Solutions to Revision (1)

8/18/2019 Solutions to Revision (1)

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BSB110 ACCOUNTING

SOLUTIONS TO REVISION QUESTIONS FOR FINAL EXAM

QUESTION 1

(a) Gatton Gardeners Cas F!o" State#entFor te $ear ended %0 &'ne 00

In*!o"(O't*!o")

Cash flows from operating activitiesReceipts from customers 241000Payments to suppliers & employees (221000)

Net cash provie !y operations 20000

Cash flows from investing activitiesPurchase of e"uipment (#000)Purchase of lan (10000)

Net cash use in investing activities (1#000)

Cash flows from financing activitiesCapital contri!ute #000$ncrease in mortgage #0000%rawings (40200)

Net cash use in financing activities (200) Net (ecrease) in cash hel (200)Cash at !eginning of year '200Cash at en of year '000

(+) cash is not relate to profitprofit of *1+00 an cash ecrease !y *200profit is !ase on accrual accounting measure as revenue earne less e,penses incurre not cash in or cash outnee to !e clear a!out ifference !etween cash !alance an profit!est way to e,plain to -ary is via the Cash .low /tatementthe cash provie !y operating activities ie Relate to profit activities is *20000 ie thecash3 inflows from profit activities is much greater than the accrual profit of *1+00nee to e,plain how cash ecreasehe investe in aitional assets e"uipment an lantotal of *1#000he withrew *40200 an this is the maor contri!utor to ecline in cash !alancethisamount oes not affect profit !ut oes affect cash !alancehe increase the mortgage an i contri!ute aitional capital !ut only to the e,tent of total

of *##000so overall the maor factor causing the ecrease in cash is the rawings he mae

5/5110 2014 revision solutions

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QUESTION

(a) ,od$ Anton$

Cas F!o" State#ent *or te $ear ended %0 &'ne 00-

Cas F!o"s *ro# O.erat/n At/2/t/es3

Receipts from customers #6#00Payments to suppliers an employees (#'00)Net Cas .ro2/ded +$ O.erat/n At/2/t/es #+00

Cas F!o"s *ro# In2est/n At/2/t/es3

Payment for lan (1'000)Payment for plant an e"uipment (##00)Net Cas 'sed /n In2est/n At/2/t/es (17#00)

Cas F!o"s *ro# F/nan/n At/2/t/es3

Capital contri!utions 6000Procees from 8ongterm loan 12000

%rawings (#+00)Net Cas .ro2/ded +$ F/nan/n At/2/t/es 1400

Net /nrease /n as e!d 200 Cas e!d at te +e/nn/n o* te */nan/a! $ear (1200)Cas e!d at te end o* te */nan/a! $ear *1'00

(+) See Let're Notes

QUESTION %

(a) A!+ert C!arene

Cas F!o" State#ent *or te */nan/a! $ear ended %0 &'ne 004

Cash flows from operating activitiesReceipts from customers 4140Payments to suppliers an employees (2#07')

Net cash provie !y operating activities 17#7'Cash flows from investing activities

Payments for purchase of office furniture (1#+00)Payments for purchase of elivery vehicles (2+7#')

Net cash use in investing activities (404#')Cash flows from financing activities

$ncrease in !orrowings 11+40Capital contri!ute 1'000%rawings ('#')

Net cash provie !y financing activities 1610' Net (ecrease) in cash hel (264')Cash at !eginning of year 2+0Cash at en of year *(2+7')

(+)


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Net .ro*/t 9 :ccrual !asis accounting *+0#0$e Revenue ;:RN;% less e,penses $NC


4/21

QUESTION 4

(1) INVENTOR7 CAR89AVERAGE COST

8ate E:.!anat/on ;'rases Cost o* Goods So!d Ba!ane

D:8 1+0 1'++0

;ning $nventory 9 *7100Cost of -oos /ol 9 *1'++0

(%) Dhe calculations are ifferent !ecause we have use two ifferent inventory costingmethos for the inventory cars.$.> an :verage Cost

Note that in this "uestion inventory purchase price (cost) rose uring the monthDhe effect of this is epenent on the $nventory Costing metho use.$.> ening inventory (asset) is higher than :verage Cost.$.> Cost of -oos /ol (e,pense) is lower than :verage Costthus .$.> profit is higher than :verage CostDhe opposite effects woul occur if inventory purchase price fell uring the perio


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(5) Dhe !est3 valuation of inventory epens on what management wants to achieve an itsgoals for the firm5ecause te ost/n #etod 'sed a**ets assets and .ro*/ts

• Fanagement must choose the most appropriate metho

• %epening on the type of inventory that the firm is selling

T/s ten /n an /#.ortant de/s/on *or Manae#entDhe items affecte !y the inventory costing metho are=GC>-/G-ross ProfitGNet ProfitG$nventory in the 5alance /heet anG>wners ;"uity (as net profit is affecte)

Dhe specific unit cost metho assigns each inventory item its particular cost Dhe specificunit cost metho is use for inventory items that are iniviually ientifia!le liHe ewels anmotor vehiclesDhe average cost metho assigns the weighteaverage cost of inventory availa!le uring

the perio to ening inventory an cost of goos sol prouces the highest reporte profit

prouces the lowestreporte profit

In enera!3 FIFO results in the ening inventory !eing value at the most current cost Dheearliest costs of the perio are assigne to cost of goos sol leaving the last (that is the mostcurrent) costs for ening inventory LIFO results in the cost of goos sol amount !eingvalue at the last (the most current) cost

QUESTION -

(1) In2entor$ CardD:8 +0

;ning $nventory 9 * +60 Cost of -oos /ol 9 * +0


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() In2entor$ Card9A2erae Cost

8ate E:.!anat/on ;'rases Cost o* Goods So!d Ba!ane

I;/D cost of goos sol 9 .$.>

QUESTION

(a)

'J4 $nventory 1400:ccounts Paya!le-olen 8t 1400

10J4 :ccounts Paya!le-olen 8t 2'0$nventory 2'0

14J4 :ccounts Paya!le-olen 8t 11'0Cash 11'0

(!)11J# :ccounts Receiva!leP /cott 600

/ales 600

Cost of -oos /ol #00$nventory #00

1+J# /ales Returns an :llowances 1'0:ccounts Receiva!leP /cott 1'0

$nventory '0Cost of -oos /ol '0

21J# Cash '0:ccounts Receiva!le '0


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(c) 1 /ales /ales Returns & :llowances 9 Net /ales 9 *21'00 *1+' 9 *21##'

2 Net /ales Cost of -oos /ol 9 -ross Profit 9 *21##' *1'6' 9 *'#+0

# -ross Profit >perating ;,penses 9 Net Profit 9 *'#+0 *1+'0 9 *#10

QUESTION =

(EXTRACT) CAS6 RECEI;TS

&OURNAL

(EXTRACT) CAS6 ;A7MENTS &OURNAL

Dotal to ate '+4#1 Dotal to ate +767

N/. ('40) 5anH Charges #'

Note Receiva!le 2+'0

$nterest earne 4

D>D:8 *'7+1' D>D:8 *+77##

CAS6 AT BAN, ACCOUNT

%ate PR %e!it Creit5alance

%e!it Creit

1 >ct 5al 227

#1 >ct CRE '7+1' +0602

#1 >ct CPE +77## 6#1

Ban> Reon/!/at/on at %1Oto+er

5alance as per 5anH /tatement #1 >cto!ercreit +474 CR

: eposits in transit 26#

6421

8ess >utstaning che"ues 174#2

6011 oJ

8ess 5anH error on che"ue no 424 1070

:grees with !alance as per leger cash accountcreit 6#1 CR



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QUESTION ?

Cas Ree/.ts &o'rna! * Cas ;a$#ents &o'rna! *

Dotal to ate 47 Dotal to ate #76+

5ill Receiva!le +'0 5anH charges 2'

N/. (100) *#621*'#27

CAS6 AT BAN, A@C

8EBIT CRE8IT BALANCE

:pril 1 5alance 1#+41

:pril #0 CRE '#27 176+6

CPE #621 1'047

Ban> Reon/!/at/on

As at %0 A.r/!

5alance as per 5anH /tatement #0 :pril 1'40' CR

: outstaning eposit '01'6'

less !anH error on Ch" no 727 1001'7'

less


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QUESTION 11

6annas 6a/r Fas/onsJ% 72

*4+' *''1

CAS6 AT BAN, A@C

8EBIT CRE8IT BALANCE

Fay #1 5alance #42 CR

Eune #0 CRE 4+' #2 CR

CPE ''1 #727 CR

Ban> Reon/!/at/on As at %0 &'ne

5alance as per 5anH /tatement #0 Eune #'#2%R :


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(!) 5anH Rec is an ;LD;RN:8 $N%;P;N%;ND checH of cash recorsvery

strong control as it is D>D:8 separation of custoianship an recor Heeping

?;/AA%;.$N $D;8? I>RD@ %>$N-as nee to fin items that 5anH Hnows a!out anthe firm oes not eg !ill receiva!le collecteM !anH chargesM N/. che"ues M irect e!itsnee to confirm that all che"ues have !een presente an all eposits maHe $ND:CD

in this "uestioneposit of the 7 th Eune has not yet !een mae at the !anH nee to checH to see what has happenecoul !e an inication of very !ig .R:


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%epreciation uner @C accounting9 :88>C:D$>N of C>/D of asset over its useful life

− attempts to measure the ecline in service potential of the asset

− ecline cause !y → wear an tear

technical o!solescence

commercial o!solescence− in fact 9 allocation of eprecia!le amount

8:N% not epreciate as its service potential oes not ↓

→ %epreciation is N>D a valuation techni"ue ie oes not show ↓ in :8D a measure of current worth of asset

∴ the fact that 8 & 5 can !e sol for *1'00000 is $RR;8;:ND

− must still epreciate !lgs − regarless of current value

∴ same for plant − ep ≠ ifference !etween cost an marHet value

→ %epreciation oes N>D create cash reserves

− epreciation ≠ cash nothing to o with cash

− a 5>>O entry to allocate cost an show the ;LP;N/; of using the asset

QUESTION 15

(a)

(i) /traight lineuniform charges over the life of an assete"ual amounts each year epreciation is a function of timeieal for !uilings

(ii) Reucing 5alanceaccelerate epreciation ie greater epreciation in early years ascompare to later years when smaller epreciationieal for assets which are use a lot in early years an then not so much in later

yearse"uipment which eteriorates "uicHlyor computer e"uipment which suffers from technical an commercial o!solescencean thus greater epreciation in early years of life

(iii) units of prouctionepreciation is a function of N- %epreciation is not a valuation techni"ue2 :le, says in 2n year :8N- again


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%epreciation is not a valuation techni"ue# :le, says cash o!taine from epreciation

IR>N- as epreciation oes not e"ual cash%epreciation is a !ooH entry an has nothing to o with cash%epreciation oes not put asie funs or create any funs for replacement%epreciation simply ecreases profits an ecreases assets

4 Ihat epreciation is 9 allocation of the eprecia!le cost of the asset over the assetsuseful lifeto show that the asset has !een use to prouce revenueFatching revenues an e,penses%eprecia!le cost 9 cost less resiual value

QUESTION 14

(a) 5ooH value of asset9cost less accumulate epreciation%epreciation is simply an :88>C:D$>N of the cost of the asset over the useful lifeepreciation is N>D a valuation techni"ue ie selling price is N>D what !ooH value e"ualsepreciation is N>D a measure of efficiency or value of asset ie efficient value of asset is

not what !ooH value e"uals N55ooH alue is also written own valueDhe prouction manager an the managing irector are 5>D@ IR>N- $N D@;$R

:R-


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QUESTION 1-

/ales 5uget 2n Quarter

1st month 2n month #r month Dotal

*4200 *'400 *200 *1+700Fultiply num!er of units !y unit cost

Purchases Cost of -oos /ol an $nventory 5uget

1st month 2n month #r month Dotal

Cost of -oos /ol1 *2100 *200 *#+00 *7400

%esire ;ning $nventory2 1070 1440 1200' 1200

/u!total #170 4140 4700 6+00

5eginning $nventory# +004 1070 1440 +00

9 Purchases *2'70 *#0+0 *##+0 *6000

1 Cost of -oos /ol is '0K of !ugete sales= *#J*+ 9 '0K2 %esire ;ning $nventory is 40K of the following monthSs Cost of -oos /ol# 5eginning $nventory is 40K of current monthSs Cost of -oos /ol (or simply last

monthSs ;ning $nventoryT)4 5eginning $nventory is 200 units × *# ea 9 *+00' Dhe ne,t monthSs proecte Cost of -oos /ol 9 1000 units × *# ea 9 *#000M ;ning

$nventory 9 40K × *#000 9 *1200

QUESTION 1

(a) (/) contri!ution margin 9 sales varia!le costs 9 *20 *6'0 9 *10'0

(//) !reaHeven (units) 9 fi,e e,penses J contri!ution margin9 *1'000 J *10'0 9 1427'14 units9 1426 units (roune to nearest unit)

5reaHeven (ollars) 9 !reaHeven (units) , selling price per unit 9 1426 , *20 9 *27'70

(///) N;I contri!ution margin 9 sales varia!le costs 9 *20 *10 9 *10

N;I !reaHeven (units) 9 fi,e e,penses J contri!ution margin 9 *1'000 J *10

9 1'00 units N;I !reaHeven (ollars) 9 !reaHeven (units) , selling price per unit

9 1'00 , *20 9 *#0000

Contri!ution Fargin $ncome /tatement/ales (2000 , *20) 400008ess aria!le e,penses (2000 , *10) 20000Contri!ution margin 200008ess .i,e costs 1'000

Net profit '000


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ChecH calculation= if sell 2000 !alls then that is '00 a!ove the !reaH even point ;very salea!ove the !reaH even point earns the CF per unit in profit '00 , *10 9 *'000 9 profit as

per the profit an loss statement

QUESTION 1= Ca$den ,ent

a Contri!ution margin per unit=/ale price 6aria!le e,penses #Contri!ution margin per unit *+

! 5reaH even sales9

.i,e e,penses

in units Contri!ution margin per unit

9*1200

*+9 200 meals

c 5reaHeven sales in * 9 200 , *6 9 *1700

/ales revenue (200 × *6) *1700

8ess aria!le e,penses (200 × *#) +00

Contri!ution margin 12008ess .i,e e,penses 1200Profit * 0

e Darget sales in units9

.i,e e,penses Profit

Contri!ution margin

91200 600

*+9 #'0 meals

Darget sales in * 9 #'0 , *6 9 *#1'0Do earn target profit of *600 Cayen Oent must sell #'0 meals

f erify this !y preparing a Contri!ution Fargin format $ncome /tatement

/ales (#'0 , *6) #1'0

8ess aria!le e,penses (#'0, *#) 10'0

Contri!ution Fargin (7' , *40) 21008ess .i,e e,penses 1200

Net profit *600

QUESTION 1?

/ales *2700008ess= aria!le ;,penses

Cost of -oos /ol *120000 FarHeting ;,pense 24'00 -eneral ;,pense #'000 16'00

Contri!ution Fargin 100'00

8ess= .i,e ;,penses FarHeting ;,pense 10'00


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-eneral ;,pense #'000 4''00

Net Profit * ''000


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QUESTION 0

C!arene Enter.r/ses

(a) ;'rasesD Cost o* Goods So!d and In2entor$ B'det

A''st Se.te#+er Tota!

Cost of -oos /ol +7000 +2400 1#0400

ening $nv GG 42440 461+0 461+0

110440 111'+0 16'+0

5eginning $nv +6000 42440 +6000

Tota! ;'rases 41440 +6120 110'+0

GG ening inventory 9 '000 plus +0K of the !ugete cost of goo sol for the

following month:ugust 9 '000 +0K of +2400/eptem!er 9 '000 +0K of (70K of 62000)

(+)

B'deted Ino#e State#ent

*or te #ont o* Se.te#+er

/ales 7000

8ess cost of -oos /ol +2400-ross Profit 1'+00

8ess operating e,penses 1'000

Net Profit +00

QUESTION 1

(a)L/'/d/t$ 9 a!ility to pay e!ts in short term

• C'rrent Rat/o 9 amount of C: availa!le to pay C8 Rule of thum! is 2=1.or 2000 − goo ust a!ove rule of thum!

$mprove since 1666 9 goo

• A/d Test Rat/o 9 amount of very li"ui assets availa!le to pay C8

: mere stringent test of li"uiityRule of thum! is 1=1

.or 2000 − goo ust a!ove rule of thum!

$mprove since 1666 9 goo

• In2entor$ T@O − very inustry epenent

− no information here as to what inustry ∴ ifficult to comment higher the !etter

− increase since 16669 goo

at #' times − not a fruit shop which shoul have DJ> of roughly 17' times

appro,imately− ∴ must !e selling slow moving items that have long shelf life


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17/21

• A@Cs Re T@O − increase since 1666 goo higher !etter

− convert to average collection perio an compare to average creit perio

=

67+

#+'

'226 aysif creit perio is #0 ays then this is goo

F/nan/a! Sta+/!/t$ 9 a!ility to pay e!ts in long term

− a!ility to service e!ts from current profits

• 8e+t Rat/o 9 ecrease since 1666 − goo− the lower the !etter

− a!ove 0K is not goo in :ustralia

+0K is goo level an securenee to looH at ecreasing the e!t an increasing the >; in e"uity structure

• T/#es Interest Earned 9 a!ility to pay interest out of profits

− coverage of interest# or 4 times is safe ∴ 2000 figure 9 goo

− has increase since 1666 ∴ goo

;ro*/ta+/!/t$ − a!ility of !usiness to generate profits overall − goo

• rate o* ret'rn on net sa!es 9 +K in 2000 a large increase from 1666 − goo

9 sales are proucing ollars

• rate o* ret'rn on tota! assets 9 1+0K in 2000 − triple from 1666 − e,cellent

− the assets are worHing efficiently

− management is using assets in a goo com!ination

(+) >ther information= inustry averages

− horiUontal analysis of the 2 years given

− tren analysis of past # or 4 years ata− common siUe financial statements

• any info a!out the firm − management or irectors reports etc

• cash flow statement

• :ny relevant piece of ata

QUESTION

;ro*/ta+/!/t$ Ana!$s/s3

V Dhe profit ratio measures the profit per ollar of sales Profita!ility has fallen sharplyfrom 1'00K in 1667 to ++K in 1666 as inicate !y the profit ratio $n other worsfor every ollar of sales the company is only earning ++ cents Dhis is of maor concern

V Dhe rate of return on net assets measures the return earne !y management throughactivitiesM shows the success a company has in using its assets to earn a profit Dhis ratiohas also roppe from 1''2K to 604K inicating that the a!ility of the assets togenerate profits has ecline Dhis too is of maor concern

L/'/d/t$ Ana!$s/s3

V Dhe current ratio measures the companyWs a!ility to satisfy its o!ligations in the shortterm Dhe companyWs current ratio has fallen from 00 times to 2## times inicatingthat it is fining it more ifficult to pay its e!ts as an when they fall ue Dhis is anarea of concern although 2## times is satisfactory a rule of thum! is usually 2=1

V Dhe "uicH ratio tells us whether the company coul pay all of its current lia!ilities if

they !ecame ue an paya!le immeiately Dhe companyWs "uicH ratio has fallen


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ramatically from 400 times to 111 times Dhis is an area of concern although 111times is satisfactory a rule of thum! is usually 1=1

V Dhe inventory turnover ratio is a measure of the ae"uacy of inventory an howefficiently it is !eing manage $nventory turnover has increase slightly !etween 1667an 1666 Dhe higher the turnover the !etter as it means that inventory is !eing turneover more fre"uently /teps shoul !e taHen to try to increase this

F/nan/a! Sta+/!/t$ Ana!$s/s3

V Dhe e!t ratio measures the proportion of the companyWs assets finance !y e!t Dhee!t ratio is a measure of the relationship !etween total lia!ilities an total assets DhecompanyWs e!t position has eteriorate ramatically !etween 1667 an 1666 $n 1667only 606K of the entity was e!t finance whereas in 1666 this amount has increaseto #'14K O for 6 at 2#=1 an hasecline in 67 to !elow the 2=1 !enchmarH 5ut !eware of Rules of Dhum!as they are only averages an shoul looH at the inustry :lso the moreli"ui the firm the less profita!le :s li"ui assets are not usually

profita!le• Q'/> rat/o more stringent test of li"uiity only X"uicHX assets inclue in

numerator rule of thum! 1=1M >O for 6 an then ecrease to 0+=1 Nottoo !a though

• In2entor$ T@O measures num!er of times inventory is turne over uring

year @as ecrease from 6 to 67 $nustry epenent

• Ree/2a+!es T@O measures how "uicHly the cash is receive from

receiva!les has ecrease Compare to average creit perio of #0ays

• FINANCIAL STABILIT7 shows the a!ility of the firm to survive in long run

security• 8e+t Rat/o shows K of assets fune !y outsie e!t $n :ustralia +0K

is the ma,imum preferre Rose Iines very sta!le with only #0K thenincrease to #4#K therefore very secure

(ii)

• ;ro*/ta+/!/t$ Rate of Return of :ssets measures return that assets prouce

• L/'/d/t$ Receiva!les Collection Perio convert receiva!les DJ> to %ays

• In2entor$ T@O .er/od covert inventory DJ> to %ays

• F/nan/a! Sta+/!/t$ Dimes interest earne shows how well net profit covers interest

e,pense commitment

(iii)


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• woul e,pect this to !e the case

• ie profit margin increase an current ratio ecrease

• profita!ility versus li"uiity

• li"ui assets are generally not profita!le eg cash at !anH earns very low interest prepai

e,penses earn no interest ∴ the more li"ui the assets the less profita!le the firm an

vice versa• hereless li"ui ∴ increase profits

(iv)

• woul e,pect this to !e the case

• ie profit margin increase an inventory DJ> ecrease

• profita!ility versus li"uiity

• they usually move in opposite irections

• though an increase inventory DJ> woul liHely lea to increase profits as selling more

• !ut perhaps cost of sales is too high to allow for much increase in profits

(v) >ther info 9 $nustry averages Past years ata Dren analysis

$nfo re= economic climate $nvestorWs preference for risH an returns

(vi) Changing epWn metho affects epWn e,p an accumulate epWn ∴ net assets

∴ affects net profit an Dotal :ssets

∴ all ratios which inclue there two items will !e affecte

NOT LIQUI8IT7 rat/os

;ROFITABILIT7 Profit margin Rate of return on assets

FINANCIAL STABILIT7 Dimes $nterest ;arne

%e!t Ratio

QUESTION 5

(a)

$nventory DJ> increase means goo newsinventory was sol more "uicHly therefore !etterli"uiitymore sales alsowoul also e,pect this woul lea to higher potential profits

Receiva!les DJ> increase means goo newscollecte money from customers more "uicHly "uicHer cash collection!etter li"uiityless pro!lems with !a e!ts perhapsthis oesnot affect profita!ility

5-/ must have !een increase at a -R;:D;R rate

than sales >R operating e,penses have increase at a greater rate than sales

>verall any Hin of e,pense must have risen at a greater rate than the increase turnover

(+) ;ART (/) .>R D@$/ /;CD$>N N;;% D> 8>>O E/ -$;N C:NN>D %> C>FP8;D; %$/CN 5;C:. D@; 8:CO >. %:D: :N%D@; 8$F$D:D$>N/ :/ P;R /;CD$>N/ (ii) an (iii)

;ROFITABILIT7

:!ility of firm to generate profitsProfit Fargin9the return on sales@as ecrease from 10K to K on the face of itnot a goo sign!ut at least profits are

!eing earne


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Return on :ssets9measures the efficiency of the assets%ecrease from 1'K to 11Knot goo to have a ecrease!ut profits are !eing earne>verall profita!ility is >O for 16L6 !ut the ecreases are a cause for concern

LIQUI8IT7

A+/!/t$ o* */r# to .a$ /ts sort ter# de+ts as te$ *a!! d'e

C'rrent Rat/o 9 current assets compare to current lia!ilities%ecrease from L7 to L6 was 2=19rule of thum!5eware use of the Rule of Dhum!too much li"uiity can lea to ecrease profita!ility Q'/> Rat/o 9 more stringent test of li"uiityrule of thum! here is 1=1firm "uicH ratiohas %;CR;:/;% cause for concern5oth these measures are /D:D$C measures of li"uiityfor a more complete analysis looH atReceiva!les collection perio an $nventory DJ>Ree/2a+!es o!!et/on .er/od 9 no of ays to collect accounts receiva!lecompare tocreit perio for firmusual creit perio is #0 aysthis firm was oing well at #0 aysan has now %;C8$N;% to 4' aystaHing longer to collect receiva!lesleas to

ecreasing cash !alancescoul lea to 5:% %;5D/In2entor$ T@O 9 no of times inventory is turne over uring the yearmore times the !etter

higher DJ> woul lea to higher li"uiityhas %;CR;:/;% in this case form ## times to27 timesthe firm must not !e selling perisha!lesfruit shop DJ> woul !e +0 or greatertimesFercees 5enU retailer DJ> aroun 1' times appro,

>;R:88 all li"uiity ratios have worsene

FINANCIAL STABILIT7

:!ility of firm to survive in the futurelong term li"uiity8e+t Rat/o 9 K of assets fune !y e!t as oppose to e"uityaverage in :ust appro, +0KDhe more e!t in a firmthe higher interest e,pense an the lower the profits an the more

e!t repayments@as increase5:% newsfrom +4 up to 2 a!ove :ust :veragemore e!t to servicean repayT/#es Interest Earned a!ility of profits to cover interest e,penserule of thum! aroun #or 4 timeshas %;C8$N;% from 2 own to 1area of concern

>;R:88 financial sta!ility has worsene

.>R D@; .$RF >;R:88 :88 :R;:/ @:; I>R/;N;% .R>F L7 D> L6

(//)

N>N>D ;N>RF:D$>N D> F:O; : %;C/$>N>D@;R $N.> N;;%;%Minustry averagespast years ata to see if the ecline is a trentren analysisinfo re the economic climatethe frienSs preference for risH an return

(///) LIMITATIONS !ase on past ata!ase on historical cost measurement!ase on yearen atalimite isclosures !y certain companiesentities may not !e compara!le


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eg ifferent inustries ifferent accounting methos ifferent siUesmust consier info in other reportse,istence of e,traorinary items can cause pro!lems in the analysis

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Solutions to Revision (1)

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