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BUSINESS 114
Assignment 03
Due: Friday 17 May 2024, 4pm (NZT)
Assignment 03 will be marked out of 50 marks and is worth 10% of your final grade.
Overall Presentation
Submission: Type your answers into the Answer booklet and submit your assignment by 4 pm (NZT) on Friday 17 May 2024 via Canvas. Please keep a copy of your assignment in case there are technical issues with your submission.
A Word document or PDF file of your assignment must be submitted on Canvas. Please follow the instructions below to submit your assignment.
1. Save your assignment as a Word document or PDFfile.
2. Rename your assignment file name to your last name, followed by a comma and your first name. For example: Bloggs, Joe – A3. (The last name is Bloggs; A3 is Assignment 03).
3. You can upload the file on Canvas by going to Assignments, then click on Assignment 03. You will see the Submit Assignment button on the right-hand side of the webpage. A message box will show up, and you need to click on the Choose File button to locate your assignment file, which you had renamed in the above steps, and click ok. The last step will be clicking the Submit Assignment button in the new message box to submit your file.
Note: If you want to replace the existing file you can simply repeat the step 3 above. You can do that any time before the due date.
Answer Booklet: Answers must be typed into the Answer Booklet using the Calibri font style of at least size 10.
If calculations or tables are required for an answer, they should be typed, set out neatly and labelled clearly in the Answer Booklet in the space provided. Bullet point answers are acceptable only if the whole sentence makes sense.
The size of each box can be expanded where necessary.
Disciplinary knowledge: The purpose of this assignment is to be able to demonstrate an understanding of the material covered in Modules 7 to 9 and apply appropriate methods to solve problems and explain the impact of events on business
activity.
Solution seeking: For any calculation-type questions, you should apply appropriate problem-solving processes systematically. Show all workings, no matter how trivial as marks are awarded for partial work. This is good practice for the exam.
Written Communication: A high standard of written expression and presentation is expected of your assignment. Correct spelling and grammar are essential. Discussions should be concise, structured in a logical order, and relevant to
the question. Refer to The Business of Writing: Written Communication Skills for Commerce Students by E. Manalo, G. Wong-Toi, and M-L. Hansen, 3rd edition, 2009. Please also consider using the resources of the Learning Hub for extra
support.https://www.learninghub.ac.nz/writing/paraphrasing-summarising-and-techniques/
Referencing: APA referencing is to be used where necessary. You DO NOT need to refer to the assignment question. However, you DO need to reference any text if you have QUOTED or PARAPHRASED it. Always answer the questions
in your own words. (See the library course page for details on how to use APA referencing).
Refer tohttps://www.library.auckland.ac.nz/subject-guides/bus/topicguides/apa_for_business.htm
If you feel you need to provide references – space is provided for your references to all the questions at the end of the answer book – this space can be expanded.
Questions 50 marks
Question 1 - Business Transactions
Oceanic Ventures Ltd. is an emerging firm specialising in the retail of surf gear, beachwear, and accessories. The company’s balance sheet as at 31 March 2024 is provided below, along with transactions for April 2024 (ignore taxes).
Oceanic Ventures Ltd. – Balance Sheet as at 31 March 2024
|
Assets |
Liabilities & Owner’s Equity |
|
|
Current Assets: |
Current Liabilities: |
|
|
Cash |
$26,500 Accounts Payable |
$7,800 |
|
Accounts Receivable |
6,200 Non-Current Liabilities: |
|
|
Inventory |
58,000 Bank Loan |
65,000 |
|
Non-Current Assets: |
Owner’s Equity: |
|
|
Equipment |
34,000 M. Oceanic, Capital $124,700 |
51,900 $124,700 |
Transactions for the Month of April 2024:
(i) 2 April: Received advanced payment from a customer for a surfboard rental service to be provided in May. The customer paid $800 for a month-long rental period, starting on 1 May.
(ii) 5 April: Acquired new surfboard equipment worth $6,000, making an upfront payment of $2,000 and arranging the rest as a deferred payment due over the next six months.
(iii) 18 April: The cost of the regular maintenance service is $1,500, which Oceanic Ventures Ltd. paid in two instalments: $700 in cash on 18th April and the remaining $800 to be paid within 30 days upon completion of the maintenance work .
(iv) 22 April: The business pays $2,000 towards employee salaries and other operational costs.
(v) 25 April: Paid $5,000 towards the bank loan.
(vi) 28 April: Made total sales of $67,000 for various water sports gear, with a direct cost of $45,000. Out of the total sales, $23,000 was received in cash, and the rest is to be paid on credit.
(vii) 30 April: Made a prepayment of $4,000 for insurance covering the next quarter.
(viii) 30 April: Made a payment for interest on the bank loan for the amount of $325.
(ix) 30 April: Depreciation on the equipment amounted to $833.
Required:
(a) Prepare the worksheet for these business transactions. In the “Impact on Cash Flow” column, show the impact on the Cash Flow Statement (i.e. “operating”, “investing”, “financing”, or “no impact”), and if there is a cash flow impact, state whether it is an inflow or outflow. (10 marks)
(b) In terms of transactions (ii) and (ix), explain how the Company’s balance sheet is affected. (4 marks, max 120 words)
(Total: 14 marks)
Question 2 - Transaction Analysis and Financial Accounting
Seaside Supplies Ltd. (SSL) is a New Zealand-based company that specialises in retailing marine and beach equipment essential for coastal adventures. The company’s balance sheet date is 31 December. On 1st April 2024, anticipating the summer tourist season, SSL purchased a large quantity of various beach gear, including snorkels, beach towels, and sunscreen, valued at $15,000. This inventory was paid in full at the time of purchase. The sales are made at a markup of 25%. All sales are in cash.
Required:
(a) What are the implications for SSL’s Balance Sheet, Income Statement, and Cash Flow Statement from the purchase of this inventory on 1st April 2024? (3 marks, max 90 words)
(b) By 20th May 2024, SSL begins selling the newly purchased inventory. Assume that by 31st May 2024, SSL has sold beach gear costing $8,000. Analyse how the Balance Sheet, Income Statement, and Cash Flow Statement are affected by these sales. (3 marks, max 90 words)
(c) Discuss the impact on SSL’s financial statements if the inventory purchased on 1st April 2024 is fully sold by 31 December 2024. Consider the effects on the Balance Sheet, Income Statement, and Cash Flow Statement. (3 marks, max 90 words)
(d) SSL decides to expand its inventory by acquiring additional specialised beach gear totaling $60,000 on 25th August 2024. On this date, SSL pays $20,000 with its own cash and the remaining $40,000 was paid by taking out a bank loan, which will be repaid over the next two years, for the inventory purchase. Analyze the immediate effects of this transaction on the Balance Sheet, Income Statement, and Cash Flow Statement before the new inventory is sold. (3 marks, max 90 words)
Notes: Use the template in the Answer Booklet to identify the effects of each transaction on different financial statements. There is no need to define any assets, liabilities, income or expenses. If you think a transaction does not affect a particular statement, clearly write “No effect” instead of leaving it blank.
(Total: 12 marks)
Question 3 - Financial Statement Analysis
Three New Zealand companies listed on the NZX from different sectors have been identified for potential investment analysis. Refer to their 2023 annual reports to answer the questions.
1. Spark New Zealand (SPK) - Telecommunication sector. Go to https://investors.sparknz.co.nz/Investor- Centre/?page=Annual-Reports and download “2023 Annual Report” . The consolidated financial statements and notes can be found from page 88.
2. Fonterra (FCG) - Food and dairy sector. Go to https://view.publitas.com/fonterra/2023-financial-statements and download “2023 financial statements” . The consolidated financial statements and notes can be found from page 10.
3. Auckland Airport (AIA) - Airports and infrastructure sector. Go to https://corporate.aucklandairport.co.nz/- /media/Files/Corporate/Annual-Report-2023/3-AIA--FY23-Financial-Report.ashx and download “2023 financial statement” . The consolidated financial statements and notes can be found from page 24.
Industry Averages:
. Telecommunication sector: ROE (55%); Profit Margin (20%); Current Ratio (1.2); and Debt Ratio (60%).
. Food and dairy sector: ROE (20%); Profit Margin (7%); Current Ratio (1.3); and Debt Ratio (55%).
. Airports and infrastructure sector: ROE (3.5%); Profit Margin (8.5%); Current Ratio (1.1); and Debt Ratio (35%).
Required:
(a) Calculate the following 2023 ratios for each company: Return on Equity (ROE), Profit Margin, Current Ratio, and Debt Ratio. Show all workings. Use the formulas on the sheet provided on page 5 (no other formulae will be accepted). Round to two decimal places. (12 marks)
(b) Based on the financial ratios calculated above and corresponding industry averages, assess each firm’s profitability profile. (6 marks, max 180 words )
(c) Besides profitability issues, identify two concerns regarding Auckland Airport. (4 marks, max 120 words)
(d) Besides comparing a given firm’s financial performance with its respective industry, suggest another method for assessing corporate financial performance. Discuss one potential concern associated with this alternative approach. (2 marks, max 60 words)
(Total: 24 marks)