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# 311 537 Introduction To Accounting

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• Course Code: 311.537
• University: Manukau Institute Of Technology
• Country: New Zealand

## Question:

### Fox Sounds Limited

Fox Sounds Limited is a small Manukau based company set up by a married couple, Nicky and Jamie Fox on 1 April 2012.  They started the business with an initial capital investment of \$29,000 each, consisting of 29,000 \$1 shares.  They sell car audio equipment and accessories.  They have one retail store in Manukau.  Their retail sales are both on credit and for cash.

Recently there has been an improvement in the local economy and this has flowed onto the business of Fox Sounds Limited.  Turnover has increased as many of the customers now have a greater level of discretionary income to spend.  Over the past three years not all customers have been prompt in paying their accounts and this has resulted in Fox Sounds Limited now having difficulty paying their own accounts on time.  Credit customers are expected to pay by the 20th of the month following sale.

Nicky and Jamie currently have two employees who work in the shop (one on a full-time basis and the other on a part-time basis).  Both Nicky and Jamie also work in the shop.  Nicky and Jamie are paid a salary for this work and for the administration work involved with the company.  They also receive a dividend payment from profits at the end of the year.

As an accountant at MiTax Accountants (NZ) Limited you have been hired by Nicky and Jamie to analyse Fox Sounds Limited's last three (3) years’ financial statements which are on the following pages.  They would like you to calculate the profitability, asset utilisation and financial stability statistics for the firm.  Please use the formulae which are on page 3 and 4 of this document.

As part of your analysis of the company you need to identify an area of success for the business and an area that is causing a problem for the business and suggest a suitable solution to solve the problem area.

#### Part A: Calculations Of Ratios And Percentages

Complete the Schedule of Statistics in the answer booklet.  Use the Financial Statements supplied to prepare and type up the Schedule of Statistics for Fox Sounds Limited for each of the years 2014, 2015 and 2016.

• Typethe answers to the ratios and percentages calculations only into the Schedule of Statistics.
• Show all percentages, ratios etc rounded to 2 decimal places only.
• Make sure you labelyour results carefully, e.g. % , : , days or times.
• Show your  These may be handwritten or typedand should be attached at the end of your answer booklet.

### Part B: Findings And Conclusions

The answers to Part B should be typed in the appropriate place in the answer booklet.

(i) Profitability

For each of the three (3) Profitability calculations of Fox Sounds Limited stated in your answer booklet, you are required to:

• Explainwhat the calculation is designed to show.
• Using the figures calculated, explainwhether the trend for the business is satisfactory or not for this  Give brief reason(s) to support your answer.
• Suggestpossible reasons why the ratio has changed from year to year.

(ii) Asset Utilisation

Using both of the Asset Utilisation calculations, complete the following for Fox Sounds Limited:

• Explainwhat the calculation is designed to show.
• Using the figures calculated, explainwhether the trend for the business is satisfactory or not for this  Give brief reason(s) to support your answer.
• Suggestpossible reasons why the ratio has changed from year to year.

(iii) Financial Stability

For each of the three (3) financial stability calculations of Fox Sounds Limited stated in your answer booklet, you are required to:

• Explainwhat the calculation is designed to show.
• Using the figures calculated, explainwhether the trend for the business is satisfactory or not for this  Give brief reason(s) to support your answer.
• Suggestpossible reasons why the ratio has changed from year to year.

### Part C: Problems And Recommendations

The answers to Part C should be typed into the appropriate place in the answer booklet.

• onearea where the business is successful and doing well and why you consider this is a success area for the business.
• one problemarea for the business - provide recommendations to Nicky and Jamie on how to improve this area that you have identified.

PART D NEW ZEALAND SHAREMARKET

NOTE:  Part D of the assignment is not related to the other part of the assignment and should be treated as a separate question to answer.

Nicky and Jamie are considering investing in a number of New Zealand NZX listed companies.  As part of this assignment, they have asked you to provide some key information on two companies and briefly discuss the meaning of this information so that they might weigh up their investment options.

You are required to:

1 Insert the following NZX Statistics Schedule in the answer book by either:

• visiting https://www.nzx.com/markets/NZSX/securitiesand using the code provided to direct you to the individual company's website;

or

• reading the daily newspaper, for example, New Zealand Herald.

Briefly explain the meaning of Gross Dividend Yield as it relates to Auckland International Airport Limited AND state whether as an investor you would be satisfied with the yield.  Give reasons to support your answer.

### Cite This Work

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