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BUS103 Accounting For Managers For Wholesale Distribution And Metcash

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Questions:

Question 1 
 
Describe the principal activities of the company?
 
Question 2 
 
Define the revenue recognition criteria of the company and identify the page number and note number where this is stated in the annual report?
 
Question 3 
 
Describe how the company values all classes of property, plant and equipment? Identify the page number and note number where this is stated in the annual report?
 
Question 4
 
Name the Audit firm responsible for performing the audit of the financial statements of the company. Explain why the auditor must declare their independence, and also explain why the financial statements must be audited by an external party.
 
Question 5
 
Provide any evidence of the company’s initiative or commitment to business sustainability practices. Why are businesses concerned about sustainability?

Part B

Question 1 
 
Using the company financial information, analyse and compare their 2017 and 2018 financial data by answering the following questions (you should analyse 2 ratios for each question):
 
A.) Calculate the efficiency of the company by identifying and calculating two efficiency ratios. You need to calculate the two ratios for 2017 and 2018.
B.) You must also explain what the efficiency ratio results tell us about the company performance occurring between the 2 periods (2 mark). Has the company’s efficiency improved or deteriorated? 
C.) Analyse the profitability of the company by identifying and calculating two profitability ratios. You need to calculate the two ratios for 2017 and 2018.
D.) You must also explain what the profitability ratio results tell us about the company performance occurring between the 2 periods. (2 marks) Has the company’s profitability improved or deteriorated? 
E.) Analyse the company debt position by identifying and calculating two ratios. You need to calculate the two ratios for 2017 and 2018 .
F.) You must also explain what the debt ratio results tell us about the company performance occurring between the 2 periods.Has the company’s debt position improved or deteriorated? 

Answer:

Answer to Question 1

Metcash is regarded as the leading wholesale distribution and marketing company of Australia. The principal business operations of the company can be seen in three segments of the retail industry; they are Food, Liquor and Hardware. Metcash provides merchandising, operational as well as marketing support to these three pillars of business (metcash.com 2019).

Answer to Question 2

Metcash recognizes their revenue to the degree when it is likely that the company will get the economic benefits and they can measure the revenue on reliable basis. In case of Sale of Goods, Metcash recognizes the revenue when the buyer receives the risk and rewards. For Rental Income, the recognition is done on straight-line basis over the term of lease. Revenue from Supplier Income is recognized based on purchase volume, promotional and marketing activities. This information can be obtained from Page no. 92, Note 17 of 2018 Annual Report of Metcash (mars-metcdn-com.global.ssl.fastly.net 2019).

Answer to Question 3

Metcash measures their all classes of property, plant and equipment at cost value after deducting accumulated depreciation and accumulated impairment losses. The company charges depreciation on these assets on straight-line basis except freehold land and assets. major depreciation period for freehold buildings are 25 to 50 years where the same for plant and equipment are 2 to 20 years. De-recognition of these assets is done at the time of disposal and when there is no possibility of economic benefits from these assets. This information can be obtained from Page no. 90, Note 9 of 2018 Annual Report of Metcash (mars-metcdn-com.global.ssl.fastly.net 2019).

Answer to Question 4

It can be seen from the 2018 Annual Report of Metcash that Ernst & Young (EY) was responsible for the audit of the financial statements of the company (mars-metcdn-com.global.ssl.fastly.net 2019).

The primary purpose of an audit is to provide the shareholders with an independent and expert opinion on the fact that whether the financial statements are true and fair. Hence, the declaration of auditor’s indolence ensures the fact that the expressed audit opinion is not influenced by any relationship between the auditor and the client (Tepalagul and Lin 2015).

The financial statements of the companies must be audited by external party as the external auditors are independent third party professionals and responsible for performing neutral review of the financial statements and records of the company (Tepalagul and Lin 2015).

Answer to Question 5

As per the 2018 Annual Report of Metcash, the company has taken certain major Corporate Social Responsibility (CSR) initiatives for their community like ensuring healthier food, healthier people and communities. The CSR initiatives of the company for people are diversity, healthy wellbeing, safety and human rights; the initiatives for environment are responsible sourcing, energy reduction and waste control (mars-metcdn-com.global.ssl.fastly.net 2019).

Sustainability activities ensure the long-term wealth of the companies. These sustainability activities assist the companies in maximization of business opportunities while minimizing the negative impact of their business operations on the environment, community and economies in places where they operate (Cheng, Ioannou and Serafeim 2014).

PART B 

Answer to Question 1 

Requirement B

As per the above, decrease in accounts receivable turnover ratio in 2018 indicates towards the decreased ability of Metcash to collect from the debtors in a year. At the same time, decrease in inventory turnover ratio shows that Metcash had not been able in clearing their inventories on quick basis as compared to 2017.

This whole aspect indicates towards the decreased efficiency of Metcash in the year 2018 as compared to 2017 (Figge and Hahn 2013). 

Requirement D

As per the above tables, increase in gross profit ratio in 2018 implies that increased efficiency of Metcash in using their material and labors for the generation of sales. However, net loss in the year 2018 indicates the inability of the company in managing the operating expenses as compared to sales. Increase in revenue is another main reason for this.

On the overall basis, it can be said that the profitability position of Metcash has deteriorated in the year 2018 as compared to 2017 (Healy et al. 2014). 

Requirement F

As per the debt ratio, the total burden of debt of Metcash increases in 2018 due to the increase in total liabilities and decrease in total assets. As per the debt to equity ratio, Metcash increases the portion of term debts for their capital requirement while decreases the portion of equity. It makes the company highly leveraged as well as risky due to the massive increase in interest expense.

On the overall basis, it indicates towards the deteriorated debt position of Metcash in 2018 as compared to 2017 (Garcia-Appendini and Montoriol-Garriga 2013).

References

Cheng, B., Ioannou, I. and Serafeim, G., 2014. Corporate social responsibility and access to finance. Strategic management journal, 35(1), pp.1-23.

Figge, F. and Hahn, T., 2013. Value drivers of corporate eco-efficiency: Management accounting information for the efficient use of environmental resources. Management Accounting Research, 24(4), pp.387-400.

Garcia-Appendini, E. and Montoriol-Garriga, J., 2013. Firms as liquidity providers: Evidence from the 2007–2008 financial crisis. Journal of financial economics, 109(1), pp.272-291.

Healy, P., Serafeim, G., Srinivasan, S. and Yu, G., 2014. Market competition, earnings management, and persistence in accounting profitability around the world. Review of Accounting Studies, 19(4), pp.1281-1308.

Metcash | Australia’s leading wholesale distribution and marketing company. 2019. About Us - Metcash | Australia’s leading wholesale distribution and marketing company. [online] Available at: https://www.metcash.com/about-us/ [Accessed 28 Jan. 2019].

Metcash. 2019. 2018 Annual Report. [online] Available at: https://mars-metcdn-com.global.ssl.fastly.net/content/uploads/sites/101/2018/07/24145704/Metcash-Annual-Report-2018.pdf [Accessed 28 Jan. 2019].

Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.

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