Business Basics - Assignment 2

GLOBUS ENTERPRISES YEAR END BALANCES

Assignment

Using the data in the table above, create a balance sheet for Globus’s operations as of yearend (December 31, 200X)

Using the data in the table above, create an income statement for the year being examined.

Analyze the financial statements using the following analytical tools:

Current ratio (What does this ratio tell us about Globus?)

Net working capital (What does net working capital tell us about Globus?)

Note: Net working capital is the difference between current assets and current liabilities.

Debt to equity ratio (What does this ratio tell us about Globus?) Note: To compute owners’ equity from the data supplied here, remember the fundamental accounting equation:

Assets = Liabilities + Owners’ equity

Leverage ratio (What does this ratio tell us about Globus?)

Return on equity (What does this ratio tell us about Globus?)

For the following 6 questions, select one of the answers from below and place the letter in the blank next to the question.

Please check the below questions

• Your personal definition of leadership. How has your definition of leadership changed between the first meeting and the last meeting?
• What is your favorite leadership style or theory learned in the course and why? How could this leadership style or theory make an impact to you and the followers or members of the organization?
• What is your personal leadership development plan? How can you use your skills and be an effective leader now or in the future? How can you or anyone become a leader; or move from being a manager to a leader?
• Elaborate on some of the keys to success in a leadership capacity?
• Take a reverse approach and elaborate on the role of the follower? What is the importance of the follower and his/her role in the process? In the eyes of the follower, what is the best qualities in a leader?
• Elaborate on your lessons learned in the course and how you can apply these to your professional and/or personal lives? Include examples from some of the intersession assignments you completed (such at the Leadership Book Review or the Senior Leadership Interview).

The company A generates revenue primarily through the following means:

Software license fees: typically licenses its software for periods of up to 60 months. Licensees are normally given the following payment options:

Under the first payment option, the company collects the entire license fee at inception. This is categorized as a Paid-Up-Front (PUF) contract. Under a PUF arrangement, company A typically charges a one-time, paid-up- front fee for perpetual usage and the customer does not have the ability to cancel the contract.

Under the second payment option, the licensee pays a portion of the total software license fees at the beginning of the term (initial license fee [ILF]), and the remainder over the license term (ongoing monthly license fee [MLF] for month-to-month usage). In certain arrangements, the customer is contractually committed to making MLF payments for a minimum number of months even when the customer prematurely cancels the contract.

Under either payment option, the company is not obligated to refund any payments received from the customer.

Maintenance fees: These contracts oblige the company to provide post- contract customer support (PCS) to the client over a specified time period. PCS includes a right to periodic upgrades and technical support. The term for PCS is generally shorter than the term of the licensing agreement and is renewable for the duration of the license period.

Services: Other professional services provided by company A include training, installation, and consulting.

Assume that company A entered into a contract with client TDS Inc. for €230,000 on January 1, Year 1, to transfer a software license and an additional €15,000 for installation of the software. The license entitles TDS Inc. to use the software in its current form over an unlimited period and does not include updates. Two years of customer support come free with the license. In recent stand-alone contracts with other customers for the same software, company A has charged €200,000 for the software license, €60,000 for two-year customer support, and €40,000 for installation. The software is usable without customer support from company A and it can be installed by other vendors. The installation is expected to take 250 hours of which 150 hours will be required in Year 1 and the remainder in Year 2. The entire fee of €245,000 is collected on the contract date Based on the five-step revenue recognition process described by the recent revenue recognition rules (IFRS 15 / US GAAP ASC 606),

a. Determine the number of performance obligations, and the contract price to be allocated to each, in the following situations:

i. The installation service does not modify the software.

ii. Installation involves customizing the software to work seamlessly with other software used by the customer. As before, the installation can be performed by other firms as well.

b. Explain if (and if so, why) your responses in i) and ii) above differ, referring to IFRS 15 or to the equivalent US GAAP ASC 606.

c. How much revenue will be booked in Years 1 and 2 from the contract in each case? Assume that all conditions for revenue recognition other than those specified have been met in the situations above.

b-3. Prepare a year-end balance sheet for each year accounting period. (Please explain how you get Year 2 Cash under current Assets as well. Thank you:

Mark’s Consulting experienced the following transactions for 2018, its first year of operations, and 2019. Assume that all transactions involve the receipt or payment of cash.

Transactions for 2018

1. Acquired $60,000 by issuing common stock.

2. Received $125,000 cash for providing services to customers.

3. Borrowed $21,000 cash from creditors.

4. Paid expenses amounting to $58,000.

5. Purchased land for $35,000 cash.

Transactions for 2019

Beginning account balances for 2019 are:

1. Acquired an additional $21,000 from the issue of common stock.

2. Received $132,000 for providing services.

3. Paid $16,000 to creditors to reduce loan.

4. Paid expenses amounting to $65,000.

5. Paid a $12,000 dividend to the stockholders.

6. Determined that the market value of the land is $45,000.

1. b-3. Prepare a year-end balance sheet for each year accounting period.

Merit & Family purchased engines from Canada for 30,000 Canadian dollars on March 10 with payment due on June 8. Also, on March 10, Merit acquired a 90-day forward contract to purchase 30,000 Canadian dollars at C$1 = $0.50. The forward contract was acquired to manage Merit & Family’s exposed net liability position in Canadian dollars, but it was not designated as a hedge. The spot rates were

Required:
Prepare journal entries for Merit & Family to record the purchase of the engines, entries associated with the forward contract, and entries for the payment of the foreign currency payable. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Record the entry to revalue the foreign currency receivable to the current equivalent U.S. dollar value.
• Record the entry to revalue the foreign currency accounts payable to the current U.S. dollar value.
• Record the payment of U.S. dollars to an exchange broker for the forward contract.
• Record the receipt of Canadian dollars from the exchange broker.
• Record the settlement of the foreign currency payable.

a) Tom Goodly Ltd guarantees the bank overdraft of Pete Smith Ltd during 2018. Tom Goodly Ltd’s reporting period ends on 30 June each year. At the time of

providing the guarantee, Pete Smith Ltd was in a sound financial position. During late 2019, due to the outbreak of the COVID-19 pandemic, international

trading conditions deteriorated to such an extent that Pete Smith Ltd incurred substantial losses. Finally, on 25 July 2020, Pete Smith Ltd was forced to file for

protection from its creditors.

Required:

Explain how Tom Goodly Ltd would report the guarantee provided to Pete Smith Ltd in its financial statements ending

i) 30 June 2019

ii) 30 June 2020 3

b) As at 30 June 2018, T&P Ltd’s equity accounts are as follow: 400  000 ‘A’ ordinary shares, issued at $2.50 each, fully paid $ 1 000 000

75  000  6% cumulative preference shares, issued at $3 and paid to $2 150  000

Accumulated losses (12 750)

As the company had incurred a loss for the year ended 30 June 2018, no dividends were declared for that year. The following transactions and events occurred during the year ended 30 June 2020.

2019 July 25 The directors made the final call of $1 on the preference shares. Aug 31 All call monies were received except those owing on 5000 preference shares.

Sept 7 The directors resolved to forfeit 5000 preference shares for non-payment of the call. The constitution of the company directs that forfeited amounts are not to be refunded to shareholders. The shares will not be reissued.

Nov 1 The company issued a prospectus offering 40  000 ‘B’ ordinary shares payable in two instalments: $3 on application and $2 on 30 November 2022. The offer closed on 30 November.

Nov 30 Applications for 50  000 ‘B’ ordinary shares were received.

Dec 1 The directors resolved to allot the ‘B’ ordinary shares pro rata with all

applicants receiving 80% of the shares applied for. Excess application

monies were allowed to be held. The shares were duly allotted.

Dec 5 Share issue costs of $8600 were paid.

Required:

Prepare general journal entries to record the above transactions.

Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2016. The lease terms, provisions, and related events are as follows:

Required:

This assignment is designed to get you to locate the Annual Report for a company and become familiar with its contents, particularly the financial statements and the notes to the financial statements (LO 2 and 3). While we have looked at very basic formats of the financial statements, the financial statements for a company contain much more detailed information much of which you have not been introduced to yet. Pay attention in the Annual Report to the information provided in the notes to the financial statements as you will find a lot of useful information in them that may help with some of the assignment questions.

This questioned need to based in JB HIFI ANNUAL REPORT 2019

Question 1 Describe the principal activities of the company? (1 mark)

Question 2 Define the revenue recognition criteria of the company and identify the page number and note number where this is stated in the annual report?

Question 3 Describe how the company values all classes of property, plant and equipment? Identify the page number and note number where this is stated in the annual report?

Question 4 Name the Audit firm responsible for performing the audit of the financial statements of the company. Explain why the auditor must declare their independence, and also explain why the financial statements must be audited by an external party.

Question 5 Provide any evidence of the company’s initiative or commitment to business sustainability practices. Why are businesses concerned about sustainability?

PART B ‐ ANALYSIS OF COMPANY’S FINANCIAL INFORMATION

Question 1 Using the company financial information, analyse and compare their 2018 and 2019 financial data by answering the following questions (you should analyse 2 ratios for each question):

A. Calculate the efficiency of the company by identifying and calculating two efficiency ratios. You need to calculate the two ratios for 2018 and 2019 (2 mark).

B. You must also explain what the efficiency ratio results tell us about the company performance occurring between the 2 periods (1 mark). Has the company’s efficiency improved or deteriorated? (1 mark)

C. Analyse the profitability of the company by identifying and calculating two profitability ratios. You need to calculate the two ratios for 2018 and 2019 (1 mark).

D. You must also explain what the profitability ratio results tell us about the company performance occurring between the 2 periods. (1 mark) Has the company’s profitability improved or deteriorated? (1 mark)

E. Analyse the company debt position by identifying and calculating two ratios. You need to calculate the two ratios for 2018 and 2019 (1 mark).

F. You must also explain what the debt ratio results tell us about the company performance occurring between the 2 periods. (1 mark). Has the company’s debt position improved or deteriorated? (1 mark)