Holmes Institute HC1010: Accounting for Business Assignment

This accounting assignment solution analyzes the financial statements of Big Bang Pty Ltd, calculating key financial ratios such as current ratio, quick ratio, accounts receivable turnover ratio, and inventory turnover ratio to assess the company's short-term solvency and overall financial performance. The analysis reveals trends over two financial years, highlighting improvements or declines in these ratios and their implications. The assignment further explores revenue recognition, determining the revenues of the organization and comparing the financial performance of two companies (ABC and XYZ). This includes assessing their eligibility for loans and determining which company would be quoted the highest price under different scenarios, considering the impact of liabilities on valuation.

Running head: ACCOUNTING FOR BUSINESS
Accounting for Business
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1ACCOUNTING FOR BUSINESS
Table of Contents
Part A:................................................................................................................................2

2ACCOUNTING FOR BUSINESS
Part A:
a) Analyzing the information and providing all the relevant financial ratios of the
organization:
Financial item 30 June Year 2019 Year 2018
Net credit sales 6,30,000 4,90,000
Cost of goods sold 2,90,000 2,50,000
Cash 18,000 12,000
Accounts
receivable
70,000 60,000
Inventory 1,30,000 1,50,000
Current liabilities 1,05,000 81,000
Current ratio:
The calculation conducted in the above statement directly indicates about the
current ratio of Big Bang Pty Ltd. the calculations of Charity in that the company's
overall current ratio condition has relatively fallen to new levels, which indicate a
problematic trend for the organization. The analysis has directly indicated that the
reduction in inventory conditions has relatively resulted in the fall of current ratio of the
company. However, the current levels are relatively above two, which is a universal
indication that the company's current ratio holds adequate levels to support its short-
term obligations. Nevertheless, any further decline in the financial ratios might
negatively affect the capability of the organization to support its short-term obligations
without hindering the fixed assets (Rodrigues and Rodrigues 2018).
Quick ratio:

3ACCOUNTING FOR BUSINESS
The calculations conducted in the above statement directly indicate about the
quick ratio of Big Bang Pty Ltd, which has been improved during the past two financial
years. This improvement in the quick ratio conditions has relatively been conducted due
to the increment in cash in account receivable value of the organization. The company
has been inquiring adequate levels of cash and accounts receivable and their books
effectively increase the impact of quick ratio in their financial statement. However, the
quick ratio conditions of the company are relatively not adequate to support the
universal value of one, which is needed by organization to effectively support the short-
term obligation. This quick ratio value directly indicates that the organization has to sell
its fixed assets to support the short-term obligations, which might negatively affect their
operational conditions.
Accounts receivables turnover ratio:
The account receivable turnover ratio in these has a relatively improved over the
period of two financial years, which indicates about the positive financial attribute of the
organization. This increment was mainly possible due to the rise in sales volume of the
organization, which indicates that the organization is able to collect the payment earlier
than previously possible. The value only supports the cash conditions of the
organization, which improves its financial stability (Afonso, Baxa and Slavík 2018).
Inventory turnover ratio:
The number of days in inventory turnover ratio has also declined during the two
financial years, which states that the inventory blockage that was conducted within the

4ACCOUNTING FOR BUSINESS
organization has been substantially reduced. This was only possible due to the decline
in inventory level and increment in cost of goods sold by the organization. The company
was adequately able to manage inventory conditions and reduce the composition to
increase its profitability and reduce cash blockage.
b) Analyzing the overall short-term solvency condition of the business:
The calculation has directly indicated that the short term solvency positon of Big
Bang Pty Ltd has declined over the financial years, as the current ratio has fallen and
quick ratio are below the standard levels.
Part B:
a) Indicating about the financial items and stating whether definition of income
for the organization can be met:
The data presented in the above table directly state about the overall cash flow
that is conducted by the organization during the financial year. From the relevant
analysis, it could be identified that the organization incurs total revenue of 28,000,000,
which comprises of two major revenue streams, such as update download and sale of
software. Company also increases after which is generated from investing Returns, and
discount received during the financial year (Muritala 2018).
b) Determining the revenues of the organization:

5ACCOUNTING FOR BUSINESS
The above calculations directly provide the actual revenues of the organization
considered under IFRS 15, as it needs to be stated in the income statement of the
organization. However, the organization has also other revenues that need to be
disclosed under the comprehensive income as revenues has been generated from other
sources including the direct source.
Part C: Comparing the financial performance of both the companies
a) Identifying the company who can is most eligible:
The analysis of the financial ratios has directly indicated about the eligibility
criteria of both ABC and XYZ Company. The current ratio of ABC company is a
relatively at the levels of 0.33, while the values of XYZ company is at 5.42. This mainly
indicates that XYZ Company is liable for the loan as it has a higher current ratio value
than ABC Company. The main reason behind the selection of XYZ Company is its
capability to repair the short-term loans by selling of its current assets, which cannot be
conducted by ABC Company due to its incapability to sustain high current assets in in
their financial report (Das and Das 2019). Thus, XYZ Company will be issued the short-
term loan.
b) Determining which company will be quoted the highest price:
The financial analysis of both companies have mainly indicated that XYZ
company will be quote the highest prices, as the benefits that would be enjoyed by the
acquiring company is relevant higher in comparison to ABC company. The total assets
of the ABC Company are relevantly higher than XYZ, while the rising liabilities condition
has mainly deteriorated the net asset value of the company. Hence, XYZ Company is
identified to be more attractive, as it comprises of higher net asset value, which is the
main reason why the higher quote will be conducted for that company.

6ACCOUNTING FOR BUSINESS
c) Determining which company will be quoted the highest price if liabilities are
not included:
The quote of each of the company relevantly changes with the alternation in
certain information, which indicates that liabilities would be paid by the source company
and would not be shoved to the acquiring organization. The alternation in the acquisition
information directly alters the valuation quoted for each company, where ABC
organization will now look more attractive, as its holds the highest level of assets in their
books in comparison of XYZ Company (Monahan 2018).

7ACCOUNTING FOR BUSINESS
References and Bibliography:
Afonso, A., Baxa, J. and Slavík, M., 2018. Fiscal developments and financial stress: a
threshold VAR analysis. Empirical Economics, 54(2), pp.395-423.
Campbell, J.L., D'Adduzio, J., Downes, J. and Utke, S., 2019. Do Investors Adjust
Financial Statement Ratios when Financial Statements Fail to Reflect Economic
Substance? Evidence from Cash Flow Hedges. Evidence from Cash Flow Hedges (April
2019).
Das, R.C. and Das, U., 2019. Analysis of fluctuations in Credit-Deposit Ratio of Indian
States: From Pre-Globalization to Post-Financial Crisis Phase. In Handbook of
Research on Managerial Thinking in Global Business Economics (pp. 229-245). IGI
Global.
Le, H.H. and Viviani, J.L., 2018. Predicting bank failure: An improvement by
implementing a machine-learning approach to classical financial ratios. Research in
International Business and Finance, 44, pp.16-25.
Monahan, S.J., 2018. Financial Statement Analysis and Earnings
Forecasting. Foundations and Trends® in Accounting, 12(2), pp.105-215.
Muritala, T.A., 2018. An empirical analysis of capital structure on firms’ performance in
Nigeria. IJAME.
Rodrigues, L. and Rodrigues, L., 2018. Economic-financial performance of the Brazilian
sugarcane energy industry: An empirical evaluation using financial ratio, cluster and
discriminant analysis. Biomass and bioenergy, 108, pp.289-296.
Sari, A.K., Saputra, H. and Siahaan, A.P.U.P.U., 2018. Financial Distress Analysis on
Indonesia Stock Exchange Companies. Int. J. Innov. Res. Multidiscip. F, 4(3), pp.73-74.