Question 1:
(a) Provide an executive summary of your company’s background relating to business structure, operations, services and all other business activities that are conducted, etc.
(b) Use the annual report for the year ending 30 June 2014. Your group will need to review the major sections of this report in order to familiarize yourselves with the content of each of the financial statements and appropriate notes to the financial statements. Review the balance sheet of the company and indicate the amount of the following:
a) Total current assets
b) Total non-current assets
c) Total current liabilities
d) Total non-current liabilities
e) Total stockholder’s equity
Compare the above figures with the previous year and compute the percentage increase or decrease and comment on the comparative financial condition of the company.
(c) Review the income statement and indicate the following:
a) Total (operating) revenues
b) Cost of Goods Sold (if relevant)
c) Total expenses (before income taxes)
d) Any non-operating (or extraordinary) gains and losses
e) Earnings per common share
Compare the above figures with the previous year and compute the percentage increase or decrease and comment on the comparative financial operation of the company.
(d) Review the statement of cash flows for the most recent year and indicate the following:
a) net cash inflow (outflow) from operating activities
b) net cash inflow (outflow) from financing activities
c) net cash inflow (outflow) from investing activities
d) net increase (decrease) in cash during the year
Analyse the Cash Flow Statements for the last 2 years and comment on the cash position of the company.
(e) Review the stockholders’ equity section in your chosen company’s most recent year-end balance sheet and compare that with the previous year-end balance sheet. Compare percentage increase or decrease. List the stockholders’ equity account balances and number of outstanding shares from these two balance sheets and compute the increase or decrease for each during this past year.
Recently you received the following offers from the organizers of Melbourne Tennis Open 2015: Now you can buy premium tickets to the coming Melbourne Tennis Open 2015 with signatures of your choice of popular tennis players like Rafael Nadal, Roger Federer to name a few. However, there are only 3,000 tickets that have these collectible features.
i Retail price: $300 each
ii Tennis club members: $280 each
iii To order, complete the online order form @ www.MTO2015.com.au.
iv Allow 5 days for delivery
1. Describe the alternatives the organisers have in relation to recognizing revenues. Which would you recommend and why?
2. Would your answer differ if you included in the sale of the tickets that if the customers are not happy the tickets may be returned within one month?
3. Let us assume that the organisers contracted a selling agent that takes care of all selling and marketing responsibilities, gets 10% as commission. The policy states that no return no exchange. When should the organisers recognize revenue?
4. With regards to the authenticity of the signatures, do you think the accounting profession have the skills to provide the services to authenticate? Discuss and show examples.
5. Discuss the importance of Cost of Goods Sold(COGS) in this case. How is it applied?
6. Let us say that the signatories will get a fixed fee for the effort, when would the organisers recognize the expense?
7. Assume that the signatories will get a 5% commission on the sales of their signed tickets. When would the organisers recognize the cost?
(a) Myer Holdings has been operational for over more than a 100 years, and belongs to the fashion, lifestyle and clothing industry. With time, it has come out to be Australia’s largest departmental store along with an exponentially capturing online market (Myer, 2014). The gross sales for the financial year ending 2014 is said to be close to a $3 billion mark, which itself reflects the kind of market hold Myer has in Australia. As of now, there is over 68 departmental stores pan Australia, which is only going to be increasing in the coming times. The technological revolution had also forced Myer to expand itself in the digital market and therefore Myer has come up with a digital online market space as well facilitating through mobile applications. Thus, the existence of a multi-channel connect with customers empower them with a broader market segment, also catering to the diversified interests of the customers.
Myer Holdings Limited has a total of 11 core products which are womenswear; menswear; youth; childrenswear; intimate apparel; beauty, fragrance and cosmetics; home products; electronics; footwear and accessories; toy lines; and lastly, general merchandise. The company has operations in multiple facilities and has suppliers from across the globe.
(b) All the amounts mentioned below are in thousands of dollars, represented by $(1,000).
1. The total current assets for the period of 2014 would be $480,460.
Now, the total current assets for 2013 were $479,176. It has presently increased by $(480,460 – 479,176) = $1,284. It reflects an increase of 0.267%, a very insignificant increase in the total current assets.
2. The total non-current assets for the period of 2014 would be $1,452,204.
Now, the total non-current assets for 2013 were $1,460,529. It has decreased by $(1,460,529 – 1,452,204) = $8,325. It reflects a decrease of 0.569%, which is relatively insignificant.
3. The total current liabilities for the period of 2014 would be $530,881.
Now, the total current liabilities for 2013 were $528,658. It has increased by $(530,881-528,658) = $2,223. It reflects an increase of 0.42%.
4. The total non-current liabilities for the period of 2014 would be $508,370.
Now, the total non-current liabilities for 2014 were $505,405. It has increased by $(508,370 – 505,405) = $2,965. It reflects an increase by 0.586%.
5. The computation formulae for calculating stockholders equity is the balance of total liabilities being deducted from total assets (Keythman, 2014). The total assets are current assets + non-current assets = $1,932,664. The total liabilities would be current liabilities + non-current liabilities = $1,039,251.The total stockholder’s equity for the period of 2014 would be $(1,932,664 – 1,039,251) = $893,413.
Now, the stockholder’s equity for 2013 would be total assets minus total liabilities, $(1,939,705 – 1,034,063) = $905,642. Therefore there is reduced shareholder’s equity at the moment by $12,229. This means that the total stocks owned by the stockholders of the company have decreased from 2013 to 2014 by 1.35%.
(c) All the amounts mentioned below are in thousands of dollars, represented by $(1,000).
1. Total operating revenues – The revenue from sale of goods were $2,612,167 and other operating revenues were $128,769. Therefore the total operating revenue for 2014 was $(2,612,167 + 128,769) = $2,740,936.
Likewise, for 2013, the total revenue from sale of goods was $2,621,242 and other operating revenues were $126,293. Therefore, the total operating revenue for 2013 was $2,747,535. There has been a decrease in the operating revenue by $(2,747,535 – 2,740,936) = $6,599, indicating a 0.24% decrease.
2. Cost of Goods Sold (COGS) – The COGS for 2014 comes out to be $1,455,066.
Now, the COGS for the year 2013 was $1,443,005, indicating an increase in the current COGS amount by $(1,455,066 – 1,443,005) = $12,061. This reflects an increase by 0.835%.
3. Total expenses (before income tax) – The Selling expenses for the current year are $811,718 whereas the administration expenses come out to be $320,204. Thus, total expenses are $1,131,922.
Likewise, for the year 2013, the total expenses would be $(783,800 + 306,338) = $1,090,138. On comparison, we figure out that the total expenses in 2014 have increased by $(1,131,922 – 1,090,138) = $41,784. This would indicate an increase in expenses by 3.832%. The sudden increase in costs must stand out to be justified.
4. Any non-operating (or extraordinary) gains and losses – An amount of $6,356 was earned in the year 2014 from other sources, as compared to an amount of $457 in 2013. This marks a huge increase of $5,899, equivalent to an increase of 1,290% which is a significant amount of increase in income from other sources (Myer, 2014).
All the amounts mentioned below are as stated
5. Earnings per common share – The earnings per share can be segregated into two different categories, viz., basic earnings and diluted earnings. The basic earnings of 16.8 cents/share and diluted earnings of 16.6 cents/share was generated in 2014, a gross total of 33.4 cents/share.
Comparing this with the 2013 earnings per common share, it was 21.8 and 21.6 cents respectively, a gross total of 43.4 cents. This is a decrease in earnings per share, equivalent to (43.4 – 33.4) cent = 10 cent per share.
(d) All the amounts mentioned below are in thousands of dollars, represented by $(1,000).
1. The net cash inflow from operating activities in the year 2014 was $191,576.
In the year 2012, the net cash inflow from operating activities was $179,194 and the same in the year 2013 was $225,525. Thus, we notice that the operational success increased in 2013, but however, it went little low as compared to 2013, in the financial year ending 2014.
2. The net cash outflow from investing activities in the year was $104,250.
In the year 2012, the net cash outflow from investing activities was $46,409 and the same in the year 2013 was $66,956. Thus, there is an increasing trend in the investing patterns of the company.
3. The net cash outflow from financing activities in the year was $95,232.
The year 2012 witnessed the financing activities to be at the level of $132,721 whereas in 2013, it was close to $115,157. Thus, there is a decreasing trend in the outflow of financing activities for Myer and this implies that the company is beginning to give fewer dividends per share to the stakeholders of the company.
4. The net decrease in cash flow for the entire year came to be $7,906
In the year there was a positive net cash inflow of $784 and in the year, the same was $43,412. An exponential increase in the cash inflow was witnessed from 2012 to 2013, and finally, there was a negative cash inflow in the year 2014, as compared to 2013
(e) All the amounts mentioned below are in thousands of dollars, represented by $(1,000).
The computation formulae for calculating stockholders equity is the balance of total liabilities being deducted from total assets (Keythman, 2014). The total assets are current assets + non-current assets = $1,932,664. The total liabilities would be current liabilities + non-current liabilities = $1,039,251.The total stockholder’s equity for the period of 2014 would be $(1,932,664 – 1,039,251) = $893,413.
Now, the stockholder’s equity for 2013 would be total assets minus total liabilities, $(1,939,705 – 1,034,063) = $905,642. Therefore there is reduced shareholder’s equity at the moment by $12,229. This means that the total stocks owned by the stockholders of the company have decreased from 2013 to 2014 by 1.35%.
The stockholders’ equity for the year 2013 was $905,642, whereas the same amount was at the level of $893,413 in the year 2014. Thus, we notice that there has been a decrease of $(905,642 – 893,413) = $12,229 in the balance of the shareholders’ equity. This reflects a decrease of 1.35%.
The organizers of Melbourne Tennis Open 2015 have planned a way to monetize and generate maximum revenue from the event. The plan is to sell premium tickets to people with the signatures of tennis stars like Rafael Nadal and Roger Federer.
The stipulation being there are a limited number of tickets carrying these collectible features? Also, the tennis club members get an additional $20 discount on the purchase of a single ticket. Needless to say, the tickets are limited and the fans lining up to buy them will be large in number. For the process to be fair and simple, and just too, the buyers have to fill the form online and the first or probably lucky 3,000 will get these tickets at the aforementioned price.
The idea is to monetize the sales to a maximum extent and also generate revenue from the Melbourne Tennis Open 2015
1. Alternatives the organizers have in relation to recognizing revenues.
Apart from the said collectible features, the organizers can plan on taking the following steps for recognizing revenues:
(a) Selling the offer tickets on a first come, first serve basis at a preferentially increased rate would lead to more revenue recognition by the organizers.
(b) Selling the offer tickets at premium rates when the last bunch of tickets is left.
(c) Calculating the cost of all the offer tickets and the ascertained cost should be given to a single ticket having either Nadal or Feeder’s signature (or both) and putting it up for auction.
I would go for option c) as it will attract the highest number of bidders and undoubtedly the sold bid will be at much higher prices than was expected originally from the normal course of sale of the 3,000 tickets.
2. Had the tickets been carrying the option of getting a return within a month, if the customer is not happy from them, my answer would indeed differ as with the given option, the turnout to buy these tickets would be more and thus the sale would be a huge success amongst the masses.
On the other hand, a possibility could also arise when a minor of the masses would think that as the tickets are carrying the option of getting a return within a month, the tickets might not be genuine, unauthenticated or out of the whole lot of the 3,000 tickets only a small number would be genuine and the rest may be counterfeit ones.
Also, some people would also buy tickets but when the one month is getting close to an end, they would ask the organizers to refund their tickets as they found themselves quite unhappy from the tickets and would thus ask for a refund.
In either of the above case, the number of people turning out to buy the tickets would be less than as estimated and this would have a negative or decline in the number of tickets being sold, which would in turn decrease the amount of revenue being generated from the sale of the offered tickets.
Overall, if the tickets had been carrying the option of getting a return within a month, my answer would have a slide either to an increase or decrease in revenue on the tickets being sold, but the answer would for sure not be the same had the stipulation not been added to the existing question.
3. If the organizers contracted a selling agent, the organizers would recognize revenue when even after giving the agent’s commission, the organizers are getting their expected outcome on the sale irrespective of the number of tickets being sold.
This would be because as all the selling and marketing responsibilities are being borne by the agent, the same cost had it been incurred by the organizers they would amount to be even higher than expected but in this case only a fixed amount (here 10% commission) is being given and all the selling and marketing expenses are being covered in the same. This is completely parallel with the idea of putting up an Initial Public Offer wherein a stabilization agent is appointed in order to take care of the response rate of the purchase of shares at the time of the IPO (Kuhn, 2014).
4. According to me, in the accounting profession, there are mannerisms to verify and authenticate the validity of the signs put on the premium tickets of any sports event sold to customers or audience attending the same. This can be put in because the verification of these premium tickets will ensure the legality of the product being sold and the transaction being entered into between the organizers of the sports event and the customers purchasing the ticket.
I could perhaps state the example of banks verifying the signatures of the cash withdrawers drawn on cheques, so as to ensure that the right concerned person is withdrawing these monies.
5. The Cost of Goods Sold (COGS) plays an important role in the said situation as the company has to consider the gross COGS while deciding the $280 and $300 price rates of the tickets for the tennis club members and other people respectively. The considerations put herein must be in regard with the amount of different headers which the organizers must have incurred in the normal course of business operations of availing the tickets to the customers and the prospective buyers (Baskerville, 2011). The various items which are put into the calculation of the COGS are equally relevant to the inclusion of expense heads like cost of getting the tickets printed, advertising costs, marketing costs, labour involved, commission charges and the sales agent’s costs.
Also, it must be stated that in order to calculate the Gross Profit, calculation of COGS is extremely important.
COGS (also Cost of Sales) is applied when we add together our Opening Inventories and Purchases and lessen the Closing Inventories from the same.
In Short, Cost of Goods Sold = Operating Inventories + Purchases – Closing Inventories
6. If the signatories are getting fixed fees for their efforts, the organizers will recognize expense right after the signatories have finished conducting their tasks. It is so because these tasks are not related with the criteria of tickets being sold, and hence will be recorded right at the time of these expenses being incurred.
This would be because no matter the cost of the tickets, how much it amounts to, the organizers have to give the fixed amount to the signatories, irrespective of the tickets being sold. The above answer is as per my judgement.
7. If the signatories get a 5% commission on the sales of the signed tickets, the organizers would realize revenue when after the sale of tickets, and the 5% being charged on the sale of tickets, the remaining amount being realized by the organizers would be treated as revenue for the same.
The signatories are entitled to a fixed commission (here 5%), based on the aspect of these tickets being sold since the commission will be variable depending on the number of tickets sold. For instance, if Nadal’s 500 tickets are sold, the signatory would be entitled to an amount of $300 x 5% x 500 tickets = $7,500. The previous calculations were made on the assumption that the tickets were bought by the general public.
References
AccountingWeb. (2008, February 7). Baseball tickets: Touch all the tax bases.
ASX. (2014). Preliminary final report of Myer holdings limited.
Bajkowski, J (1999, January). Financial Statement Analysis: A look at the balance sheet.
Baskerville, P. (2011). What is cost of goods sold (COGS)?
Day, JW. (2014). Theme: Cost of goods sold.
Kuhn, T. (2014, September 4). Alibaba Group Holding has appointed Golden Sachs as its stabilization agent for its upcoming initial public offer.
Myer Holdings Limited. (2012). Preliminary final report for the period ended 28 July 2012.
Myer Holdings Limited. (2014). Company profile.
Zions Bank. (2014). How to prepare and analyze a balance sheet?
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