Question 1                    Total marks for Q1. (10 marks)

Financial statements of Nimbin Pty Ltd are presented below:

Nimbin P/L
Statement of Financial Position
As at 30 June 2015 and 2016
($000)

                            2016        2015

Current assets
Cash and cash equivalents                $1,645        $2,110
Accounts receivables (all trades)              4,100          3,675
Inventories                          7,000         6,930
                            ______    _____
    Total current assets                12,745        12,715
                            ______    ______
Non-current assets                    
Property, plant and equipment            17,190        15,330
                            _______    ______
    Total non-current assets            17,190        15,330
                            _______    _______
Total assets                        $29,935    $28,045
                            =======    ======
Current liabilities
Payables                        $5,780        $5,990
                            _______    ______
Total current liabilities                5,780        5,990
                            _______    ______
Non-current liabilities    
Interest-bearing liabilities                9,940        9,450
                            _______    _____
    Total non-current liabilities            9,940        9,450
                            _______    _______
Total liabilities                    $15,720    $15,440
                            ======    ======
Equity
Share capital                        $7,700        $7,700
Retained earnings                      6,515          4,905
                            _______    _______
Total equity                        $14,215    $12,605
                            ======    ======        


Nimbin P/L
Income Statement
As at 30 June 2016
($000)

Revenues (net sales)                    $55,000
Less: cost of sales                      35,100
                            _______
Gross profit                          19,900
                            _______
Less: Expenses
    Selling and distribution expenses           7,100
    Administrative expenses               4,970
    Finance costs                       1,560
                            ______
    Total expenses                     13,630
                            ______
Profit before income tax                  6,270
    Income tax expense                  1,908
                            ______
Profit                            $4,362
                            =====
Nimbin P/L
Statement of changes in Equity
For the year ended 30 June 2016
($000)

Share capital
Ordinary (7,200.000 shares)        
Balance at start of period                $7,200
                            ______
Balance at end of period                7,200
                            _______
                            
Preference (250,000 shares)    
Balance at start of period                500
                            ______
Balance at end of period                500
                            ______
Total share capital                    $7,700    
                            ======

Retained Earnings
Balance at start of period                $4,905
Total income for the period                  4,362
Dividends paid – ordinary                 (2,702)
Dividends paid – preference                      (50)
                            ______
Balance at end of period                $6,515
                            ======
Additional information:
Payables include $5,620 (2016) and $5,730 (2015) trade accounts payable; the remainder is accrued expenses. Market prices of issued shares at year-end (2016): Ordinary $12; Preference $6.70.

Required:

A.    Calculate the following ratios for 2016. The industry average for similar businesses is shown. (6 marks)

Industry average
1.    Rate of return on total assets                22%
2.    Rate of return on ordinary equity                20%
3.    Profit margin                        4%
4.    Earnings per share                        45c
5.    Price-earnings ratio                    12.0
6.    Dividend yield                        5%
7.    Dividend payout                        70%
8.    Current ratio                        2.5:1
9.    Quick ratio (acid ratio)                    1.3:1
10.    Receivables turnover                    13
11.    Inventory turnover                    6
12.    Debt ratio                            40%
13.    Times interest earned                    6
14.    Assets turnover                        1.8

B.    Given the above industry averages, comment on the company’s profitability, liquidity and use of financial gearing. (4 marks)


 
Question 2                    Total marks for Q5. (10 marks)


a)    A local restaurant is noted for its fine food, as evidenced by the large number of customers.  A customer was heard to remark that the secret of the restaurant’s success was its fine chef.  Would you regard the chef as an asset of the business?  If so, would you include the chef on the balance sheet of the business and at what value? Discuss. (2 MARKS)


b)    Accounting provides much information to help managers make economic decisions in their various workplaces. You are required to provide examples of economic decisions that the following people would need to make with the use of accounting information: (3 MARKS)
â–¡    A manager of human resources
â–¡    A factory manager
â–¡    The management team of an Australian Football League (AFL) club
â–¡    The manager of a second-hand clothing charity


c) Indicate the effect of each of the following transactions on any or all of the three financial statements of a business: (5 MARKS)

1. Statement of financial position
2. Statement of financial performance
3. Statement of cash flows

Apart from indicating the financial statements (s) involved, use appropriate phrases such as ‘increase total asset’, ‘decrease equity’, ‘increase income’, ‘decrease cash flow’ to describe the transaction concerned.

1.    Purchase equipment for cash.
2.    Provide services to a client, with payment to be received within 40 days.
3.    Pay a liability.
4.    Invest additional cash into the business by the owner.
5.    Collect an account receivable in cash.
6.    Pay wages to employees.
7.    Receive the electricity bill in the mail, to be paid within 30 days.
8.    Sell a piece of equipment for cash.
9.    Withdraw cash by the owner for private use.
10.    Borrow money on a long-term basis from a bank.

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