ACC5AFM Reporting And Analysing Inventories :
Past exam paper ACC5AFM T6 2020
| Questions Answer any five out of six questions | Maximum Marks | Marks Received |
| Question 1 Reporting and analysing inventories | 20 | |
| Question 1.1 | 2 | |
| Question 1.2 | 6 | |
| Question 1.3 | 12 | |
| Reporting and analysing cash and receivables | 20 | |
| Question 2.1 | 3 | |
| Question 2.2 | 10 | |
| Question 2.3 | 7 | |
| Question 3 Reporting and analysing non-current assets | 20 | |
| Question 3.1 | 3 | |
| Question 3.2 | 3 | |
| Question 3.3 | 14 | |
| Question 4 | 20 | |
| Question 4.1 | 5 | |
| Question 4.2 | 5 | |
| Question 4.3 | 10 | |
| Question 5 Reporting and analysing equity | 20 | |
| Question 5.1 | 4 | |
| Question 5.2 | 16 | |
| Question 6 Financial Statement Analysis and Decision Making | 20 | |
| Question 6.1 | 8 | |
| Question 6.2 | 6 | |
| Question 6.3 | 6 | |
| Total | 100 |
ACC5AFM Reporting And Analysing Inventories Instruction
Questions 1 – 6 are based on Woolworths 2020 annual report. Students are required to attempt any five out of six questions.
Question 1 Reporting And Analysing Inventories of Analysing Inventories (20 Marks)
- How does Woolworths value its inventory? Explain (2 Marks)
- Compare the closing inventory days (compared to cost of sales) for 2019 and 2020. Discuss if Woolworths has improved its efficiency in managing inventory in 2020. (6 Marks)
- Assume Woolworths hold 100 000 rolls of toilet paper that cost $2 per roll on 1 July 2020. During July, Woolworths bought and sold toilet paper as follows
Jul-03 Sold 90 000 rolls for $4 each
Jul-16 Purchased 100 000 rolls at $3 each, the price is rising due to the panic purchase of some customers during the Covid-19 pandemic in Melbourne
Jul-23 Sold100 000 rolls for $5 each
Required
Show the calculations of gross profit for Woolworths store using FIFO, LIFO and average cost. Show your workings. Analyse which method gives the most gross profit. (12 Marks)
| FIFO | Workings | LIFO | workings | Average | workings | |
| Sales revenue | ||||||
| Cost of sales | ||||||
| Gross profit |
Question 2 Reporting and analysing cash and receivables (20 Marks)
- Identify top three cash inflow and cash outflow items according to Woolworths’ 2020 consolidated statement of cash flow. 3 Marks
- Compare Woolworths’ cashflows from operating, investing and financing activities for 2019 and 2020, and answer the following questions using relevant decision techniques (i.e. free cash flow, capital expenditure ratio or return on funds employed (ROFE), and current cash debt coverage).
- Did the company generate adequate cash from operating activities in 2019 and 2020 to finance its capital expenditures? Is there any change between the two years? Explain 3 Marks
- Is the company generating sufficient cash provided by operating activities to meet its current liabilities? 2 Marks
- Below is an extract of Woolworths 2020 Annual Report (p. 116) Note 4.5 cash and cash equivalents (see next page)
Assume the following changes to inventories, trade payables, provision, trade receivables, and other payables during the first quarter (Q1 Jan – March) in 2021, also assume no other changes to the value of items listed in the above table.
| Changes in | Q 1 2021 ($M) | Adjustment (+/-) |
| Decrease Inventories | 100 | |
| Decrease in trade payables | 300 | |
| Decrease in provisions | 150 | |
| Increase in trade and other receivables | 250 | |
| Increase in other payables | 200 |
Using indirect method to calculate the net cash provided by operating activities for Q1 2021. Show your workings. (5 Marks)
- Accounting for trade and other receivables (7 Marks)
- Which valuation method (direct write-off versus allowance method) did Woolworths use to measure trade and other receivables in the financial statements for 2020? 2 Marks
- Analyse the implications for Woolworths current trade receivables management by
– comparing the ratio of the loss allowance (i.e. allowance for doubtful debts) and current trade receivables between 2019 and 2020. 5 Marks
Question 3 Reporting and analysing non-current assets (20 Marks)
- Summarise Woolworths’ accounting policy for the depreciation of property, plant and equipment? (3 Marks)
- Compare the asset turnover ratios for 2019 and 2020, has Woolworth operated more efficiently in 2020? Explain. (3 Marks)
3.3. Assume Woolworths is considering investing in a new delivery truck. The following information is related to the acquisition and operation of the truck: (14 Marks)
Initial investment $50 000 Residual value $5 000 Useful life 6 years
Annual revenue attributable to the investment $21 000
Annual operating expenses, excluding depreciation, associated with the investment $7 000 The truck will be in use for:
12 880 km in year 1
12 550 km in each of years 2 and 4
12 190 km in year 5
11 460 km in each of years 3 and 6.
- Use Excel worksheet to calculate the profit from the proposed investment in truck using straight-line and unit-of-production depreciation methods. 8 Marks
- Which depreciation method produces the higher profit in year 1? In year 6? If it’s not the same profit for each year, why not? 2 Marks
- Which method would the business prefer for tax purposes? Why? 4 Marks
Question 4 Reporting and analysing liabilities (20 Marks)
- Review Woolworths’ 2020 Annual report and summarise the current and the non-current borrowings of the company in 2020. (5 Marks)
- Review the reporting of provision and contingent liabilities in Woolworths’ 2020 Annual Report, and briefly explain the difference between provision and contingent liabilities. (5 Marks)
- Assume that on 31 December 2019 Woolworths purchased a property for $150 000, paying $49 925 in cash and signing a $100 075, 6%, 30-year mortgage payable that requires $600 monthly payments, which include principal and interest, beginning on 31 January 2020.
Required:
- Use Excel worksheet to prepare a monthly mortgage payment schedule for 2020, once you complete the worksheet, copy and paste it to your Word document of the answer booklet. (6 Marks)
- Prepare the journal entries on 31 Dec 2019 and 31 January 2020. (4 Marks)
Question 5 Reporting and analysing equity (20 Marks)
- Review Woolworths’ 2020 Consolidated Statement of Financial Position (p. 78) and Consolidated Statement of Changes in Equity (p. 79), summarise the key factors that influence the ending balance of equity account $9032 million in 2020. (4 Marks)
- The following is extracted from Woolworths’ 2020 Financial Statement Note 4.2 Dividends (p.112).
Required: (16 Marks)
- Prepare journal entries on 9 April 2020 and 30 September 2019 to record the dividend payments of $580 million and $717 million respectively. Assume both dividends were declared prior to 30 Sep 2019. 4 Marks
- What would be the impact on the provision account of 2020 if Woolworths’ Board of Directors declared the $606 million dividends on 20 June 2020? Explain. 2 Marks
- Compare the Earnings per Share (EPS) of Woolworths in 2019 and 2020. 5 Marks
- Explain why Woolworths 2020 financial report restated salarised team member remediation of prior financial period (Woolworths 2020 Annual Report, p. 86). 5 Marks
Question 6 Financial Statement Analysis and Decision Making (20 Marks)
- Perform a horizontal analysis and a vertical analysis of Woolworths’ Consolidated Profit and loss statement (Woolworths 2020 Annual Report, p.76) on the following items, using 2019 as the base year for the horizontal analysis, and sales revenue in each year as the base item for vertical analysis. (8 Marks)
| 2020 | 2019 | Horizontal | Vertical | |
| Revenue from the sale of goods and services | ||||
| Cost of sales | ||||
| Gross profit | ||||
| Branch expenses | ||||
| Administration expenses | ||||
| Earnings before interest and tax | ||||
| Finance costs | ||||
| Profit for the period |
- The financial metrics of two businesses of Woolworths’ group (Australian Food and Big W) are provided on the next page. Comment on the business performance by analysing the gross margin, sales per square meters, and return on average funds employed between the two businesses (6 Marks.
- Discuss two common limitations of financial statement analysis and provide an example for each of the identified limitation. (6 Marks).
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