The analysis includes an examination of foreign currency transactions and their accounting treatment. Finally, the report demonstrates the preparation of a cash flow statement using both the direct and indirect methods, providing a complete overview of financial statement analysis and accounting principles. The report also includes appendices with ratio calculations and figures illustrating the cash flow statements.

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced Financial Accounting
Name of the Student:
Name of the University:
Author’s Note

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ADVANCED FINANCIAL ACCOUNTING
Executive Summary
The assignment consists of four parts which are related to different areas of different business.
The first question, Cash Generating Units (CBU) is to defined as per AASB 136 which is on
impairment of assets and discuss why a business recognizes CBU for the purpose of
impairments. The first part will be based on analysis of company Wentnor Dairy ltd for which
discussions are to be made. The second question requires calculations of significant ratios of
Qantas ltd for the year 2017 and analyzing the same to determine performance of the business.
The third question also relates to Qantas ltd where facts and treatments of foreign transaction
will be discussed. The last question will be showing a cash flow statement prepared on the basis
of both indirect and direct method.

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Table of Contents
Answer to Question 1......................................................................................................................3
Requirement A.............................................................................................................................3
Requirement B.............................................................................................................................3
Requirement C.............................................................................................................................4
Answer to Question 2......................................................................................................................4
Requirement A.............................................................................................................................4
Requirement B.............................................................................................................................4
Requirement C.............................................................................................................................5
Answer to Question 3......................................................................................................................6
Answer to Question 4......................................................................................................................7
Reference.......................................................................................................................................11
Appendix........................................................................................................................................12

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Answer to Question 1
Requirement A
As per the provisions which is set out in para 6 of AASB 136 “Impairment of Assets”
states that a cash generating unit is the smallest group of assets which can be identified which are
capable of generating cash inflows and are independent from the assets which belongs to other
groups. For the purpose of charging impairment, assets are identified in CBUs (Bond, Govendir
and Wells 2016).
Requirement B
As per the provision which is stated in AASB 136, the test of impairment on the assets of
the company requires appropriate comparison of recoverable amount which is to be higher of the
asset value or fair value of the asset less cost of disposal of the asset. As per the standard, value
in use measurement requires the estimate of the future cash flows that the business estimates that
they will be receiving from the use of the asset (Guthrie and Pang 2013). The expectation about
the timing of the cash flow of the business. The price for bearing the uncertainty of the assets.
There are certain assets needs to be taken in group to effectively calculate the cash which
is generated from the use of the asset. The machines which are used by Wentnor Dairy ltd does
not generate cash flow on their own but are to be taken as a group to identify the cash which is
generated from such an asset. The main source of cash inflow for the business is through
producing milk and milk related products. The machine such as purifying machines and
extracting machine are taken togethers as a group of assets when impairment is charged as per
respective provisions.

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Requirement C
There are various factors which are used for identifying the cash generating units of a
business which involves identifying the lowest value of assets which can be which can act
independently for generating cash flow for the business. The chief financial officer needs to
identify the cash generating units of the business which will as per the requirement of AASB
136.
The CFO of the business needs to identify cash generating units of the business from year
to year basis consistently unless there are some changes has occurred to the asset of the
company. The recognition of cash generating units requires accurate judgements on the part of
the management and also following the AASB 136 which is on Impairment of assets of the
business.
Answer to Question 2
Requirement A
As per this question, significant ratios which deals with different areas of business such
as profitability, solvency, efficiency and other areas of business. The computation of significant
ratios is shown in the Appendix.
Requirement B
The current ratio and the acid test ratio as shown in the appendix shows that the business
is having unfavorable estimates when it comes to liquidity ratio. The current ratio and quick ratio
is shown as 0.793 and 0.330 respectively for the year 2017. The ratio reveals that the business is
facing liquidity problems. The gross profit ratio of the business shows that the same has

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improved from the previous year which is shown to be 28.71% as per calculation which is shown
for 2017. The receivable turnover ratio of the company has also improved from the previous year
and the same is shown as 74.49 for the year 2017 and the same is shown to be 70.00 for the year
2016. The receivable turnover ratio signifies that the receivable period is strong. The return on
assets and return on equity have significantly improved from the previous year (Moghimi and
Anvari 2014). The return on equity of the business shows that the same has tremendously
improved from previous year’s estimate which suggest that the business is growing and meeting
the expectation of the shareholders of the company. The dividend payout ratio for 2017 is shown
as 70.35% which has tremendously improved from the previous year’s analysis. It can be
effectively concluded that the potential investors should invest in the shares of the company as
the company has a favorable gross margin and has appropriate return on equity which suggests
that the company is meeting the expectations of the shareholders effectively. However, the
company needs to improve the liquidity of the business which can pose a concern in the long run
operations of the business.
Requirement C
The current ratio and quick ratio of the business shows that the ratio for the year 2017 is
0.793 and 0.330 respectively. The ratio which is computed does not matches with the ideal ratio
for current ratio and quick ratio which is 2:1 and 1.5:1. The ratio which is computed for
Woolsworth ltd shows that the business is facing liquidity problems which the business needs to
solve as quickly as possible. The ideal standard for current and quick ratio are given above which
every company needs to consider and try to maintain when measuring the financial performance
of the business. The current ratio and quick ratio represent liquidity situation in the business and
therefore the company needs to improve the same.

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Answer to Question 3
As per the paragraph which is given deals with the transactions which are related to
foreign trade and involves translation of foreign currency into domestic currency. The technique
which is used mostly for translation of currency is current rate method. The paragraph which
forms a part of the notes to accounts section suggest that the company has engaged in foreign
transaction during the year (Boesch et al. 2013).
The basic reasons due to which the foreign exchange translation difference arises due to
fluctuation in the rate of foreign currency. The difference in foreign currency is recognized in the
comprehensive income statement and any gains is transferred to the Foreign currency translation
reserve account.

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Answer to Question 4
Particulars Amount
Cash Flow from Operational Activities:
Cash Receipts from Debtors $2,45,341
Cash Payment to Suppliers -$1,23,156
Salaries & Wages Expenses -$1,29,852
Income Tax Paid -$4,532
Net Cash Flow from Operational Activities -$12,199
Cash Flow from Investing Activities:
Purchase of Plant -$24,180
Proceeds from Sale of Furniture $2,470
Net Cash Flow from Investing Activities -$21,710
Cash Flow from Financing Activities:
Issue of Shares $26,000
Dividend Paid -$10,400
Net Cash Flow from Financing Activities $15,600
Net Increase/(Decrease) in Cash Flow -$18,309
Add: Opening Balance of Cash & Cash Equivalent -$3,549
Closing Balance of Cash & Cash Equivalents -$21,858
In the books of Flash in the Pan Ltd.
Statement of Cash Flows
for the period ended 30th June 2019
Figure 1: (Chart showing direct method of cash flow statement)
Source: (Created by Author)

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Workings:
Particulars Amount
Accounts Receivable in 2018 $16,996
Add: Sales in 2019 $2,60,000
$2,76,996
Less: Account Receivable in 2019 $28,535
$2,48,461
Less: Bad Debts Written off $3,120
Cash Receipts from debtors $2,45,341
Inventory in 2019 $78,751
Add: Cost of Sales in 2019 $91,000
$1,69,751
Less: Inventory in 2018 $47,471
Purchase of Inventory $1,22,280
Accounts Payable in 2018 $16,258
Add: Purchase of Inventory in 2019 $1,22,280
$1,38,538
Less: Accounts Payable in 2019 $15,382
Purchase of Inventory $1,23,156
Allowance for Doubtful Debts in 2018 $1,300
Add: Doubtful Debt Expenses in 2019 $4,420
$5,720
Less: Allowance for Doubtful Debts in 2019 $2,600
Deduction from Accounts Receivable $3,120
Plant & Machinery in 2019 $1,01,920
Less: Plant & Machinery in 2018 $64,740
Purchase of Plant & Machinery $37,180
Less: Plant Purchased in exchange of shares $13,000
Plant Purchase for Cash $24,180
Current Tax Liability in 2018 $7,800
Add:Income Tax Expenses in 2019 $7,132
$14,932
Less: Current Tax Liability in 2019 $10,400
Income Tax Paid $4,532
Share Capital in 2019 $1,17,000
Less: Shares transferred for Plant $13,000
$1,04,000
Less: Share Capital in 2018 $78,000
Shares Issued for cash $26,000
Cost of Furniture sold $2,860
Less: Accum. Depreciation $520
Net Cost of Furniture Sold $2,340
Add: Gain on Sale of Machinery $130
Proceeds from Sale of Furniture $2,470
Cash Balance in 2018 $65
Bank overdraft in 2018 $3,614
Cash & Cash Equivalent in 2018 -$3,549
Cash Balance in 2019 $65
Bank overdraft in 2019 $21,923
Cash & Cash Equivalent in 2019 -$21,858

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Figure 2: (Chart showing Working notes)
Source: (Created by Author)
Particulars Amount
Cash Flow from Operational Activities:
Net Profit for the period $16,611
Depreciation Expenses $7,995
Doubtful Debt Expenses $4,420
Gain on Sale of Furniture -$130
Increase in Accounts Receivable -$11,539
Increase in Inventory -$31,280
Decrease in Accounts Payable -$876
Increase in Current Tax Liability $2,600
Net Cash Flow from Operational Activity -$12,199
Cash Flow from Investing Activities:
Purchase of Plant -$24,180
Proceeds from Sale of Furniture $2,470
Net Cash Flow from Investing Activities -$21,710
Cash Flow from Financing Activities:
Issue of Shares $26,000
Dividend Paid -$10,400
Net Cash Flow from Financing Activities $15,600
Net Increase/(Decrease) in Cash Flow -$18,309
Add: Opening Balance of Cash & Cash Equivalent -$3,549
Closing Balance of Cash & Cash Equivalents -$21,858
In the books of Flash in the Pan Ltd.
Statement of Cash Flows (Indirect Method)
for the period ended 30th June 2019
Figure 3: (Chart showing indirect method of cash flow statement)

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Source: (Created by Author)

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Reference
Boesch, B.P., Crocker, S.D., Eastlake III, D.E., Hart Jr, A.S., Jackson, A., Lindenberg, R.A. and
Paredes, D.M., PayPal International Ltd and PayPal Inc, 2013. System and method for multi-
currency transactions. U.S. Patent Application 12/855,603.
Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by Australian
firms and whether they were impacted by AASB 136. Accounting & Finance, 56(1), pp.259-288.
Guthrie, J. and Pang, T.T., 2013. Disclosure of Goodwill Impairment under AASB 136 from
2005–2010. Australian Accounting Review, 23(3), pp.216-231.
Moghimi, R. and Anvari, A., 2014. An integrated fuzzy MCDM approach and analysis to
evaluate the financial performance of Iranian cement companies. The International Journal of
Advanced Manufacturing Technology, 71(1-4), pp.685-698.

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Appendix
Particulars 2017 2016
($m) ($m)
Current Assets 6994.2 7427
Current Liabilities 8824.2 8992.7
Inventories 4080.4 4558.5
Current Ratio 0.793 0.826
Acid Test Ratio 0.330 0.319
Particulars 2017 2016
($m) ($m)
Inventories 4080.4 7427
Cost of Sales 8824.2 8992.7
Inventory Turnover 2.163 1.211
Days in Inventory 168.780 301.451
Particulars 2017 2016
($m) ($m)
Net Sales 55475 53473.9
Gross Profit 15928.9 12125.1
Accounts Receivables 744.7 763.9
Gross Profit Percentage 28.71% 22.67%
Accounts Receivable Turnover 74.49 70.00
Days Sales in Receivables 4.90 5.21
Particulars 2017 2016
($m) ($m)
Total Assets 22915.8 23502.2
Total Liabilities 13039.7 14720.3
Total Equity 9876.1 8781.9
Debt Ratio 0.569 0.626
Debt-to-Equity Ratio 1.32 1.68

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Particulars 2017 2016
($m) ($m)
Net Sales 55475 53473.9
Net Profit 1593.4 -2347.9
Total Assets 22915.8 23502.2
Return on Net Sales 2.87% -4.39%
Return on Total Assets 6.95% -9.99%
Particulars 2017 2016
($m) ($m)
Net Sales 22915.8 23502.2
Net Profit 1593.4 -2347.9
Total Assets 55475 53473.9
Total Equity 9876.1 8781.9
Asset Turnover Ratio 0.413 0.440
Return on Equity 16.13% -26.74%
Particulars 2017 2016
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%