Business School: ACCT1501 Accounting and Financial Management 1A Session 2 2015

Business School
ACCT1501 Accounting and Financial Management 1A

Session 2 2015
TUTORIAL WEEK 2 Solutions to Preparation Questions

Preparation Questions:
DQ 1.1, 1.2, 1.3, 1.7; P1.5, P1.14, Case 1A
DQ1.1 The basic purpose of financial accounting is to produce useful information which is
used in many and varied ways. People use the information generated by financial accounting
to improve their decision-making in allocating scarce resources.
DQ1.2 Financial performance means generating new resources from day-to-day operations
over a period of time. Financial position is the organisations set of financial resources and
obligations at a point in time.
DQ1.3 Managerial accounting is a branch of accounting that is oriented towards helping
managers and others inside the enterprise. Financial accounting has a more external focus,
and is often used by parties external to the enterprise, such as, shareholders, investors,
bankers, legislators and employees etc.
DQ1.7 Users of financial statements do not all have the same information needs. They are all
different people, with differing objectives, preferences and capabilities, so they are likely to
need different information to meet these differences in decision-making. Probably most users
share an interest in fair, timely information, but the details of that information depend on the
decision(s) each user is making.
Problem 1.5
1
The profit for the period which is revenue minus expenses. Profit will be one of the
performance indicators for the CEO. If the club is making a loss there will be issues about the
financial viability of the club.
Financial position: as provided by the balance sheet. A strong balance sheet will
make it easier for the CEO to carry out their strategic initiatives, e.g. new training facilities.
2
Cash flow is critical as the players payments depend on it.
The higher the profit the more likely the players can argue for pay increases.
3
The supporters are most concerned about the long term viability of the club. They
may take a more long term perspective than even the CEO and players. The balance sheet is
important here. Obviously they are also interested in the profitability and cash flow of the
club. These will impact the short term viability including their ability to buy new players.
4
The key here is the number of people attending the game. It is likely to be correlated
with sales revenue. The more profitable the club, the more likely it can look after its players
and fans and therefore get people to the ground.
Problem 1.14
1
A
2
L
3
L
4
E
5
E
6
A
7
SE
8
L
9
A
10 A
11 E
12 R
Case 1A
1 Indicators that Woolworths uses accrual accounting:
Trade and Other Receivables
Trade and Other Payables
Provisions
Depreciation
Amortisation
Prepayments
Accruals
Unearned Revenue
Note 1
2 Total assets at 26 June 2011 = 21,094.5 m
3 Total Liabilities at 26 June 2011 = 13,248.7 m
4 Shareholders equity at 26 June 2011 = 7,845.8 m
5 Accounting equation in dollar figures at 26 June 2011
A
=
L
+
OE
21,094.5m 13,248.7 m + 7,845.8 m
6 Net profit before tax = 3,014.9 m
7 Net profit after tax = 2,140.3 m
8 Largest cash inflow relating to operating activities = 58,886.6 m
Largest cash outflow relating to operating activities = 54,797.3 m
9 Cash flow from operations is a different figure to operating profit after tax because the latter
is calculated on an accrual basis and includes a number of items omitted from the cash flow
from operations including:
Revenue earned but received in other periods
Expenses incurred but paid for in other periods
Expenses not involving cash outlays including depreciation and bad debts
In addition the cash flow from operations includes revenues and expenses relating to prior or
subsequent periods.
10 Total assets increased over the last year.
11 Woolworth Limited had $3,736.5 million worth of inventory as at 26 June 2011. (p.748)
2
12 26 June 2011
13 a 2 years
b 2 years
c 2 years
14 Yes, they are. There is auditor's declaration (by Deloitte) in the report. (p.787)

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TUTORIAL WEEK 2 Solutions to Preparation Questions

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