20200513031548assignment (1).pdf 20200513031553assignment_faqs_sem_1_2020 (1).pdf 20200513031556key_notes.docx 20200513031600rubric_assignment_7101_s1_2020.pdf 20200513034521egg_2019.pdf 20200513034528enero_annual_report_fy17.pdf 20200513034531ener

ACCT 7101 Accounting – Individual Assignment FAQ’s.

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FREQUENTLY ASKED QUESTIONS (FAQs)

1. If the end of the financial year of one company is 31 December and the comparative

company is 30 June, can they be compared?

Yes, because you are comparing a one year period for both companies and the same financial year even though the end of each financial year is different.

2. I am about to do ratio calculations such as Inventory turnover, Receivable turnover, Return on Assets, etc. Their denominators are all average numbers, so do I need to download the 2016 annual reports in addition to 2017, 2018 and 2019 annual reports? Since I need the average of years 2016 and 2017 to calculate these ratios. If you are required to calculate a ratio such as inventory turnover in 2017, you can rely on the financial report of 2017 as it contains both results of 2017 and 2016.

3. When I was calculating the current ratio and the quick ratio, I found out that there are two different Total Current Liability dollar figures for the year 2017. The Total Current Liability shown on the 2017 annual report is different to the Total Current Liability shown on the 2018 annual report. Could you explain this for me? I have also found this to be the case for some other figures in the financial statements. The difference could be because of some restatements for one year to correct errors discovered after the annual report is published. Please use the restated amount shown in the annual report of the following year (latest).

4. Should I use net profit for the year or net profit from continuing operations?

You should use net profit after tax before any other comprehensive income. In your analysis, if relevant, you can mention the effect of profits from discontinued operations.

5. If the company does not have COGS (or cost of sales) in the income statement, how can I calculate the gross profit margin?

Service companies do not have COGS, so you cannot calculate gross profit margin.

In the income statement, expenses can be classified by nature or function. When expenses are classified by nature, manufacturers disclose “Raw materials and consumables used” plus “changes in inventory of finished goods and work in process”. In that case COGS is equal to the sum of the two amounts. When expenses are classified by nature, retailers disclose “finished goods purchased for resale” plus “changes in inventory of goods for resale”, again COGS is the sum of the two amounts

If expenses are classified by function then COGS (or cost of sales) is required to be shown separately.

ACCT 7101 Accounting – Individual Assignment FAQ’s.

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If COGS is not explicitly identified in the income statement as indicated above it is important that you add a note pointing out what figure you used to calculate the ratio.

6. Which revenue should be considered to calculate gross margin percentage, profit margin and average days in receivables?

For the calculation of gross margin percentage and average days in receivables use sales revenue according to the information provided in the income statement excluding “other revenue”. For profit margin use total revenues.

7. Should "devaluation loss" be included in net profit after tax to calculate ratios?

Devaluation loss should be treated the same as a loss from discontinued operations. It should be included in net profit after tax but the analysis has to include a comment on their effect on profits if the effect is relevant.

8. Should I use the formula provided in the “Ratio Calculation and Analysis” to calculate the ratios?

Yes. You need to refer to the formula provided in the formulae sheet to calculate the ratios and use the ending balance of the balance sheet accounts included in the ratios if it is not “average”. In case you cannot use the formula provided so you had to use other formulas, you must explain this in the Appendix.

9. Should I include the rubric in my assignment?

No. The rubric is included in the Turnitin system for marking your assignment.

10. Why can a company have an increase in accumulated losses in the equity section of the balance sheet and report a profit in the current period?

A company that has profit in the current period may increase accumulated losses in equity because of distribution of dividends that may exceed the profit for the period. This explanation can be confirmed looking at the notes or at the statement of changes in equity in the retained profits column (accumulated losses).

11. If there is current and non-current inventory and accounts receivable, should I add the non-current inventory and non-current accounts receivable to calculate days in inventory / days sales in receivables?

No. You should use only the current inventory and accounts receivable to calculate days in inventory / days sales in receivables.

12. Should I use “net profit attributable to members of the company” or “net profit after income tax” to calculate ratios?

You should use net profit after income tax.

ACCT 7101 Accounting – Individual Assignment FAQ’s.

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13. I find the ratios defined in the “Ratio Calculation and Analysis” are different from other ones from other texts, financial news etc. Which one is correct?

There is no single correct way to define a ratio. A ratio can be defined in many different ways depending on the purpose of the analysis, on the data you have available and on the preferences of the analyst etc. What is important is to be consistent in the definition of the ratio when we compare the ratios at different years or the ratios across different companies. However, having said that, for the purposes of the assignment we have to standardise the way to calculate the ratios to have some consistency and for marking purposes between assignments for the same companies. That’s why, for the assignment, we defined which formula you have to use to calculate your ratios and also we clarified or provided guidance on what figures you should use. So, even though it would not be incorrect to define your ratios in a different way you have to follow the formulas provided in the template included in the assignment materials.

14. If I could not find interest expense in those statements yet I found it in the expense

note, should I use the figure in notes or I have to make assumption on interest expense as financial cost which listed in the statement? You should use the interest expense disclosed in the expense note. If it is not disclosed in the notes you can assume the financial cost provided in the income statement is the interest expense but you have to indicate what you assume in the footnotes of Appendix.

15. Do I need to have any cover sheet when I submit my assignment? No

16. I need a help in calculating ratios for market value measures but I am unable to find the values of share market price and book value per share. Could you please advise from where will I get these values? You could find market value from ASX website, Google Finance or other sources as it is on the fiscal period end, while you are expected to calculate book value per share based on what you have learned in the course. You should use the share price at the end of the financial year (e.g. if financial year ends on Sunday, you have to use the share price of Friday).

17. How do I obtain “Net Credit Sales” if the company does not report credit sales, but only reports total net sales instead? I find both “net credit sales” and “net sales” in the formula template, but I am not able to find them both for the most of the time in annual reports.

ACCT 7101 Accounting – Individual Assignment FAQ’s.

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You could use net sales if credit sales is not available. Please indicate what you assume in the footnotes or Appendix.

18. How do I define “Net receivable”? Could I use net trade receivables? It is okay to include other receivable or only focus on net trade receivable. If you include other receivable, you may include other revenue or sales to define net credit sales.

19. How do I define “profit before interest and tax” if company only reports “interest expense”, “tax expense”, and “profit after tax”? Could I define it as the sum of them? I find it is not 100% right as I cannot get the tax effect from interest expense. You could calculate in the following way: Add together “interest expense”, “tax expense”, and “profit after tax” to get “profit before interest and tax”. Please indicate how you calculate in the footnotes or Appendix.

20. Does “interest expense” include the effect of “interest income”? Can I use “net financial cost”? Yes, you can. Please indicate what you assume in the footnotes or Appendix.

21. If a company has "assets classified for sale" in current assets, should they be deducted from current assets to calculate quick assets? Yes, they should be deducted from current assets (the same as inventories) to calculate quick assets.

22. Should I present ratios in decimals or percentages? You can present ratios in decimals using 3 decimals (e.g. 0.143) or in percentages using 1 decimal place (e.g. 14.3%).

23. Should we base our analysis only in the information provided by the financial statements?

No, you also have to look at any factors in the economy or the industry that may have affected the financial performance of the companies. For example, in the mining industry, if the price of commodities such as copper has gone down in the last three years it may affect the financial performance of copper mining companies. You can gain some indication about the challenges faced by your companies from reading the chairman’s or CEO’s reports and once identified you can google for some references that explain the challenge and its effect in the industry of your companies (do not forget to include the references of your sources).