Assignment

Accounting Analysis

Accounting Analysis

Question 1

1.1

a. Bad Debt Amount

Amount written off as bad debts relating to Mr. X

Total Debt of Mr. X = R. 2000

75% received from estate= .75x2000= R. 1500

Bad debts = 2000-1500= R. 500

b. General Journal Entry for Bad Debt amount

Details

Debit

Credit

Bad Debt Expense

R.500

Allowance for doubtful accounts

R.500

c. Adjustment of provision for Doubtful Debts

45,500 -28,000 = 17,500

d.

Details

Debit

Credit

Purchases

R.16500

Accounts Payable

R.16500

Cash

12000

Sales

12000

Sales

1800

Cash

1800

1.3

a. Fixed Asset Register

DEPRECIATION CALCULATION

Date

Depreciation

Accumulated Depreciation

Net book Value

-

-

-

R. 148,000

31/12/2008

R. 37, 000

R. 37, 000

R. 111,000

31/12/2009

R. 37, 000

R. 74,000

R. 74,000

31/12/2010

R. 37, 000

R. 111,000

R.37,000

31/12/2011

R. 37, 000

R.148,000

-

b. Depreciation for vehicles at 15%. p.a

DEPRECIATION CALCULATION

Date

Depreciation

Accumulated Depreciation

Net Book Value

0

-

-

R. 120,000.00

31/12/2008

18,000.00

18,000.00

102,000.00

31/12/2009

18,000.00

36,000.00

84,000.00

31/12/2010

18,000.00

54,000.00

66,000.00

31/12/2011

18,000.00

72,000.00

48,000.00

Depreciation of fixed assets affects financial statements, balance sheet and income statement both. As depreciation is linked with two theories, the fall in the asset's value (fair value) and allotment of cost of fixed assets to the time period when assets were used (matching principle). The first theory of depreciation directly affects the market value of the firm while the second theory affects the net income. There are various methods of depreciation that are used by the firms depending on their capital structure.

1.4

Balance sheet

Bradley & CO

As at 31 December 2012

Assets

R

Non-current Assets

Vehicles

48000

Accumulated depreciation

72000

Current Assets

Trade Debtors

17500

Inventory

14000

Bank

65000

Total Assets

216500

The purpose of the balance sheets is to show the company's financial condition and is an integral part of the financial statements. Balance sheet reflects the financial position of the firm. The size of the firm in known by the total assets recorded in the balance sheet. While, the ratio of its business financed by equity or debt is also calculated by balance sheet, which is then used in further calculation for the market value of the firm. The main components of balance sheet are assets, liabilities and equity.

Question 2

Date

Assets

Income

Capital

Expenses

Liabilities

3 March

R

R 5000 + 85000 (capita+ vehicle)

12 March

R 960 - (purchases)

16 March

2474 - (a/c receivable)

25 March

R 162000 - (salaries)

28 March

7200 - (a/c payable)

31 March

15000+ (investment)

Question 3

Wonders of Fashion

3.1

a. Current Ratio:

Year 2011

Current Assets = 43,601,177 = 3.36

Current Liabilities 12,989,020

Year 2010

Current Assets = 28,672,370 = 1.81

Current Liabilities 15,801,519

b. Inventory Turnover Ratio

Year 2011

Cost of Goods sold = 85,657,057 = 22.84

Inventory 3,750,000

Year 2010

Cost of Goods sold = 78,395,467 = 19.02

Inventory 4,120,000

c. Quick Ratio

Year 2011

Current Assets - Inventory = 43,601,177 - 3,750,000 = 3.06

Current Liabilities 12,989,020

Year 2010

Current Assets - Inventory = 28,672,370 - 4,120,000 = 1.55

Current Liabilities 15,801,519

d. Return on Equity

Year 2011

Net Income = 8,921,247 = 16.6%

Stock holder's Equity 53,640,857

Year 2010

Net Income = 7,830,116 = 20.84%

Stock holder's Equity 37,557,051

e. Price to Earnings Ratio

Year 2011

Market Price of Common Stock = 36.68

Earnings per share 4.59

Year 2010

Market Price of Common Stock = 34.99 = 7.59

Earnings per share 4.61

Ratios are way to analyze all the financial statements in depth to get the true picture of the firm's financial position. This is the way, market value of the firm is determined. All the necessary examination is done through ratios. Some of the major ratios heads that are important in determination of the market value are discussed below.

Liquidity ratio ; Current assets tells the liquidity position of the firm, if the firm goes down tomorrow then ...