Financial statement analysis

Financial statement analysis
Question 1
As a part of credit analysis, you want to evaluate the financial statement of BGD
Corporation Limited and Woolworths Limited for the year 2015. Before starting financial
statement analysis, you need to go through the audit report of the companies. Based on
your own reading and analysis of audit opinion, is it worthwhile to evaluate financial
statements of the above companies? Justify your opinion. [2+2 = 4 marks] [Check Blackboard assessment folder for a copy of the annual reports).
Question 2
Assume that ABC Inc. entered into an agreement to build a ship for $2,000 million and a
reliable estimate of the project’s total cost is $1,600 million. Project costs incurred by beta
Inc. are as follows:
Project Costs
Year 2014 2015 2016 Total
Cost incurred $800 million $500 million $300 million $1,600 million
Determine ABC’s net income from this project for each year using percentage-ofcompletion
and completed contract methods in accordance with U.S. GAAP. Also, show
the yearly revenues and expenses. [2+2 = 4 marks] Question 3

Calex Inc. has current assets of $200,000 (cash: $50,000, accounts receivable: $40,000,
inventory: $110,000), and long-term assets that had cost $300,000, with accumulated
depreciation to date of $180,000. Sales were $350,000 of which cash collection was 200,000,
and operating profit was $79,000. The company received a cash discount of $5,000.
Corporate tax rate is 30%. The company paid interest of $9,000. A dividend of $15,000 was
paid to the common shareholders. There are 6,000 shares in issue. What is the EPS of this
company? [2 marks] Question 4

Following is the consolidated results as presented in the annual report of BHP Billiton (link:
http://www.aspecthuntley.com.au.dbgw.lis.curtin.edu.au/asxdata/20160921/pdf/01780698
.pdf).
(i) What is your assessment about the performance of the company over the years?
[2 marks] (ii) What more information you need to draw reasonable conclusion about the
performance of the firm?
[2 marks] Question 5
Gerald Ltd. is a new entrant to the market for providing widgets to consumers in Australia.
As the business commences, various business activities will occur. Exhibit 1 provides a list
of the activities that have taken place in the first month of operation.
Exhibit 1 – Business Activities for Gerald Ltd.
SL Date Business Activity
1 31-Dec-
15
Gerald deposited $100,000 of his personal funds in a current account
at a bank opened in the name of the business.
2 4-Jan-16 Pay $14,000 to landlord for premises. 50% of the amount is a
refundable deposit, the remainder is the first month’s rent.
3 4-Jan-16 Purchase office equipment for $4,800. The equipment has an
estimated life of four years with no salvage value.
4 5-Jan-16 Borrow $25,000 from a friend for working capital. This interest-free
loan must be repaid in 4 years.
5 11-Jan-16 Purchase and receive raw materials to manufacture 1,500 widgets at
a total cost of $15,000. Payment is due in 30-days.
6 14-Jan-16 Wages of $500 were paid as well as an account for electricity, $250.
7 15-Jan-16 Equipment was purchased at a cost of $16 000, of which $10 000
was paid in cash. A loan payable was given for the remainder of $6
000.
8 18-Jan-16 Spend $12,000 on TV and radio advertising during the month.
9 21-Jan-16 Hire a consultant to conduct a survey on the needs of the local
community. The assistant works a total of 8 hours, at $30p.h., prior
to the end of the month but will not be paid until February.
10 25-Jan-16 Supplies amounting to $1,700 were purchased on credit.
Using the information provided in Exhibit 1 you are required to do the following:
i) Following the format in Exhibit 6 (page 51) of your text book, identify the above
accounting entries for each business activity. [5 marks] ii) Prepare an income statement for Gerald Ltd. for the period 01 January 2016 – 31 January
2016. Show the detailed elements in income statement. [3 marks] iii) Prepare a balance sheet statement for Gerald Ltd. as at 31 January 2016. Show the
detailed elements in balance sheet.