BUACC 5901 Accounting And Finance

BUACC 5901 Accounting And Finance

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BUACC 5901 Accounting And Finance

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BUACC 5901 Accounting And Finance

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Course Code: BUACC 5901
University: Federation University

MyAssignmentHelp.com is not sponsored or endorsed by this college or university

Country: Australia

Questions:
a) Prepare the necessary adjusting general journal entries at 30 June 2018 (Narrations are required)b) Prepare an Income Statement. c) Prepare a Statement of Changes in Owners’ Equityd) Prepare a Balance Sheet as at 30 June 2018. 
Answer:
Comparison of the financial results of the Wesfarmers group over the two years
The comparison of the financial results of the company can be done using financial information published in its annual report. The annual review disclosed by the company provides an overview of the significant improvement that has been occurred or not in its financial position in the current year as compared to the previous year. It has been analyzed by examining the annual report published by the company over the years 2015-2017 that it has reported an increase in the net profit after tax (NPAT) of about $2,466 million as compared with that of the previous year. The earnings per share has also recorded a net increase of about 21.6 per cent in comparison to that of previous year. Also, there is increase in return on equity to 12.4 per cent of the company in the year 2017 as compared with that of 2016. The directors of the company have declared an increase in the fully-franked dividend to about $1.20 per share (2017 full-year results, 2017). This indicates that the company is placing high focus on maximizing the return for shareholders (Robinson, 2015).
It has been analyzed from the information presented in the annual report of the company that the major reason for the growth in net profit after tax is due to its conglomerate structure. The continued investment made by the company in improving the range of its merchandise has resulted in delivering higher returns. This has been identified as the main reason for the increase in the value of net profit after tax from $2,440 to $ 2,873 during the financial years 2015-2017. The return on equity has also increased correspondingly during the financial years of 2015-2017 from 9.8% to 12.4%. This is also an increase in the operating cash flow from $861 million to $4,226 million over the financial year 2015-2017 reflecting the improvement in its management of inventory in all its retail divisions (Wesfarmers Limited: Annual Report, 2017). The group has lowered its capital expenditure by 11.5 per cent in the year 2017 as compared from the previous year. This is largely due to less number of openings of stores in its retail divisions of Bunnings Australia and New Zealand (Wesfarmers Limited: Annual Report, 2016). The free cash flow has also improved during the years 2015-2017 from $1,893 to $4,173 due to sales proceeds realized from divesting the credit card receivables of its Coles unit (Kline, 2007).
The statement of financial position has been strengthened in the year 2017 as compared with the previous year due to reduction in the net financial debt. It has been reduced to $2,216 million in the year 2017 as compared with that of $4,321 in the previous year. This is mainly due to the strategy adopted by the company to diversify its funding sources and repaying the debt by divesting the Coles credit card receivables. There is also reported a decline in the financing costs to 14.3 per cent in the current year as compared with that of previous years driven by the active management of debt sources (Wesfarmers Limited: Annual Report, 2017). The higher earnings and improvement in the cash flow position of the company has resulted in causing a significant increase in the dividend paid to the shareholders (Alexander, 2007). There is a corresponding rise in the dividend paid from 200 cents to 223 cents during the financial years 2015-2017 that is supported by its strong credit position in the year 2017. The individual retail division of Wesfarmers has also reported a significant increase in the revenue position during 2015-2017. There is increase in the revenue realized by its retail division of Coles, Bunnings, department stores, Kmart and other significant retail divisions. However, there is reduction in the revenue realized in its retail division of Target from $3,438 in the year 2015 to $2,950 million in the Year 2017. The significant decline in the revenue realized is because the major decision taken by the Group for transforming the Target. This is done to reduce the operational costs for achieving its strategic objective of everyday low prices. As such, there has been loss-making products and reduction in the promotional activities resulting in decline of its sale and thus revenue (Wesfarmers Limited: Annual Report, 2017).
Key Financial Ratios that compares the financial performance Wesfarmers over last two years

Calculation of Financial Ratios of Wesfarmers

Ratios

2015

2016

2017

Net Profit Margin

3.91%

0.62%

4.20%

Current Ratio

0.93

0.93

0.93

Debt Equity Ratio

0.63

0.78

0.68

EPS

$            2.16

$            0.36

$            2.54

(Note: Financial Data provided in Appendix)
Net Profit Margin: Net profit ratio is used to evaluate the profitability performance of the company. This ratio determines net profit earned by the company on total sales period. It is calculated as net profit earned divided by total sale revenue. The net profit ratio has been declined in year 2016 due to key significant items such as $ 1249 million non-cash impairment of Target, $ 595 million non-cash impairment of Curragh and lastly $ 102 million of restructuring cost and other provisional costs to reset the Target. In year 2017, Wesfarmers has achieved the net of 4.20% which was highest of all three years (Nikolai, 2009).
Current Ratio: This ratio helps to determine the liquidity position of the company. It is calculated as current assets divided by current liabilities. It tells ability of company to pay the short-term liabilities through using the assets. The liquidity performance of Wesfarmers was poor in all three years in review. The current ratio was 0.93 times in all the three years (Diamond, 2017).
Debt equity Ratio: This ratio determines the solvency position of the company through analyzing level of debt capital in comparison to equity capital. The debt equity ratio of Wesfarmers was highest in year 2016 due to increase in debt capital taken by the company whereas it was gain reduced in year 2017. Overall Wesfarmers has maintained moderate leverage position in last three years.
Earnings per Share: Earnings per share was highest in year 2017 and it was lowest in year 2016 that clearly indicates poor profitability position in year 2016 as compared to year 2017.  
Solution 2: Comparison of the sustainability initiatives of Wesfarmers for the year 2016 & 2017
The business entities worldwide are placing increasing importance on development of sustainable reports for reflecting the initiatives taken by them to promote social, economic and environmental development. Wesfarmers is also engaged in development of sustainability reports for promoting transparency and authenticity in its business operations and ensuring that all the business activities are carried out as per the ethical principles and rules. It has been found out from the overall analysis of the sustainability report of the company that it is highly committed to promote the welfare of society and environment by maintaining a safe workplace. It has disclosed adequate information in its sustainability report about the strategies adopted in its various business operations such as people, sourcing, community, environment and governance for promoting the societal and environmental development (Wesfarmers Limited: Sustainability Report 2017, 2017).
The comparison of the company’s sustainability report has indicated that it has enhanced the amount of information disclosed in context of its sustainability issues in the year 2017 as compared with that of 2016. For example, the company in its sustainability report for the year 2017 has added the information regarding its materiality issues in its approach that is not mentioned in the report of the year 2016 (Wesfarmers Limited: Sustainability Report 2016, 2016). The materiality issues at the starting of the sustainability report reflects the major social and environmental impacts of its operations that can have a large impact on the decision-making process of its stakeholders (Wesfarmers Limited: Sustainability Report 2017, 2017).
This section of the sustainability report has summarized the key improvements achieved by the company in its key sustainability areas such as safety, diversity, ethical sourcing and climate change. Thus, it will facilitate the stakeholders to gain a glimpse of the overall sustainability issues in brief and results in better understanding of them. The people section of the sustainability report of the company has also included a leadership model. The model is developed for providing an explanation to the approach adopted by the company for promoting the developments of a leader. The approach consists of the use of individual development investments, 360 assessments, development planning, external coaching and mentoring for fostering the process of collective learning.  Also, in the sourcing section of the report for the year 2017, the company has included a human rights and modern slavery statements for reflecting its policies in opposition to slavery. The policies and governing framework adopted for opposing slavery and protecting the human rights has been disclosed in detail in the report. Also, the risk assessment and mitigation procedure followed for addressing the issues related with slavery and its impact on business relationships has been included in the community section (Wesfarmers Limited: Sustainability Report 2017, 2017).
 The contribution of the company in promoting community development has been explained in more detail in the sustainability report of the year 2017. This includes graphical representation of the amount contributed by the company to the community. The company also discussed the contribution made by it for promoting the health and medical researches and to the indigenous programs. The climate section of the report has included the information about the climate change strategy and governance policy adopted by it for managing the significant risks associated due to climatic change. It has also included a climate change risk management section for detailing the type of climate risks faced by the company and the strategies adopted for reducing it. It has also taken initiatives in the year 2017 for helping its customers to recycle the waste materials. In addition to this, the significant commitments made by its retailers to reduce the generation of waste materials by the adoption of a packaging strategy that minimize waste generation ahs also been discussed in this report. Also, the company has taken sustainability initiatives in the year 2017 across all its business divisions such as Coles, Kmart and others for providing enhanced information in relation to their sustainability performance. The governance section also included additional information about the role and responsibilities of various committees established by the Board. This includes disclosing the roles and responsibilities of the audit and risk committee in addition with analyzing the roles of Board and management (Wesfarmers Limited: Sustainability Report 2017, 2017).
Thus, it can be said from the comparison of the sustainability report of the company over two significant years that the company ahs taken various sustainability initiative in the year 2017. As per my views, these initiatives are adopted by the company to seek more trust and confidence from its stakeholders and improving the transparency in its business operations. The company is aiming to become a recognized retail bard within Australia that has attained competency in its sustainability performance by placing it as a priority across its operational segments (Schaltegger, 2006).
Solution 3:

Adjusting Journal Entries at 30 June 2018

Particulars

Debit

Credit

 

Amount in $

 

 

 

Cost of Goods Sold

 $      2,000.00

 

Inventory

 

 $             2,000.00

(Being adjustment made for yearend inventory balance and actual inventory balance)

 

 

 

 

 

Depreciation on vehicles

 $    16,000.00

 

Motor Vehicles

 

 $           16,000.00

(Being Depreciation @ 20% straight line basis W/O on Motor Vehicles)

 

 

 

 

 

Depreciation on Equipment

 $    10,800.00

 

Equipment

 

 $           10,800.00

(Being Depreciation @ 20% straight line basis W/O on Equipment)

 

 

 

 

 

Wages Expenses

 $      2,000.00

 

Wages Expenses Payable

 

 $             2,000.00

(Being $ 2000 wages payable but not yet paid)

 

 

 

 

 

Bad Debt Expenses

 $          550.00

 

Allowance for Doubtful Debts

 

 $                 550.00

(Being 5 % of A/R allowed as doubtful debts)

 

 

(Diamond, 2017)

Income Statement

Doug’s Discount Store

Particulars

Amount

Amount

Sales

 

 $        503,200.00

Less: Cost of Goods Sold

 

 $        207,000.00

Gross Profit

 

 $        296,200.00

 

 

 

Less: Operating Expenses

 

 

Vehicle expense

 $  100,000.00

 

Rent expense

 $    36,000.00

 

Wages Expenses

 $    37,000.00

 

Advertising expense

 $      5,000.00

 

Interest repayments on mortgage

 $      3,000.00

 

Bad Debt Expenses

 $          550.00

 

Depreciation Expense

 $    26,800.00

 

Total

 

 $        208,350.00

 

 

 

Net Profit

 

 $           87,850.00

 

Statement of Change in Equity

Doug’s Discount Store

Particulars

Amount

Amount

Capital – Doug

 

 

Opening Balance

 

 $        190,000.00

Add: Net Profit

 $    87,850.00

 

Less: Drawings

 $    26,000.00

 

Closing Capital

 

 $        251,850.00

 

Balance Sheet

Doug’s Discount Store

Particulars

Amount

Amount

ASSETS

 

 

 

 

 

Current Assets

 

 

Inventory

 $    99,000.00

 

Bank

 $    33,000.00

 

Accounts Receivables

 $    10,450.00

 

Petty Cash

 $          200.00

 $        142,650.00

 

 

 

Non Current Assets

 

 

Land and buildings

 $  300,000.00

 

Motor Vehicles

 $    64,000.00

 

Equipment

 $    43,200.00

 $        407,200.00

 

 

 

Total Assets

 

 $        549,850.00

 

 

 

Liabilities and Capital

 

 

Current Liabilities

 

 

6 month loan – S. Sandy

 $    20,000.00

 

Accounts Payable

 $    66,000.00

 

Wages Payable

 $      2,000.00

 $           88,000.00

 

 

 

Non Current Liabilities

 

 

25 year mortgage on Land & Buildings

 $  210,000.00

 $        210,000.00

 

 

 

 

 

 

Capital

 

 

Balance

 $  251,850.00

 $        251,850.00

 

 

 

Total Liabilities and Capital

 

 $        549,850.00

(Nikolai, 2009)
References
2017 full-year results. (2017). Retrieved 18 September, 2018, from https://www.wesfarmers.com.au/util/news-media/article/2017/08/17/2017-full-year-results
Alexander, D. (2007). International Financial Reporting and Analysis. Cengage Learning EMEA.
Diamond, S. (2017). Finnancial Accounting and Its Environtment: Financial Accounting. Bukupedia.
Kline, B. (2007). How to Read and Understand Financial Statements when You Don’t Know what You are Looking at. Atlantic Publishing Company.
Nikolai, A. (2009). Intermediate Accounting (Book Only). Cengage Learning.
Robinson, T. (2015). International Financial Statement Analysis. John Wiley & Sons.
Schaltegger, S. (2006). Sustainability Accounting and Reporting. Springer Science & Business Media.
Wesfarmers Limited: Annual Report. (2016). Retrieved 18 September, 2018, from https://www.wesfarmers.com.au/docs/default-source/reports/2016-annual-report.pdf?sfvrsn=4
Wesfarmers Limited: Annual Report. (2017). Retrieved 18 September, 2018, from https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-annual-report.pdf?sfvrsn=0
Wesfarmers Limited: Sustainability Report 2016. (2016). Retrieved 18 September, 2018, from https://sustainability.wesfarmers.com.au/media/1835/edited-extract-of-wesfarmers-2016-sustainability-report.pdf
Wesfarmers Limited: Sustainability Report 2017. (2017). Retrieved 18 September, 2018, from https://sustainability.wesfarmers.com.au/media/2464/2017-wesfarmers-sustainability-full-report.pdf

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