Accounting Assignment -

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Accounting Assignment Question

Small Business Analysis 1:

The following financial statements were prepared for the management of TEDA Ltd. The statements contain some information that will be disclosed in Additional Information at the end of the general purpose financial statements.

TEDA Ltd

Income statement for the year ended 30 June 2015

Sales revenue

Cost of sales

$462 500

307 500

Gross profit

Expenses (including tax and finance)

155 000

80 000

Net Profit after Interest and Tax

$ 75 000

TEDA Ltd Balance sheet as at 30 June 2015
Current assets Cash assets Receivables (all trade) Less: Allowance for doubtful debts	$149 625 9 450	$ 18 900 140 175
Inventories		126 000
Total current assets		285 075
Non-current assets Land Building Less: Accumulated depreciation	113 000 18 900	31 500 94 100
Store equipment Less: Accumulated depreciation	23 625 13 625	10 000
Total non-current assets		135 600
Total assets		420 675
Current liabilities Payables (all trade) Dividends — preference dividends Payable — ordinary dividends Other		135 450 1 890 12 600 6 300
Total current liabilities		156 240
Non-current liabilities 10% mortgage payable		31 500
Total liabilities		187 740
Equity Contributed capital: 6% preference shares Ordinary shares Retained earnings		25 000 126 000 81 935
Total equity		232 935
Liabilities and equity		$420 675

Additional information

1. The balances of certain accounts at the beginning of the year are:

Accounts receivable (gross)

Allowance for doubtful debts

Inventories

$157 500

(14 175)

110 250

2. Total assets and total equity at the beginning of the year were $387,500 and $190, 500 respectively.

3. Income tax expense for the year was $31,500. Net finance expenses were $3150.

Required:

Based on the information provided above, identify and calculate the principal ratios that a financial analyst might use that would give some indication of the following:

a. the entity’s earning ability

b. the extent to which internal sources have been used to finance asset acquisitions

c. the rapidity with which accounts receivable are collected

d. the ability of the entity to meet unexpected demands for working capital

e. the length of time taken by the entity to sell its inventories.

Small Business Analysis 2:

The following ratios have been calculated for TUST Pty Ltd, an entity specialising in imported exotic perfumes.

2012 2013

Current ratio	2.1:1	2.6:1
Acid test or quick ratio	1:8	2.2:1
Days inventory on hand	122	127
Days debtors outstanding	30	46
Net Profit margin	10%	12.2%

The ratios indicate an increase/decrease from the previous year.

Required:

Classify and discuss each of the ratios and explain what these ratios indicate about the entity’s liquidity, asset efficiency and profitability?

Students are encouraged to do some research and find out what an increase/decrease in the ratio indicates, what the business could be doing that has resulted in the change, and is this change favourable or not?

Where possible you should provide a brief recommendation and lastly do not forget to reference and support your reasoning

Accounting Assignment Solution

Financial ratios are the measurements of the specific position of the business that can be done periodically for every company. The ratios help to indicate the flaws and deficiencies in the financial results. As stated by Altman and Hotchkiss (2010), financial ratios are the tools to investigate the specific activity of the business. The analysis might direct the managers to improve in certain places or activities of the business by some accurate measures. Therefore, ratio analysis provides the target of the business. In this report, the ratio analysis of two airline companies – Qantas Airways Limited and Virgin Australia Holdings Limited are prepared and compared with each other. The report is basically constructed on two pillars – intra-relationship among the different ratios of the companies separately and comparison of the financial performance of the two airline companies……………………