calculate the ratios for the business for the year ended 31 March 2017

                                                 School of Accountancy

 

 

115.112 Accounting

 

Assignment 2

 

Semester 2, 2017

 

Assignment 2 will be marked out of 45 and will contribute 15% to your final grade.

 

Assignment 2 Instructions

How to Approach this Assignment

  • Please read all instructions before starting the assignment.
  • You should first study the relevant material in the text and make sure you understand the concepts covered.

 

Naming Convention and backups

  1. Use the following naming convention for the file that you create: use
    your Last Name Student ID number as the name of the file [Do not change the file extension or you (and the marker) will not be able to use the file]. For example, if your Last Name is Smith and your Student ID number is 88888888; your file will be smith88888888.docx
  1. Once you have started working on an assignment you should make backups. It pays to rename different versions of your work. A simple way to do this is to use the Save as file instruction and add a number or letter to the end of the file name.  (This allows you to go back to an earlier version.)

Assignment brief

 

Eugenie Joseph has successfully operated a trading business called the Jounieh Emporium for many years but at the beginning of the 2017 financial year Eugenie passed more of the management of the business to her daughter Pearl Joseph. Recently when Eugenie was opening the mail she was horrified to see that the business now had an overdraft, something that had never happened when she managed the business. When challenged on the overdraft Pearl retorted to her mother that the business has never been better and that sales this year have increased substantially thanks to a marketing campaign and a new range of products

Required:

 

  • Use the information in Appendix A to calculate the ratios for the business for the year ended 31 March 2017

Note: The ratio calculations must be shown in the Appendix C, ANALYSIS RATIOS on page 7 of this document. Your calculations on this sheet may be typed or hand written and then attached at the end of your report as required in (ii). Calculations should not appear in the body of the report.  A list of analysis ratios for use with Cunningham is included in Appendix B.

  • Write a report, discussing the following points:
  1. The profitability of the Jounieh Emporium compared with that of the previous year.
  1. The liquidity of the Jounieh Emporium identifying the causes of the change from Cash at Bank to a large Bank Overdraft.
  1. In relation to the state of the business identified in (ii)a and (ii)b give recommendations as to how the business should be conducted in the future.
  • Use relevant ratios from (i) in Appendix C to justify your answers.
  • Marks will be allocated for the presentation of your report (refer marking grid Appendix D). Guidelines for writing reports are given in Appendix 2 of the Course Guide.

Appendix A FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

Appendix A FINANCIAL STATEMENTS continued

 

 

Further information        $
Accounts receivable 1 April 2015 296,000
Inventory 1 April 2015 502,000
Total Assets 1 April 2015 1,340,000
Total Owners Equity 1 April 2015 705,000

 

 

 

 

 

Appendix B ANALYSIS RATIOS FOR USE WITH CUNNINGHAM

TYPE OF RATIO REFERENCE  
PROFITABILITY Chapter/ Page  
1 Profit Margin Ch. 7 p.293 (280) Net Income  x 100

Net Sales

2 Gross Profit Percentage Ch. 7 p.293 (281) Gross Profit  x 100

Net Sales

3 Return on Total Assets Ch.8 p.343 (323) (Net Income + Interest Expense) x 100

Average Total Assets

4 Return on Owner’s Equity Ch.8 p.324 (344) Net Income x 100

Average Owner’s Equity

EFFICIENCY  
5 Inventory Turnover Ch. 8 p.326 (345) Cost of Goods Sold 

Average  Inventory

6 Number of Days in Selling Period Ch. 8 p.327 (346) 365

Inventory Turnover

7 Accounts Receivable Turnover Ch. 8 p.327 (347) Net Credit Sales

Average Accounts Receivable

8 Number of Days in Collection Period Ch.8 p.328 (347) 365

Accounts Receivable Turnover

LIQUIDITY  
9 Current Ratio Ch. 8 p.337 (318) Current Assets

Current Liabilities

10 Quick Ratio Ch.8 p.338 (318) Quick Assets

Current Liabilities

Where Quick Assets = Cash + Accounts Receivable + Short Term Marketable Securities + Short Term  Notes Receivable

FINANCIAL GEARING  
11 Debt Ratio Ch. 8 p.339 (320) Total Liabilities x 100

Total Assets

12 Interest Coverage Not in text Net Income + Interest Expense

Interest Expense

OTHER
13 Sales % Increase Not in text (Sales Year 2 – Sales Year 1) x 100

Sales Year 1

 

Appendix C ANALYSIS RATIOS TO BE COMPLETED

 

2017

 

2016

1 Profit Margin = Net income*100/ Net sales

=290,000*100/3,150,000

= 9.2%

15.7%
2 Gross Profit Percentage = Gross profit*100/ Net sales

= 945,000*100/3,150,000

= 30%

35%
3 Return on Total Assets = (Net income + interest expenses) *100 / Average total assets

= (290,000+21,000) *100

(1,870,000+1,410,000)

2

= 18.96%

28.15%
4 Return on Owner’s Equity = Net Income*100 / Average Owner’s Equity

= 290,000*100

(873,500+734,400)

2

= 36.07%

50.72%
5 Inventory Turnover = Cost of Goods Sold / Average Inventory

= 2,205,000

(790,000+540,000)

2

=3.3x

2.9x
6 Number of Days in Selling Period = 365 / Inventory turnover

= 111 days

126 days
7 Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable

=2,700,000

(580,000+310,000)

2

= 6.07x

5.61x
8 Number of Days in Collection Period = 365 / Accounts Receivable Turnover

= 61 days

65 days
9 Current Ratio = Current Assets / Current Liabilities

= 1,370,000 / 594,500

= 2.30

3.49
10 Quick Ratio = Quick Assets / Current Liabilities

= (0+580,000)

594,500

= 0.98

1.36

Appendix D Marking Grid

115.112 ASSIGNMENT 2 1702 MARKING CRITERIA GRID

 

Student Name______________________________           ID __________________

 

Qualities Fail C Pass B Pass A Pass Max

Mark

Student

Mark

Calculation of ratios (i) 10
Addressing requirement

(ii) a.

Work does not address the assignment brief or the focus is very inadequate.

0-1

Work makes some relevant points but is not adequately focused on the assignment brief 4-5 Work displays an understanding of the brief and provides a range of relevant evidence in answering it. 6-7 Work which engages closely with the assignment brief and addresses its implications as well as its “surface sense” 8-10 10
Addressing requirement

(ii) b.

Work does not address the assignment brief or the focus is very inadequate.

0-3

Work makes some relevant points but is not adequately focused on the assignment brief 4-5 Work displays an understanding of the brief and provides a range of relevant evidence in answering it. 6-7 Work which engages closely with the assignment brief and addresses its implications as well as its “surface sense” 8-10 10
Conclusion

(ii) c.

Does not adequately identify problem areas nor propose relevant actions 0-3 Identifies three problem areas and proposes  limited action 4-5 Identifies three significant problem areas and proposes appropriate action 6-7 Clearly identifies three significant problem areas and proposes effective action 8-10 10
Communication of ideas (Report format) Does not present ideas clearly 0 Presents ideas in a clear manner 2 Presentation of ideas is achieved clearly in a coherent, fluent manner 3-4 Presentation of ideas has impact. 5

 

5
Total 45

 

Assignment Queries

Please feel free to keep in touch with the 115.112 team regarding this assignment, preferably through the assignment 1 forum. That way all students benefit and often we have found that the best way of learning is through discussion with your peers as well as teaching staff.

Please note that this assignment is at individual, not group level. Discussion is fine but do not post your answers to the assignment on STREAM through discussion forums, as that will lead to penalties. If you are uncertain, please contact the teaching staff.

There are a large number of students in this course, but that does not mean that you are not each individually very important to us. We value each student and will try to provide appropriate guidance to the best of our ability.

Assignment submission

Follow the instructions “Submitting Assessments to Stream Assignment boxes”. STREAM records the submission date and time. See the Course Guide for policies re extensions and late submissions. Penalties will be applied to late submissions for which an extension has not been granted, but note the cut off time of a week after the due date, after which no assignments will be accepted for marking.

Return of marked assignments

 

You will be informed when your marks are available. A break-down of the mark will be given on a marking sheet will be available at the same point as where you uploaded your assignment.  Note that the normal turnaround of assignments is three working weeks. However, we will be working to return the assignment sooner than that.

There will be feedback in the form of suggested solutions and overall comments by the marker.

All the best with your assignment! 

 

 

The 115.112 Teaching Team

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