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BUS103 Accounting For Managers : Team Assignment

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Question:

Describe the principal activities of the company?
Define the revenue recognition criteria of the company and identify the page number and note number where this is stated in the annual report?
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?
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.
Provide any evidence of the company’s initiative or commitment to business sustainability practices. Why are businesses concerned about sustainability?
 
 

Answer:

Introduction:

Different stores of JB Hi-Fi offer various types of electronic products; like leading brands of computers, TVs, Tablets, Speakers, Cameras, HI FI, Car Sound System, Home Theatre Sound System, Portable Audio systems and others. In addition, the company also offers various ranges of DVDs, games, Blu Rays, TV shows and others at cheap prices (jbhifi.com.au 2018).

JB Hi-Fi measures their revenue based on fair value of the received or receive bale consideration. JB Hi-Fi recognizes their revenue in case they can be reliably measured and thers is probability that the future economic benefit will flow in favor of the company. It can be found in page 87, note no. 27 (a) of 2016 Annual Report (jbhifi.com.au 2018). 

JB Hi-Fi values their property, plant and equipment at cost by deducting accumulated depreciation and impairment. Cost includes the direct expenses of the acquisition of assets. In addition, the company charges deprecation on property, plant and equipment on straight line basis. It can be found in page 70, note no. 9 of 2016 Annual Report (jbhifi.com.au 2018).

Deloitte is responsible for performing the audit of the financial statement of JB Hi-Fi (jbhifi.com.au 2018). It is required for the auditors to be independent so that any relation between the auditor and the audit client will not influence the audit report. The external party must audit the financial statements in order to find material misstatements in the unbiased way (Schmidt 2012).   

The employees of JB Hi-Fi use to donate 9 charity partners with the company’s sustainability program named ‘Helping Hands’. IN addition, the company promotes environmental sustainability with the help of different sustainability initiatives. Businesses have become more concerned about sustainability due to the negative effect of their business of the environment and people of communities (jbhifi.com.au 2018).

Requirement A

Two major efficiency ratios are Working Capital Ratio and Inventory Turnover ratio. The formulas are shown below:

Working Capital Ratio =

Inventory Turnover Ratio =

Particular

2016 ($)

2015 ($)

Source

Page No.

Current Assets (A)

702,518,000

616,901,000

Balance Sheet of 2016 Annual Report

57

Current Liabilities (B)

446,883,000

380,336,000

Balance Sheet of 2016 Annual Report

57

Working Capital Ratio (A/B

1.57

1.62

 

 

 

Particular

2016 ($)

2015 ($)

2014 ($)

Source

Page No.

Cost of Goods Sold (A)

3,089,059,000

2,853,883,000

 

Statement of Profit and Loss of 2016 Annual Report

55

Inventory (B)

546,437,000

478,871,000

458,625,000

Balance Sheet of 2016 Annual Report

57

Average Inventory (C)

512,654,000

468,748,000

 

 

 

Inventory Turnover Ratio (A/C)

6.03

6.09

 

 

 

Requirement B

Working capital ratio more than one indicates that JH Hi-Fi has more amounts of cash, cash equivalent and marketable securities in order to pay their current business obligations and improvement in this ratio can be seen in 2016 as compared to 2015. Inventory turnover ratio more than six indicates that JH Hi-Fi has been able to sell their inventories more than 6 times in a year and improvement in this ratio can be seen in 2016 from 2015 (jbhifi.com.au 2018).

 

Requirement C

Two major profitability ratios are Gross Profit Ratio and Net profit Ratio. The formulas of these two ratios are given below:

Gross Profit Ratio =

Net profit Ratio =

Particular

2016 ($)

2015 ($)

Source

Page No.

Gross Profit (A)

865,408,000

798,253,000

Statement of Profit or Loss of 2016 Annual Report

55

Net Profit (B)

152,181,000

136,511,000

Statement of Profit or Loss of 2016 Annual Report

55

Net Sales (C)

3,954,647,000

3,652,136,000

Statement of Profit or Loss of 2016 Annual Report

55

Gross Profit ratio (A/C)

21.88%

21.86%

 

 

Net Profit Ratio (B/C)

3.85%

3.74%

 

 

Requirement D

The gross profit ratio of JH Hi-Fi indicates that the company has 21.88% and 21.86% of sales revenue to cover their operating expenses after paying for the inventory and slight decrease in this ratio can be seen. The net profit ratio implies that JH Hi-Fi has been able to convert only 3.85% and 3.74% of sales into profits, that is not a very good sigh and decrease can also be seen in this ratio in 2016 than 2015 (jbhifi.com.au 2018).

Requirement E

For ascertaining debt position, two major ratios are Debt ratio and Debt to Equity ratio. The formulas of these two ratios are shown below:

Debt ratio =

Debt to Equity Ratio =

Particular

2016 ($)

2015 ($)

Source

Page No.

Total Liabilities (A)

587,679,000

551,534,000

Balance Sheet of 2016 Annual Report

57

Total Assets (B)

992,381,000

895,013,000

Balance Sheet of 2016 Annual Report

57

Total Equity (C)

404,702,000

343,479,000

Balance Sheet of 2016 Annual Report

57

Debt Ratio (A/B)

0.59

0.62

 

 

Debt to Equity Ratio (A/C)

1.45

1.61

 

 

Requirement F

For JH Hi-Fi, debt ratio more than 0.50 states that the company has more amount of debts in compared to assets and it shows not impressive financial performance of the company. The increase in debt ratio indicates the deterioration in this ratio in 2016 as compared to 2015. The debt to equity ratio of JH Hi-Fi implies that the company relies upon debts for capital funding more than equity and an increase in this ratio can be seen in 2016 than 2015 (jbhifi.com.au 2018).

 

References

Jbhifi.com.au. (2018). About Us | JB Hi-Fi. [online] Available at: https://www.jbhifi.com.au/General/Corporate/Consumer-Matters/About-Us/ [Accessed 14 Jan. 2018].

Jbhifi.com.au. (2018). Annual Report 2016. [online] Available at: https://www.jbhifi.com.au/Documents/2016%20JB%20Hi-Fi%20Annual%20Report_ASX.pdf [Accessed 14 Jan. 2018].

Jbhifi.com.au. (2018). Corporate Social Responsibility | JB Hi-Fi. [online] Available at: https://www.jbhifi.com.au/General/Corporate/Consumer-Matters/Corporate-Social-Responsibility/ [Accessed 14 Jan. 2018].

Schmidt, J.J., 2012. Perceived auditor independence and audit litigation: The role of nonaudit services fees. The Accounting Review, 87(3), pp.1033-1065.

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