Purpose: This assignment aims to reinforce and extend students’ knowledge and understanding of key topics in this course (HC1010) including: Statement of Financial Position, Statement of Financial...

Purpose: This assignment aims to reinforce and extend students’ knowledge and understanding of key topics in this course (HC1010) including: Statement of Financial Position, Statement of Financial Performance, Cash Flow Statement, Financial Statement Analysis, Accounting for Business Transactions through independent research and application of knowledge and skills. Assignment details: PART A Financial Ratios and Financial Statement analysis (6 marks) The following financial data relate to Big Bang Pty Ltd for the years ended 30 June Year 2019 and 30 June Year 2018. Financial item 30 June Year 2019 Year 2018 Net credit sales Cost of goods sold Cash Accounts receivable Inventory Current liabilities $630 000 290 000 18 000 70 000 130 000 105 000 $490 000 250 000 12 000 60 000 150 000 81 000 Additional information: The amount of Accounts receivables at 30 June Year 2017 was $78 000 (net). The inventory figure at 30 June Year 2017 was $130 000. The company provides its credit customers 30 days to pay. The average inventory turnover for the industry in which the company operates is 101 days. a. You are required to explain and calculate the following ratios for the years ended 30 June Year 2019 and 30 June Year 2018: – current ratio; – quick ratio; – accounts receivable turnover (times and in days); and – inventory turnover (times and in days). b. Comment on the short-term solvency, including the efficiency of the business, given the ratio results obtained in your answer in part a. PART B. Income and Revenue (4 marks) The core business of Green Apple Ltd involves the sale of anti-virus software. The following took place during the financial year ended 30 June. The company earned $25 000 000 from the sale of software; $3 000 000 from update downloads; and $50 000 in interest from investing on the short-term money market. The company also received a $2000 discount arising out of the early settlement of a liability; and issued shares in exchange for $500 000 cash during the year. Page 3 of 7 HC1010 Accounting for Business Discuss whether the foregoing five financial items would meet the definition of income to the company during the year? Give reasons for your answer. Which, if any, of the items would meet the definition of revenue to the company for the year? Give reasons for your answer. PART C. Comparing balance sheet (7 marks) ABC company and XYZ company conduct the same type of business. Both are recently formed entities. the balance sheets of the two companies as at 30 June 2020 are as follows: ABC Company Balance sheet As at 30 June 2020 $ $ $ $ Assets Current assets Cash at bank 2 400 Accounts receivable 4 800 Total current assets 7 200 Noncurrent Assets Office equipment 6 000 land 18 000 building 30 000 Total non-current assets 54 000 Total assets 61 200 liabilities Current liabilities Accounts payable 21 600 Loan payable due 30 September 2020 31 200 Total current liabilities 52 800 Total liabilities 52 800 Net assets 8 400 Owner’s equity P. Cable Capital 8 400 Total owners’ equity 8 400 XYZ Company Balance sheet As at 30 June 2020 $ $ $ $ Assets Current assets Cash at bank 2 000 Page 4 of 7 HC1010 Accounting for Business Accounts receivable 24 000 Total current assets 26 000 Noncurrent Assets Office equipment 600 land 13 600 building 6 000 Total non-current assets 20 200 Total assets 46 200 liabilities Current liabilities Accounts payable 4 800 Loan payable due 30 September 2020 7 200 Total current liabilities 12 000 Total liabilities 12 000 Net assets 34 200 Owner’s equity P. Cable Capital 34 200 Total owners’ equity 34 200 You are required to answer the following questions based on the information provided above: a. assuming that you are a banker and that the owner of each business has applied for a short- term loan of $6000 (repayable in six months), which application would you select as being the more favourable? Explain. b. assuming that you are a businessperson interested in buying one or both companies, and both owners have indicated their intentions to sell, for which business would you be willing to pay the higher price, assuming you will be taking over the existing liabilities of the company? explain. c. if the existing owners agreed to be accountable for all existing liabilities, how would this change your decision in (b), if at all?