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Student Name:
Raj Dhawan
Student ID No.:
22914222
Unit Name:
Accounting for managers
Unit Code:
ACC00724
Tutor’s name:
Shagun khemka
Assignment No.:
1
Assignment Title:
ACC00724 (Accounting for Managers) S3, 2017
Due date:
11 December 2017
Date submitted:
Declaration:I have read and understand the Rules Relating to Awards (Rule 3 Section 18 – Academic Misconduct Including Plagiarism) as contained in the SCU Policy Library. I understand the penalties that apply for plagiarism and agree to be bound by these rules. The work I am submitting electronically is entirely my own work.
Signed:
(please type your name)
Raj Dhawan
Date:
December 11, 2017
Question 1- A
Question1)
B
As we found out in part A of the question regarding profitability which in includes three ratios as follows:
Ratios
For the given company
Industry average
Rate of return on total assets
15.00%
22%
Rate of return on equity
31%
20%
Profit margin
8%
4%
Profitability
Rate of return on assets is comparatively less than the industry average. It means lesser assets efficiency. This means this company’s financial and operational performance is not as good as industry averages. 15% of ROA means it produces 15$ of profit for every 100$ invested in assets.
Rate of return on equity is comparatively more than the industry average. It measures a company’s profitability by revealing how much a company is is generating with the money invested by shareholders. It means the company generates a profit of 31$ on every 100$ invested in equity (shareholders money).
Profit margin is twice the Industry average. High profit margin indicates company’s profitability is secure. There sales are generating more profits than the industry average and less expenses.
Liquidity
As we have found in Part A there are two liquidity ratios that can be analysed:
It means how easy it is to convert assets in to cash.
Ratios
For the company(2014)
Industry average
Current ratio
2.2:1
2.5:1
Quick ratio
1:1
1.3:1
Current ratio
As clearly visible that current ratio is comparatively less than the industry average. It means comparative to average it has more probability of running in to financial difficulty. It tells that, it would take more time to collect all accounts receivable and its inventory would take time to get liquidated.
Quick ratio
It is also slightly less than than the industry average. A comparative low quick ratio indicates less liquidity and may be company is having hard time in collecting the accounts receivables or perhaps paying its bill too quickly.
Over all we can say that company is less liquid than industry average.
Financial gearing
In above solved question we found two gearing ratios. Let’s discuss them:
Ratios
Company(2014)
Industry average
Debt Ratio
42%
40%
Times Interest earned
4
6
Debt ratio is the ratio that measures the extent of company’s leverage. It is slightly more than it’s Industry average which indicates more debt on the company comparative to averages. It is having more long term liabilities than average.
Operating times earned is defined as the operating profit divided by interest expense. It is less than then the industry average which it is either having more interest expense or less operating profit. It also means the company is generating less cash from its operations t meet its financial obligations.
Question2(a)
Ans2:
A Chef can only be regarded as an asset only, if he fulfils certain conditions, which are as followed:-
For any thing or person to be considered an asset, three conditions should be satisfied :
• Future economic benefit- As, for any restaurant good food is necessary and chef is able to provide that and becoming popular because of his good work. Yes, the chef will definitely provide the future economic benefit.
• Control- no, the chef is not fully controlled as he can leave the business anytime. Moreover, he cannot be sold at owners will. This makes clear that he is not fully controllable.
• Past events- Past events tells that it is not possible to completely predict chef’s time in restaurant as he is not fully controllable.
Along with these three it should be well recognised which consists of two factors-
• Probability- As, it is not safe to predict whether the chef will stay or not so, definitely it is not highly probable.
• Measurability- With so many uncertainties, it is not possible to measure it’s effect completely.
So, it cannot be considered as an asset.
Question 2(b)
1
!)Statement of Financial position- Assets(equipment) increases and asset(cash) decreases{statement of financial position}
2)Income statement- No effect on income statement.
3)Cash flow statement-Cash outflow shown
2
1)Statement of Financial position-assets(accounts receivable) increases so the equity increases
2)Income statement-accrual income added to income statement, so the profit increases
3)Cash flow statement-no effect on it.
3
1)Statement of financial position-assets (cash) decreases and liability (cash) decreases
2)income statement- no change.
3)cash flow statement -outflow,decreases in cash flow
4
1)Statement of financial position-Assets (cash) increases and equity increases
2)Income statement-no change
3)cash flow statement-increase in cashflow
5
1)statement of financial position-Assets (cash) increases and assets account( receivable) decreases
2)Income statement-no change
3)Cash flow statement-Cash flow increases
6
1)statement of financial position-liability decreases and equity increases
2)Income statement-expenses decreases
3)Cashflow statement-cash outflow so, cash outflow decreases
7
1)statement of financial position-liability increases
2)Income statement-expenses (accrued)increases
3)cashflow statement-no change
8
1)Statement of financial position-asset (equipment) decreases and assets (cash) decreases
2)Income statement- no change
3)Cashflow statement-Cash flow increased
9
statement of financial position-Assets(cash)decreases and equity decreases
Income statement-no change
Cash flow statement-cash flow decreases
10)
Statement of financial positions-liabilities increases and assets (cash) increases
Income statement-no change
Cash flow statement-cash flow increases
DZUIN