Indicate the effect of each of the following transactions on any or all of the three financial statements of a business

  • Statement of financial position
  • Statement of financial performance
  • Statement of cash flows


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Question 1     

Financial statements of Nimbin Pty Ltd are presented below:

Nimbin P/L

Statement of Financial Position

As at 30 June 2013 and 2014



2014 2013
Current assets
Cash and cash equivalents $1,645 $2,110
Accounts receivables (all trades) 4,100 3,675
Inventories 7,000 6,930
Total current assets 12,745 12,715
Non-current assets
Property, plant and equipment 17,190 15,330
Total non-current assets 17,190 15,330
Total assets $29,935 $28,045
Current liabilities
Payables $5,780 $5,990
Total current liabilities $5,780 $5,990
Non-current liabilities
Interest-bearing liabilities 9,940 9,450
Total non-current liabilities 9,940 9,450
Total liabilities $15,720 $15,440
Share capital $7,700 $7,700
Retained earnings 6,515 4,905
Total equity $29,935 $28,045
Total assets $14,215 $12,605


Nimbin P/L

Income Statement

As at 30 June 2014



Revenues (net sales) $55,000
Less: cost of sales 35,100
Gross profit 19,900
Less: Expenses
Selling and distribution expenses 7,100
Administrative expenses 4,970
Finance costs 1,560
Total expenses 13,630
Profit before income tax 6,270
Income tax expense 1,908
Profit $4,362


Nimbin P/L

Statement of changes in Equity

For the year ended 30 June 2014



Share capital
Ordinary (7,200.000 shares)Balance at start of period $7,200
Balance at end of period 7,200
Preference (250,000 shares)Balance at start of period 500
Balance at end of period 500
Total share capital $7,700
Retained Earnings
Balance at start of period $4,905
Total income for the period 4,362
Dividends paid – ordinary (2,702)
Dividends paid – preference (50)
Balance at end of period $6,515


Additional information:

Payables include $5,620 (2014) and $5,730 (2013) trade accounts payable; the remainder is accrued expenses. Market prices of issued shares at year-end (2014): Ordinary $12; Preference $6.70.



A.Calculate the following ratios for 2014. The industry average for similar businesses is shown.


Industry average
1.Rate of return on total assets 22%
2.Rate of return on ordinary equity 20%
3.Profit margin 4%
4.Earnings per share 45c
5.Price-earnings ratio 12.0
6.Dividend yield 5%
7.Dividend payout 70%
8.Current ratio 2.5:1
9.Quick ratio (acid ratio) 1.3:1
10. Receivables turnover 13
11.Inventory turnover 6
12.Debt ratio 40%
13.Times interest earned 6
14.Assets turnover 1.8


B. Given the above industry averages, comment on the company’s profitability, liquidity and use of financial gearing


Question 2     

A. local restaurant is noted for its fine food, as evidenced by the large number of customers.  A customer was heard to remark that the secret of the restaurant’s success was its fine chef.  Would you regard the chef as an asset of the business?  If so, would you include the chef on the balance sheet of the business and at what value?


B. Accounting provides much information to help managers make economic decisions in their various workplaces. You are required to provide examples of economic decisions that the following people would need to make with the use of accounting information:

  • A manager of human resources
  • A factory manager
  • The management team of an Australian Football League (AFL) club
  • The manager of a second-hand clothing charity


c) Indicate the effect of each of the following transactions on any or all of the three financial statements of a business:

1.Statement of financial position

2.Statement of financial performance

3. Statement of cash flows


Apart from indicating the financial statements (s) involved, use appropriate phrases such as ‘increase total asset’, ‘decrease equity’, ‘increase income’, ‘decrease cash flow’ to describe the transaction concerned.

1.Purchase equipment for cash.

2.Provide services to a client, with payment to be received within 40 days.

3.Pay a liability.

4.Invest additional cash into the business by the owner.

5.Collect an account receivable in cash.

6.Pay wages to employees.

7.Receive the electricity bill in the mail, to be paid within 30 days.

8.Sell a piece of equipment for cash.

9.Withdraw cash by the owner for private use.

10.Borrow money on a long-term basis from a bank.




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