ACW 1000

ASSIGNMENT 2014 Semester 2

Question 1 (18 marks)
Answer the following parts independently:
a) Knowing that you have some accounting experience, a friend has sought your advice
regarding a business that he intends purchasing. The balance sheet for the business shows
total assets of $200 000 and liabilities of $75 000. The selling business has provided no
notes to accompany the balance sheet. On the basis of the information provided, your
friend believes the business is worth $125 000. Advise your friend as to the accuracy of
his assessment and what questions regarding the balance sheet he should ask the seller.
(8
marks)
b) You have just completed the income statement for the reporting period. The CEO, who
has no accounting background, is reviewing the statement you have prepared and asks
you to explain why the profit is relatively low compared to the increase in the cash at
bank during the reporting period. Offer some suggestions that would explain this.
(5
marks)
c) The balance sheet for Au Yong Pty Ltd reveals cash on hand of $2000, accounts
receivable of $12 000, inventory measured at $15 000 and plant and equipment measured
at $30 000. The liabilities of the entity are: accounts payable $8000, a bank overdraft of
$10 000 and a loan of $60 000. Comment on the liquidity of the entity.
(5 marks)
Question 2 (20 marks)
Below is a Comparative balance sheet in narrative format as at 31 December 2013 and 31
December 2012.
J. CLOOKS MANUFACTURING BUSINESS
Balance Sheet
as at

ASSETS
Current
Accounts Receivable
Inventory

31/12/2013

31/12/2012

32 000
65 000

35 000
75 000
1

Total Current Assets

97 000

110 000

Non current
Machinery & tools
Vehicles
Land and buildings
Total non-current assets

13 000
22 000
80 000
115 000

14 000
16 000
60 000
90 000

Total assets

212 000

200 000

LIABILITIES
Current
Bank Overdraft
Accounts Payable
Total current liabilities

20 000
36 000
56 000

22 000
40 000
62 000

Non-current
15% loan to company
Total non-current liabilities

25 000
25 000

30 000
30 000

Total liabilities

81 000

92 000

131 000

108 000

1 00000
20 000
11 000
131 000

1 00000
0
8 000
108 000

Net Assets
Equity
Capital
Reserves (asset revaluation)
Retained earnings
Total Equity

a)
b)

Comment on the financial position of the entity in 2013 relative to 2012. For this
purpose, assume that the owner withdrew $10 000 during the 2013 year for personal use.
(13 marks)
What happens to the current ratio when:
a.
a current liability is paid with cash?
b.
inventory is purchased on credit?
c.
the balance outstanding to accounts payable is paid?
(7 marks)

Question 3 (10 marks)

A) Based on the information provided below, prepare a report commenting on the entitys
liquidity and asset efficiency.
(10 marks)
Summary of Youcan Ltds liquidity and asset efficiencys ratios:
Ratios
Days inventory
Days debtors
Current ratio
Quick asset ratio

2013
42 days
54 days
2.27 times
1.67 times

2012
87 days
79 days
2.78 times
1.71 times