ACCT 2060 Introductory Accounting Assignment – Semester 2, 2011 This assignment is designed to get you to locate the Annual Reports for a company and become familiar with the contents of an Annual Report, particularly the financial statements and the notes to the financial statements. While we have looked at very basic formats of the financial statements, the financial statements for a company contain a little more detail and information on some items you may not have been introduced to yet.Pay particular attention to the information provided in the notes to the financial statements as you will find a lot of useful information in them that may help with some of the questions. REQUIRED: You are required to obtain the 2010 Annual Report of Blackmores Limited and then answer the questions that follow in Part A and Part B.
PART A – THE COMPANY (8 x 1 = 8 marks) Question 1 Describe the company’s principal operating activities. Ans: Blackmores Limited manufactures & develops health products. [Ref: Blackmores AR Report August 2010, Page 2]Question 2 An auditing firm will have received remuneration for their services. What services did the auditing firm provide for this company in 2010? Ans: The auditing firm, DELOITTE TOUCHE TOHMATSU, audited the Remuneration Report included in pages 41 to 48 of the directors’ report for the year ended 30 June 2010. Their responsibility is to express an opinion on the Remuneration Report, based on their audit conducted in accordance with Australian Auditing Standards. [Ref: Blackmores AR Report August 2010, Page 41 to 48, Page 50 and 51] Question 3Using the 2010 Annual Report, identify the number of the note that deals with Significant Accounting Policies and identify the method of depreciation the company uses to depreciate property, plant and equipment. What is the underlying assumption of this method in relation to the usefulness of property, plant and equipment? Ans: Total numbers of notes dealing with Significant Accounting Policies are 22. [Ref: Blackmores AR Report August 2010, Page 58 – 64].
The method of depreciation the company adopt onto depreciation of property, plant and equipment is the straight-line method.The underlying assumption is that the residual value is estimated based on the cost of asset over the expected useful life. Freehold land is not depreciated.
The following estimated useful lives are used in the calculation of depreciation: • Buildings 25–40 years • Leasehold improvements 3–13 years • Plant and equipment 3–20 years [Ref: Blackmores AR Report August 2010, Page 59]. Question 4 The annual report contains a number of reports with only some of these being ‘financial reports’. Name all of the financial reports in the 2010 annual report shown for this company in their annual report.
Ans: The financial reports in the 2010 annual report are Statement of Financial position as at 30 June 2010, Statement of Comprehensive Income for the. Statement of Changes in Equity and Statement of cash flows. [Ref: Blackmores AR Report August 2010, Page 53-57]. Question 5 Directors of the company will often own shares in the company as well.
Identify the name of the chairman of the board of directors and identify the number of shares the chairman held in the company at the end of their 2010 financial year (financial year ends June 30, 2010). Ans:Chairman of the board of directors is Marcus C Blackmore AM [Ref: Blackmores AR Report August 2010, Page 36]. The number of fully paid ordinary shares he has is 4,479,278 [Ref: Blackmores AR Report August 2010, Page 38].
Question 6 Describe the purpose of the external auditor’s report. Ans: The external auditor’s report is to ensure that the financial reports produced by Blackmores internally are true & fair, complete & accurate. [Ref: Blackmores AR Report August 2010, Page 51]. Question 7 With reference to the consolidated entity: • What is the total amount of revenue and other income in 2010? What are the two revenue items? • What is the ‘other income’ comprised of? (You must refer to the relevant note to find the answer to this.
) Ans: The total amount of revenue and other income in 2010 is $217,093,000 The two revenue items are Sales and Royalties. The ‘other income’ comprises of bank deposits / Net foreign exchange gains. [Ref: Blackmores AR Report August 2010, Page 53 and 67]. Question 8 Again with reference to the consolidated entity: • What is the amount of cash receipts from customers in 2010? • Why does this amount differ from the 2010 sales figure? Ans:The amount of cash receipts from customers is 2010 is $237,522,000 The amount differ from the 2010 sales figures as not all customer pay cash on payment, some may pay on credit which result in account receivable. [Ref: Blackmores AR Report August 2010, Page 57]. PART B – Analysis of financial information (12 marks) Question 1 (4 marks) Using the consolidated figures for Blackmores Ltd, calculate the following ratios for the years 2009 and 2010.
Ratios are to be shown at one decimal place. You must show all your workings. (Where no workings are shown you will receive zero for this section): . Current ratio ii. Acid test ratio iii.
Gearing ratio iv. Interest cover ratio Ans: Current ratio = Current assets / Current liabilities Acid ratio = Current assets (excluding inventory and prepayments) / Current liabilities Gearing ratio = Long-term liabilities / (Share capital + Reserves + Long-term liabilities) Interest cover ratio = Profit before interest and taxation / Interest Expense [Ref: School of Business, MBA 2011, ‘Introductory accounting’, Course Notes from ACCT2060_1160, ‘Lecture 6, Unit 6 – Financial Ratio Analysis’, Page102-107 , RMIT University, Melbourne] |Yr 2009 (Working) |Yr 2009 Ratio |Yr 2010 (Working) |Yr 2010 Ratio | |Current ratio |69,544 / 31,903 |2. 2 |82,985 / 34,457 |2. 4 | |Acid Test ratio |(69,544-16,072) / 31,903 |1. 7 |(82,985-22,555) / 34,457 |1. 8 | |Gearing ratio |48,043 / (58,563 + 48,043) |0. 5 |48,102 / (71,790 + 48,102) |0.
| |Interest cover ratio |30,335 / 1,372 |22. 1 |36,746 / 2,442 |15. 0 | [Ref: Blackmores AR Report August 2010, Page 53 and 55]. Question 2 (2 marks) You have been provided with the following information about another company, Company X, in the same industry as Blackmores Ltd: |COMPANY X | |Ratio |2010 |2009 | |Current ratio |2.
|1. 8 | |Acid test ratio |1. 2 |1.
5 | |Gearing ratio |1. 2 |0. 8 | |Interest cover ratio (times) |10.
9 |13. 1 | Using the information above and the calculations in Part B Question 1, you are required to analyse the liquidity and financial gearing (leverage) of Blackmores Ltd and Company X by providing: ) a description of the movement in each of the ratios for Blackmores Ltd; b) a description of the movement in each of the ratios for Company X; c) an explanation of what each of these ratios tell you about Blackmores Ltd; d) an explanation of what each of these ratios tell you about Company X; Ans: A) The current ratio for Blackmores Ltd indicates that the company is experiencing a slight increase in current asset over current liability. The acid ratio for Blackmores Ltd indicates that the company has slight increase in current asset over the current liability excluding inventories.The gearing ratio for Blackmores Ltd indicates that the company has marginal increase in long term liability over equity.
The interest cover ratio for Blackmores Ltd indicates that the company has increase in interest expense. B) The current ratio for Company X indicates that the company is experiencing a slight increase in current asset over current liability. The acid ratio for Company X indicates that the company has slight decline in current asset over the current liability excluding its inventories.The gearing ratio for Company X indicates that the company has marginal increase in long term liability over equity. The interest cover ratio for Company X indicates that the company has increase in interest expense.
C) In Blackmores Ltd current ratio, we see a 20cents increase in liquidity to repay for every 1 dollar of obligation in the next operating cycle. By zooming further into acid ratio test, it becomes clearer that the company has only a 10cents increase in liquidity to repay for every 1 dollar of obligation within 90days as it excludes inventories and prepayment.In gearing ratio, we can conclude that Blackmores Ltd has lowered their long term by 10cents per 1 dollar obligation.
As for interest ratio, it reflects that Blackmores Ltd has to pay more interest on outstanding debt. D) In Company X current ratio, we see an increase in 30cents in liquidity to repay for every 1 dollar of obligation in the next operating cycle. Looking further into the acid ratio test, it becomes clearer that the company actually have a 30cents decline in liquidity to repay for every 1 dollar of obligation within 90days and we also can assume that the company has a lot of inventories or prepayments.In gearing ratio, we can assume that Company X has increased their long term liabilities in certain aspect. In interest cover ratio of Company X, it also reflects that Company X has to pay more interest on outstanding debt. Question 3 (2 marks) Assume you are considering becoming a creditor for Blackmores Ltd or Company X (from Part B Question 2 above). That is, you will only be providing credit to one of them.
Explain which company you would prefer to provide goods to on credit and why you have chosen this company. You may consider both financial and non-financial information in making this decision.Ans: I would provide goods on credit to Blackmores Ltd because Blackmores Ltd has a higher ability to pay off obligations as compare to Company X reference from their current and acid ratio. Also, Blackmores Ltd shows that the company is relatively low in term of leverage shown from gearing ratio. Question 4(4 marks) Prepare a table similar to the table below. Complete the table by inserting information from Blackmores’ financial statements (consolidated figures). Calculate each item as a percentage (%) of sales revenue. Financial Item |2010 ($) |% |2009 ($) |% | |Sales |214,934,000 |100.
0 |200,314,000 |100. 0 | |Total expenses |180,347,000 |83. 9 |171,380,000 |85. 6 | |Promotional and other rebates |19,054,000 |8. 9 |18,581,000 |9.
| |Raw materials and consumables used |65,748,000 |30. 6 |71,338,000 |35. 6 | |Employee benefits expense |48,179,000 |22. 4 |42,212,000 |21. 1 | |Selling and marketing expenses |19,134,000 |8.
9 |21,078,000 |10. 5 | |Net profit attributable to equity holders of the parent |24,297,000 |11. |20,782,000 |10. 4 | Refer to the table above to explain the performance of Blackmores in 2010 compared to 2009. Ans: Based on the above table, Blackmores Ltd performance in 2010 is has increase in sales by 7. 3% compared to 2009. By looking at the table, we can determine that the company has cut down on expenses.
Particular area is the buying of raw materials and other consumables and marketing expenses. With these we can assume that marketing is successful. The other reason is because the company’s equity has increased as well.This means more dividends for the shareholder. [Ref: Blackmores AR Report August 2010, Page 53 and 55]. OTHER IMPORTANT INFORMATION Format and Presentation: The assignment needs to be presented and formatted according to the guidelines shown in this semester’s Course Guide. You need to ensure that the numeric answers you provide are accurate. For example, some figures are shown in thousands while others are not; showing an answer as $102 instead of $102,000 will result in a mark of zero for such a question as there is obviously quite a difference between these two figures.
Also ensure that you read each question carefully as some questions will ask for a figure for a particular year and for either the Group (Consolidated) Financial Reports or the Parent Entity (Company). Referencing: As you will be using a company’s Annual Report as the basis for answering many of the questions asked in this assignment, you need to ensure that you acknowledge this in your assignment. In fact, any sources that you use need to be acknowledged in order to avoid plagiarism. Information on referencing can be found in the Guidelines for Referencing and Presentation at the RMIT website using the following address: (http://www. mit.
edu. au/bus/students). A copy can also be found on the Blackboard under the Course Documents folder. From the Blackboard site there is also an online referencing resource that you might find useful. It can be found by following these links: External Links / Study and Learning Centre / Study Skills/Referencing/Referencing for Business Students. In-Text Referencing and the Reference List: Sources of information must be cited both in the body of the text (in-text referencing) and the end of the assignment (reference list). Failure to do so will result in penalties.
Remember that when referencing an Annual Report it is a corporate document that does not have a particular author but it will still require referencing any time you use information from it. Any other documents or books or other references you use will also require referencing. Penalties Regarding Referencing: No in-text referencing – deduct 1.
5 marks Some in-text referencing only – deduct 1 mark No reference list – deduct 1. 5 marks Incomplete reference list – deduct 1 mark Policy on Late Submissions: The policy on late submissions can be found in the current semester’s course guide. ASSIGNMENT TOTAL – 20 Marks