Financial Analysis Report: Chalkboard Supplies - ACC506, S1 2019

This report presents a financial analysis of Chalkboard Supplies, a GST-registered office furniture business. It begins with an introduction to the company and its accounting policies, including the use of financial statements for decision-making. The report includes an income statement and a balance sheet, highlighting the company's financial performance and position. It then analyzes key areas such as cost reduction strategies, depreciation methods (straight-line and written-down value), inventory valuation methods (FIFO, LIFO, and weighted average), and internal control mechanisms. The analysis concludes that the company should maintain accurate financial statements to assist decision-making. References to relevant accounting literature are also included. This report is designed to help students understand financial analysis principles through a real-world case study.

Running Head: Financial Analysis 1
Financial Analysis

Running Head: Financial Analysis 2
Table of Contents
Introduction.................................................................................................................................................3
A..................................................................................................................................................................3
B).................................................................................................................................................................5
C).................................................................................................................................................................5
D)................................................................................................................................................................5
E).................................................................................................................................................................6
Conclusion...................................................................................................................................................6
References...................................................................................................................................................7

Running Head: Financial Analysis 3
Introduction
The financial statements are the statements that are prepared in accordance with the guidelines so
that the accurate reporting of the financial statements will help in making the decisions for the
future business operations. These financial statements are used by various users to have fulfilled
their own agendas and ideas. The financial statements are the ultimate guide towards any
organization (Guay, Samuels and Taylor, 2016).
A
The income statement is presented and it can be observed that the revenue is $24260, whereas
the expenses have been higher than the revenue earned by the Chalkboards. The company also
prepared the balance sheet and the cash in hand being $44806 and the liabilities are majorly due
to the loan and the accounts payable. Instead of purchasing on credit the company must pay the
down payment in cash to avoid the higher liability.
Income statement
(For the month ending 31st June 2018)
Particulars Amount Particulars Amount
By Revenue 24260.64
Cost of Goods Sold 38209.6 Service revenue 300
Discount on sales 1655.64
Bad Debts expense 15
Depreciation Expense 17656
Insurance Expense 4580
Inventory Loss 1200
Interest Expense 2520
Supplies Expense 180
Wages Expense 2731
Net Profit/loss -44186.6
68747.24 24560.64

Running Head: Financial Analysis 4
Balance sheet
As at 31st June 2018
Particulars Amount Amount
Cash at Bank 44806.4
Accounts Receivable 300
Provision for Doubtful Debts 15
Supplies 2460
Inventory 23419
Prepaid Insurance 920
GST Paid 2205
Vehicles 48510
Accum Dep - Vehicles 7930
Computers 44462
Accum Dep - Computers 9726
167082.4 17671
Total 149411.4
Liabilities
B Dusty, Capital 67000
B Dusty, Drawings 12200
Net Profit/loss 44186.6
Accounts Payable 92972
Loan Payable 42000
Interest Payable 2520
PAYG Tax Payable 152
Wages Payable 1154
56386.6 205798
Total 149411.4

Running Head: Financial Analysis 5
B)
After analyzing the operations of the business of the Chalkboard supplies it can be seen that the
company is having the loss of $44186. There are certain strategies that might be considered
while changing the scenario of the organization. The strategies could be reduction in the cost of
the goods sold, reduction in the prepaid expenses as well as the labor costs. The company can
avoid the losses by increasing the sales volume and the manufacturing inside rather than
outsourcing from the third party vendors. The company shall also adopt the policy of the Just in
time to avoid the cost of the underlying stocks for unnecessary purposes. This would save the
additional costs and moreover the company would be helpful by having the low interest costs
and third party liabilities (Robinson, Henry, Pirie and Broihahn, 2015).
C)
Depreciation is treated as an accounting method that is used to depreciate the assets over their
useful lives. Even for the purpose of the tax the depreciation is considered by most of the
organization. The depreciation method is bifurcated into two major categories namely the
straight line method and the written down value method also known as the diminishing method.
Under the straight line method the depreciation is calculated on the basis of the deduction of the
residual value and thereafter dividing by the useful life of the asset. The written down value
method on the other hand is the method where the depreciation is calculated on the cost every
time after tit has been reduced by the depreciated amount. The vehicle shall be depreciated at the
straight line method whereas the computer shall be depreciated at the written down value method
only as it’s the easiest way to deal with the assets of the different nature. The vehicles are
depreciated on the basis of the straight line method as it is assumed that the vehicle will be
outdated after the completion of its useful life (Del Giudice, Manganelli and De Paola, 2016).
D)
The inventory methods are used to value the stock and as it can be observed the inventory
at present is measured in the basis of the perpetual inventory. There are several other
methods that can be used by the company which have been determined below.
 FIFO
 LIFO

Running Head: Financial Analysis 6
 WEIGHTED AVERAGE
The LIFO method is the method where the last stock is taken out first in order to secure
the cost on the inventory that keeps on inflating. The FIFO method is the method in
which the inventory is valued on the concept of the first in first out. The benefit of using
the FIFO method is that it is keeps the costs of the inventory at the time of the preparation
of the balance sheet, close to the rates prevailing at those times. Under the weighted
average method, the weights are assigned on the basis of the total costs and then the value
is multiplied to arrive at the actual costs.
E)
There are several control mechanisms that can be adopted by the companies so that the
controls can make the organizations stronger and smoother. The types of the internal
control that can be used by the company are setting of the data access, the auditing or
keeping the bank reconciliation in order to figure the movement of the cash evenly. With
the help of the internal control like auditing the organization is able to cross check the
work done by the accountants and the other departments. The auditing will help in
vouching of the assets and the liabilities along with the incomes and the expenses. The
bank reconciliation will help in keeping the exact details of the cash and the unnecessary
spending can be curtailed easily (Accounting Solutions, 2018).
Conclusion
From the above analysis it can be concluded that the company shall maintain the financial
statements, so that the users of the financial statements can make the use of it to make the
necessary business decisions. Therefore the financial statements are the key measurements and
the reports for the company and they are required to be prepared with the proper accounting
policies.

Running Head: Financial Analysis 7
References
Accounting Solutions, (2018) Internal Controls [Online] Available from https://www.asp-
nw.com/blog/8-types-of-internal-control-accounting-systems [Accessed on 22nd May 2019]
Crawford, R.H., Bontinck, P.A., Stephan, A., Wiedmann, T. and Yu, M., 2018. Hybrid life cycle
inventory methods–a review. Journal of cleaner production, 172, pp.1273-1288.
Del Giudice, V., Manganelli, B. and De Paola, P., 2016, July. Depreciation methods for firm’s
assets. In International Conference on Computational Science and Its Applications(pp. 214-227).
Springer, Cham.
Guay, W., Samuels, D. and Taylor, D., 2016. Guiding through the fog: Financial statement
complexity and voluntary disclosure. Journal of Accounting and Economics, 62(2-3), pp.234-
269.
Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A., 2015. International financial
statement analysis. John Wiley & Sons.