ACCT 2060 Introductory Accounting Assignment Part A- The Company Question Answer Blackmore Limited principle operating Question

1 Describe the companys principal operating activities was to development of health products activities. and marketing of products which includes vitamins, herbal and mineral nutritional supplements. (Blackmores Annual Report 2011, pg 37) Marcus C Blackmore is the blackboard of Question 2 Directors of a company will often own shares in directors as of end of 2011 financial year. the company as well. Name the chairman of Marcus C Black holds 4,479278 of shares Blackmores board of directors and identify the which totals up to 26.75% of the company at the number of shares the chairman held in the end of their financial year. company at the end of their 2011 financial year (Blackmores Annual Report 2011, pg 104) (financial year ends June 30, 2011). Note no. 3 of the financial report shows Question 3 The annual report contains a number of reports financial reports of : with only some of these being financial 1. Consolidate Statement of Financial reports. Name all of the financial reports in position Blackmores 2011 annual report. 2. Consolidate Statement of Comprehensive income 3. Consolidate Statement of Changes in Equity 4. Consolidate Statement of Cash flows. 5. Income Statement This are the financial reports which will show Blackmores company's current assets, liabilities, operating, investing ,financing activities, income, expenses, and profits and ownership equity and change of equity within the financial year. (Blackmores Annual Report 2011,pg 58 pg 67) The number of the note that deals with Question 4 Using the 2011 Annual Report, identify the significant accounting policies is note 3.5. number of the note that deals with Significant Accounting Policies and identify the method of Straight method of depreciation is used to depreciation the company uses to depreciate depreciate property, plant and equipment by property, plant and equipment. subtracting the PPE asset salvage value from the asset's historical cost, then dividing the What is the underlying assumption of this remaining amount by the useful years of the method in relation to the usefulness of property, asset as shown in note 3.7. plant and equipment? The underlying assumption is base on the absence of contrary information of an estimate is assumed PPE asset generate equal usefulness or benefits for an indeterminate period of time (Blackmores Annual Report 2011, pg 58-67)

Question 5 Explain what is meant by the term, corporate governance and list the eight principles of corporate governance that Blackmores adheres to. Corporate governance helps to assure investors or shareholders by showing principles which helps to prevent ineffective management and spending on hefty projects and gives transparency accounts to the public (Cadbury Committee, 1992). The eight principles of corporate governance that Blackmore adheres to are: 1. Lay solid foundations for management and oversight. 2. Struture the board to add value. 3. Promote ethical and responsible decisionmaking. 4.Safeguard integrity in financial reporting 5. Make timely and balance disclosure 6. Respect the rights of shareholders 7.Recoginse and manage risk 8. Remunerate fairly and responsibly. (Blackmores Annual Report 2011, pg 32-33) The purpose of an external auditors report is to provide an independent and unbiased as they are Describe the purpose of the external auditors conducted by outside individual assessment of report, and name the audit firm engaged by an organization's internal governance and Blackmores in 2011. financial. Question 6 External auditor report will shows the income statement, statement of cash flows, statement of change in owners equity and other relevant information of the company. The audit firm engaged by Blackmores in 2011 is Deloltte Touche Tohmatsu which is reported with the audited financial statements, stating views of the companys internal controls about its effectiveness and stability. In 2011, the total amount of revenue and other Question 7 With reference to the consolidated entity: income is $236,592,000. The two revenue items What is the total amount of revenue and are Sales and Royalties. other income in 2011? The other incomes comprised of gain on What are the two revenue items? What is the other income comprised disposals of property ,plant and equipment, of? (You must refer to the relevant note government grants received for market development and net foreign exchange gains. to find the answer to this.) (Blackmores Annual Report 2011, pg 53) The amount of cash receipts from customers in Question 8 Again with reference to the consolidated 2011 is $247,828,000. entity: What is the amount of cash receipts This amount differing from the 2011 sales

from customers in 2011?

figure is because due to the customer receipts of uncollected customer payments from 2010 Why does this amount differ from which is paid in 2011 are included into the cash receipts. the 2011 sales figure (Blackmores Annual Report 2011, pg 55)

Part B- Analysis Of Financial Information Question 1 Using the consolidated figures for Blackmores Ltd, calculate the following ratios for the years 2010 and 2011. Ratios are to be shown at one decimal place. You must show all your workings. (Where no workings are shown you will receive zero for this section): i. ii. iii. iv. Current ratio Acid test ratio Gearing ratio Interest cover ratio

(Blackmores Annual Report 2011, pg 55) 1. (i) As current ratio(2011) = Current assets / Current liabilities = 78,521,000/33,221,000 = 2.4 Times As current ratio(2010) = Current assets / Current liabilities = 80,485,000/34,457,000 = 2.3 Times

(ii) Acid test ratio(2011) = Current assests (excluding inventory and prepayments)/ Current liabilities = (78,521,000 -23,749,000(Inventory)/33,221,000 = 1.6 Times Acid test ratio(2010) = Current assests (excluding inventory and prepayments)/ Current liabilities = (80,845,000 -22,555,000(Inventory)/34,457,000 = 1.7 Times

(iii) Gearing ratio(2011) = Long-term liabilities/(Share capital + reserves + long term liabilities) x100% = [(40,000-10,168)/((40,000-10,168)+79,112)] = [29,832,000/(29,832,000 +79,112,000)] x 100% = (29,832,000/108,944,000) x 100% = 27.4 % Gearing ratio(2010) = Long-term liabilities/ Share capital + reserves + long term liabilities x 100% = [(47,356-21,507) / ((47,356-21,507)+71,790)] x 100% = [25,849,000 / (29,832,000 +79,790,000)] x 100% = (25,849,000 /97,639,000) x 100% = 26.5 %

(iv) Interest cover ratio(2011) = Profit before interest and taxation/ interest expense = 41,533,000 /2,372,000 = 17.5 times Interest cover ratio(2010) = Profit before interest and taxation/ interest expense = 36,746,000 /2,422,000 = 15.2 times

Reference from Page 33, 53 , 68 ,69 and 86 of the 2011 annual report Question 2 You have been provided with the following information about another company, Company X, in the same industry as Blackmores Ltd: COMPANY X Ratio Current ratio Acid test ratio Gearing ratio Interest cover ratio (times) 2011 2.1 1.2 60% 10.9 2010 1.8 1.5 80% 13.1

Using the information above and the calculations in Part B Question 1, you are required to analyse the liquidity and financial gearing (leverage) of Blackmores Ltd and Company X by providing: (A) A description of the movement in each of the ratios for Blackmores Ltd and an explanation of what this movement tells you about Blackmores Ltd; -Current ratio increased by 0.1 from 2.3 to 2.4. Blackmoress ability to pay for current liabilities has increase from 2010 to 2011.With increase ability to pay off liabilities which will increase the liquidity amount as well. (Reference from http://www.investopedia.com/terms/c/currentratio.asp#axzz1pLlkK2C0) -Acid test ratio decrease by 0.1 from 1.7 to 1.6. Blackmoress capacity to pay off current obligations immediately has drop and getting dependent on inventory for liquidity. (Reference from http://www.investopedia.com/terms/a/acidtest.asp#axzz1pLlkK2C0) -Gearing ratio increased by 0.9% from 26.5% to 27.4%.The degree of Blackmores possibility of failing during an economic downturn decreased from 2010 to 2011 (Reference from http://www.investopedia.com/terms/g/gearingratio.asp#axzz1pLlkK2C0) -Interest cover ratio increased by 2.3 from 15.2 to 17.5. Blackmoress debt and the possibility of bankruptcy has decrease from 2010 to 2011 (Reference from http://www.investopedia.com/terms/i/interestcoverageratio.asp)

(B) A description of the movement in each of the ratios for Company X and an explanation of what this movement tells you about Company X. -Current ratio increased by 0.3 from 1.8 to 2.1.Company X ability to pay for current liabilities has increase from 2010 to 2011 -Acid test ratio in decreased by 0.3 from 1.5 to 1.2. Company X capacity to pay off current obligations immediately has drop and getting dependent on inventory for liquidity. -Gearing ratio decreased by 20% from 80% to 60%.The degree of Company X failing during an economic downturn has decreased from 2010 to 2011 -Interest cover ratio decreased by 2.2 from 13.1 to 10.9.Company Xs debt and the possibility of bankruptcy has increased from 2010 to 2011

Question 3 Assume you are considering becoming a creditor for Blackmores Ltd or Company X (from Part B Question 2 above). That is, you will only be providing credit to one of them. Explain which company you would prefer to provide goods to on credit and why you have chosen this company. You may consider both financial and non-financial information in making this decision. As to compare which company is more reliable in terms of financial status, by looking into current ratio and acid ratio for both companies as current and acid ratio will show the current ability of the company to pay off debts. Since Blackmores has a higher current ratio and acid ratio as compared to Company X which states that Blackmores the better ability to pay off current liabilities. Also, the acid ratio for Company X decreased from 2010 to 2011, which shows that Company X is facing off liquidity problems. Currently Blackmores has higher capacity paying off current obligations over Company X. Therefore i would consider becoming creditor for Blackmore and providing credit to Blackmores only.

Question 4

(4 marks)

Prepare a table similar to the table below. Complete the table by inserting information from Blackmores financial statements (consolidated figures). Calculate each item as a percentage (%) of sales revenue. Financial Item Sales Total expenses Promotional and other rebates Raw materials and consumables used 2011 ($) 234,423 195,059 22,907 69,920 % 100.0 83.2% 9.8% 29.8% 2010 ($) 214,934 180,347 19,054 65,748 % 100.0 83.9% 8.9% 30.6%

Employee benefits expense Selling and marketing expenses Profit for the year

52,730 22,102 27,305

22.5%, 9.4%, 11.6%,

48,179 19,134 24,297

22.4% 8.9% 11.3%

Refer to the table above to explain the performance of Blackmores in 2011 compared to 2010. Blackmores has increased in sales of more in 2011 than 2010 by $19,489. As a result of increase in the percentage of sales, the net profits has increased by 0.3% which is the result of lower amount of raw materials and consumables used, although selling and marketing expense increased by 0.5%. The percentage of raw materials used has decrease by 0.8% from 2010 to 2011. The reason is that they have increased productivity which thus increased sales in return but at the same time reducing the amount of raw materials to ensure the efficiency of usage. In bottom line, the companys efficiency has increased due to able to achieved economies of scale.

References List eHow 1999-2012, Depreciation methods for building equipment, View on 15 March 2012 <http://www.ehow.com/way_5254889_depreciation-methods-buildings-equipment.html> Blackmore Annual report, Cashflow statement for 2010, View on 16 March 2012 <http://annualreport10.blackmores.com.au/statement-cash-flows> eHow 1999-2012, Straight Line Method, View on 17 March 2012 <http://www.ehow.com/about_7419834_straight_line-method-depreciation.html> eHow 1999-2012, Corporate Governance, View on 17 March 2012 <http://www.ehow.com/how_6651749_learn-corporate-governance.html> eHow 1999-2012, Purpose of external audit, View on 18 March 2012 <http://www.ehow.com/list_6537056_purposes-external-audit.html#ixzz1k59liv00> Cliffnotes, Evaluating Accounts receivable, View on 19 March 2012 <http://www.cliffsnotes.com/study_guide/Evaluating-Accounts-Receivable.topicArticleId21081,articleId-21058.html>

Bizfinance, Net Profit Margin, View on 20 March 2012 <http://bizfinance.about.com/od/financialratios/f/Net_Profit_Margin.htm>