Accounting and Financial Management

PART A

Answer Question 1:

1.

Gross profit ratio 2007: 16.96%

Gross profit ratio 2008: 19.44%

2.

Net profit ratio 2007: 1.6%

Net profit ratio 2008: 2.08%

3.

Working capital ratio 2007: 6.56:1

Working capital ratio 2008: 1.62:1

4.

Quick asset ratio 2007: 2.08:1

Quick asset ratio 2008: 0.72: 1

5.

Inventory turnover 2007: 4.43 time per year = 82.39 days

Inventory turnover 2008: 6.10 time per year = 59.83 days

Answer Question 2:

Checking the statement of financial performance for year ended 31 March 2008 is possible to find for this company gross profit ration increase from 16.96% to 19.44%, but the sales increase from $560,000 to $720,000, that cause for the net profit ration an increasing from 1.6% to 2.08%.

However all most of expenses increase, that also will impact the net profit ration increase.

Checking the statement of financial position as at 31 March 2008, is possible to find the total assets increasing from $435,000 to $520,000, but also total liabilities increase from $123,000 to $200,000.

But also the company capital decrease from $322,000 to $312,000. It will impact the working capital ratio decrease.

The company quick asset ratio decrease from 2.08:1 to 0.72:1 between 2007 and 2008.

This mean the company will have difficulty to pay for all expenses and debts.

If the company is in an economic crisis, it will have a high risk for running the business.

The inventory turnover decrease from 82.39 days to 59.83 days. This show the company is good business to investment, because it spends less time to take money back (return) comparing with last year.

But at the same time investors need to focus on the quick asset ratio, the reason is the investment have a high risk.

Answer Question 3:

Basically financial accounting focuses on the need to provide information for making decisions about the allocation of scarce resources.

It is aimed at stakeholders who have financial interests in the company.

Consequently, unless a specific effort is made to provide social and environment information, financial reports concentrate on financial and economic data.

These could be non - financial elements (such as inputs, outputs and outcomes) that directly relate to an entity's service performance. Financial accounting adopts the entity assumption.

Future liability such as clean-up costs that will not arise until the end of a long-term project-are not present obligation, and so should not be reported. Items that can not be reliably measured should not be recognised in the financial statement. Items such as water, air and public roads can not be recognised in the financial statement of a company because everyone shares these.

Answer question 4:

An entity shall clearly identify each financial statement and the notes. In addition, an entity shall display the following information prominently and repeat it when necessary of the information presented to be understandable:

a) The name of the reporting entity or other means of identification and any change in that information, data, notes from the end of the reporting period;

b) The level of rounding used;

c) The presentation currency.

In the statement of financial position, as a minimum, it should include line items such as investment property, financial assets etc. An entity shall present additional line items, heading and subtotals when such presentation is relevant to an understanding of the entity financial position.

When an entity presents current and non-current asset and liabilities, as separate classifications in its statement of financial postion, it shall not classify deferred tax assets (liabilities) as current assets (liabilities).

The statement of financial position, an entity shall disclose, either in the statement of financial position or in the notes, further sub classifications of the line items presented, classified in a manner appropriate to the entity's operations.

An entity shall disclose for each class of share capital such as the number of shares authorised, either in the statement of financial position or the statement of changes in equity or in the notes.

Also include a description of the nature and purpose of each reserve within equity. An entity without share capital shall disclose information equivalent