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Accounting Group Assignment

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The University of Adelaide
ACCTING 1002 Introductory Accounting I
Assignment Cover Sheet
Information about tutorials
Tutorial Day
Tutorial time and place
Tutor’s Name
Tuesday and Thursday
8am – 10am
Rajan Jadhav
Information about the three members of the Group
Family Name
Wong
First Name
Natalie
Student ID
a1758089
Wang
Yujun
a1760875
Wang
Rong
a1756243
Declaration
We declare the following to be my/our own work as understood by the University’s
Policy on Plagiarism (see Statement and Definition of Plagiarism and Related Forms of
Cheating, www.adelaide.edu.au/policies/230).
We give permission for my/our assignment to be scanned for electronic checking of
plagiarism.
1. OVERVIEW AND BACKGROUND INFORMATION
In 1900, Myer; founded by the Myer brothers Sidney Myer and Elcon Myer, officially established its
first store in Bendigo (Melbourne). Within the next 11 years, Myers continued to prosper leading to
the obtainment of Wright and Neil’s business (Drapers) in Melbourne which soon became their main
office. They continued to develop attaining approximately 1900 stores throughout Australia and New
Zealand and became Australia’s largest retail company. Unfortunately, their success did not last long.
With steady decline in sales, Myer partnered with GJ Coles and Coy in hopes to increase its profit
though, they were faced with an even lower sales and profit figure.
Within 1968 to year 2000, Myer acquired Boans Limited, Grace Bros. Holding Limited and merged
with GJ Coles & Coy eventually forming Coles Myer Limited. It operates in Victoria (Geelong,
Ballarat and Bendigo), New South Wales (Albury, Wagga Wagga, Dubbo, Newcastle, Central Coast
and Wollongong), Launceston in Tasmania and Gold Coast and Queensland (Toowoomba, Sunshine
Coast, Mackay, Townsville and Cairns); all capital cities except Darwin. Myer has a market
capitalization of 451.70 million as of September 2018.
In 2017, Myer’s net profit fell 80 percent from an initial value of $60.8 million to a staggering $11.9
million. The company continues to struggle which resulted to an end of 3 operations in Australia;
Colonnades (Adelaide), Belconnen (Canberra) and Hornsby (Sydney) respectively. In 2009, Miss
Universe Jennifer Hawkins was brought into the picture as the face of Myer which sparked its share
price at $4.10 a share. In 2018, share prices dipped to as low as 0.55 per share.
2. FINANCIAL STATEMENTS
Income Statement
Expenses
Cost of Goods Sold
Selling expense
Administration expenses
Share of net profit/(loss) of equity- accounted associate
Dilution of investment in equity- accounted associate
Restructuring and store exit costs, onerous lease expense and impairment of assets
Finance costs
Income tax expense
Total Expense
1,421,394
819,055
292,212
1,176
1,338
65,615
11,259
18,274
2,630,323
Total Revenue – Total Expense = Profit/ Loss
2,642,262 – 2,630,323 = 11,939
Key
Notes
All revenue
Total revenue
Total expenses
Profit after interest and tax
2017 ($’000)
2,642,262
2,642,262
2,630,323
11,939
Additional Information
Connection between income statement, statement of changes in equity and balance sheet in relation to
retained earnings.
Income Statement
Statement of Changes in Equity
Balance Sheet- Equity
Retained Earnings
The following interpretations are written in abbreviation whereby Income Statement = IS, Balance
Sheet = BS, Statement of Changes in Equity = SOCIE and Retained Earnings = RE.
Key
Component
Financial Statement
Profit
Income Statement
Contributed equity
Retained earnings
Reserves
Total
Statement of
Changes in Equity
&
Balance Sheet
Retained Earning
Balance Sheet
Retained Earnings
Ending balance
Balance Sheet
Interpretation
Profit from the income statement is listed
as profit for the period in Statement of
Changes in Equity.
These 4 components recorded under the BS
are reflected as balance as at 29 July 2017
in SOCIE.
Ending figure of retained earnings at 2016
(BS) is the balance at beginning of period
for 2017 (SOCIE)
Retained earnings from BS is identical to
balance at end of period.
*Retained earnings contains precise details that are extracted from Statement of Changes in Equity.
**Listed financial statements are in relation to retained earnings.
Balance Sheet
Key
Notes
Total Assets
Total Liabilities
Total Equity
2017 ($’000)
1,878,529
805,661
1,072,868
$'000
$'000
Current Liabilities
487,014
Non- Current Liabilities
318,647
Total
Liabilities
+
Equity
1,072,868
Total Equity
1,072,868
=
Total Assets
1,878,529
Current Assets
Non- Current Asset
430,567
1,447,962
805,661
Statement of Changes in Equity
Key
Notes
Profit from the Income Statement
Share capital at the start of the period
Share capital at the end of the period
Retained earnings at the start of the period
Retained earnings at the end of the period
2017 ($’000)
11,939
779,963
739,329
379,483
342,146
Statement of Cash Flow
Key
Notes
Net operating cash flow
Net investing cash flow
Net financing cash flow
Net decrease in cash and cash equivalents
Cash and cash equivalents at the start of the period
Cash and cash equivalents at the end of the period
2017 ($’000)
149,278
(109,456)
(54,438)
(14,616)
45,207
30,591
3. DIAGRAM TO SHOW LINKAGES
All figures below are rounded off to the nearest $’000.
4. OTHER INFORMATION IN THE ANNUAL REPORT
Information’s that have yet to reach certain criteria are not included in the financial statements; stored
as ‘other information’s’. It contains 6 subsections headed as contingencies, commitments, related
party transactions, share- based payments, remuneration of auditors and events occurring after the
reporting period.
Contingent Liabilities
Contingent liability is a liability that is probable based on an undetermined future event. Myer
Holdings has contingent liabilities as at July 2017 of bank guarantees totalling $36.3million for
assisting workers through compensation of self- insurance licenses and legal proceedings from
Perpetual Limited and Bridgehead Pty Limited.
Commitments
Unrecognized capital expenditures are listed in this section; capital commitments and operating lease
commitments. Capital commitments contains capital expenditures; property, plants and equipment
and software which implies that Myer is investing in future operations. Operating lease commitments
are uncancellable leases that ceases between 1 to 30 years. Contingent rental payments are excluded
as there is a possible surface in the future if sales surpass the set figure.
Related Party Transactions
a) Parent Entities
The parent Entity is Myer Holdings Limited.
b) Subsidiaries
Subsidiary entities are located in the Appendix with Figure 1.1 attached as at 29 July 2017.
c) Key Management Personnel
Board of directors, chief executive officer and vice presidents have authorization to plan and
administer operations of an entity.
i. Compensation
Overall compensation for 2017 decreases substantially from 7,083,511 at 2016 to
6,127,857 for period ending 29 July 2017. This section consists of welfares
specifically short term employee benefits, post-employment benefits, long term
benefits, termination and other payments and share- based payments.
ii. Loans
No loans were carried out to the directors during 2017 and 2016.
d) Transactions with Other Related Parties
No transactions were made with other related parties.
Share- Based Payments
a) Long Term Incentive Plan
Long Term Incentive Plan or LTIPR refers to a system that is designed to improve
employee’s performance through rewards that are decided at the end of the period.
Participating members will not be given dividends during this period. Performance summary
can be seen in the Appendix at Figure 1.2.
b) Expenses arising from share-based payment transactions
Expenses arising as part of employee benefit expenses:
Remuneration of Auditors
Payment for services the company pays to the auditor.
Events Occurring After the Reporting Period
2.0 cents per share of dividends set as the final pay, payable on 9 November 2017.
Provision
Provisions are not part of other information’s but is listed under notes C3. It exists to protect interests
and future liability and are recognised when they have a legal obligation of preceding event. Myer
Holdings provisions are calculated at present value to resolve existing liability. Employee benefits
acquire the majority portion with a slight decrease from $56,505 in 2016 to $48,959 in 2017.
Subdivision of employee benefits are short term obligations, other long term employee benefits
obligations, profit sharing and bonus plans and termination benefits.
5. CONTENT OF FINANCIAL STATEMENTS
The following information’s are derived from the annual report with specific statistics that are to be
read in conjunction with the table. The following figures allocated to each segment can be found in
the appendix at the end of the report. All figures are rounded off to the nearest $’000.
Revenue
Myer has been in the market since the 1900s. Despite doing immensely well in the beginning,
accumulated revenue fell from $2,802,749 to $2,642,262 in 2016 and 2017 respectively. Myer is a
departmental store retail business hence the main source of revenue originates from the sale of goods.
As increasing number of competitor enters the market, Myer becomes more irrelevant leading to a
decrease in demand. This could be a possible factor of decrement in revenue. (see figure 2.1)
Expenses
Cost of goods sold significantly contributes to 54% of total expenses (see figure 2.2). It is only natural
as most of the cost factors into production. Aside from cost of goods sold, employee benefit expense
amounts to $464,474 that includes expenses essentially wages and salaries, annual leave, long service
leaves and other related expenses. The benefits vary from educational to family to retirement as it is
design to foster financial stability. To conclude, expenses decreases from 2016 to 2017 as revenue
declines. (see figure 2.2)
Assets
The leading source of assets derives from intangible assets which contributes more than 50% to total
assets for both 2016 and 2017 (52.1% and 52.5% precisely). At 25 July 2015 to 30 July 2016,
intangible assets roughly hovered around $1,031,608 and $1,019,671. In 2017, there was a sharp
declination of intangible assets at $985,657. Goodwill cost accumulated a large percentage of
intangible assets with a figure of $465,034 from a total of $986,657. (refer to figure 2.3)
Liabilities
The figures for trade and other payables refers to the amount of unpaid goods and services that are
generally paid in a period of 30 to 90 days. In consideration that Myer is a retail business, trade and
other payables remains consistently high within current and total liabilities as suppliers continues to
provide goods. In their favour, Myer’s obligations decrease from $1,107,765 to 1,072,868. (see figure
2.4)
Equity
Contributed equity remains as Myer’s strongest contribution to equity. This section refers to ordinary
shares, treasury shares, employee share, and capital risk management. Within 2016 and 2017, Myer
issued 235,589,264 more shares to raise capital which holds a dramatic increase in its number of
shares. Each holder is entitled to one vote in meetings. (refer to figure 2.5 for equity report and 2.5.1
for contributed equity)
Cash Flow
1. Cash Inflow from Operating Activities
A slight negative shift in net cash flow of the company’s primary activity of selling, cash
payment to employees and purchasing inventories could have several implications. Judging
by the descending figure of ‘receipts from customers’ (inclusive of goods and services tax), it
briefly illustrates a fall in sales. Operating cash flow additionally includes non- cash
components for instance depreciation, amortisation and impairment, lease incentives and
contributions that conduces to 90% (for period ended 29 July 2017) of operating activities
which are added back into the equation. Hence, this is a factor that discerns operating cash
flow from net income. This information is essential for Myer to evolve and expand based on
the insights of its normal operation. Myer displayed a positive cash flow which signifies that
the company has an adequate cash flow in order to prolong its operations. In monetary term,
Myer made a loss of $212,000.
2. Cash Outflow from Investing Activities
Negative activities comprising investing activities includes payments for property, plant and
equipment, payment for intangible assets, payment for acquisition of assets and net
investment associate (capital expenditures) in which represents the amount Myer invested in
these assets to grow as a business. Within a span of one year, payments for property, plants
and equipment doubled from $40,479 in 2016 to $88,452 in 2017. Myer uses a straight- line
method to compute depreciation on plant and equipment which concludes to have an
estimated life of 10-20 years.
3. Cash Outflow from Financing Activities
Myer has a negative cash outflow of $54,438 for 2017 from financing activities, a $44,917
decrease from previous year. The main source arises from dividends paid of ordinary shares
which accumulated to a total of $49,276. These dividends were paid to equity holders as the
company’s source of capital derives from dividends. Despite the fact that the overall outflow
decreased in comparison to year 2016, dividends paid grew by $32,850. The cause for this
disparity is the result of repayment of borrowings of $295,000 in 2016.
(refer to figure 2.6, 2.7 and 2.8 respectively)
Overview
Succinctly, the sum of operating, investing and financing activities inclusive of cash and cash
equivalents at the beginning led to a positive end figure. This places Myer in a better situation
financially.
6. RATIO ANALYSIS
Ratios
Profit Margin
2015- 2016 ($’000)
60,543  2,802,749
= 2.16% / 0.02
2016-2017 ($’000)
11,939  2,642,262
= 0.45% / 0.00045
Return on Equity
45,836 
[(863,016+1,107,765)  2]
= 4.7% / 0.047
12,815 
[(1,107,765+1,072,868)2]
= 1.2% / 0.012
Current Ratio
479,738  520,585
= 92% 0.92
430,567  487,014
= 88% / 0.88
Debt Ratio
848,577  1,956,342
= 43% / 0.43
805,661  1,878,529
= 43% / 0.43
Cash Flow to Revenue
Ratio
149,490/2,802,749
= 5.33%
149,278/2,642,262
= 5.65%
* All figures above are rounded off to the nearest $’000.
Profit Margin Ratio
Profit margin ratio, also known as sales ratio is determined by dividing net profit over net sales.
During the period for 2016, Myer was able to generate a higher profitability ratio as compared to
2017. The company attained a net profit of $0.022 (2.16%) for every dollar of revenue acquired in
2016 and $0.00045 (0.45%) in 2017. Profit margin deteriorated due to revenue decreasing
substantially. Factors involved are low or declining sales.
Return on Equity
Myer’s return on equity plunged from 4.1% to 1.2%. Return on equity measures the efficiency of a
firm’s profitability by disclosing how much profit a firm can generate from shareholder’s investment.
By reason that return on equity is from the investor’s perspective, they would certainly prefer to have
a higher figure as it implies that the company is efficiently using those funds.
Current Ratio
Current Ratio includes all current assets and liabilities to measure a firm’s capability to pay short term
liabilities. Myer’s ratio for year 2016 and 2017 is less than 1 which signifies that the liabilities are
larger than the assets. In most cases, they are impotent to pay obligations however, due to the fact that
Myer belongs to the retail industry, it is tolerable. For companies like Myer, accounts payable is
generally much higher than account receivables.
Debt Ratio
Myer exhibit no changes between the two years with a reasonable debt ratio of 0.43. Debt ratio
determines risk level of a company and Myer displays a stable figure.
Cash Flow to Revenue Ratio
Cash flow to revenue ratio refers to the amount of operating cash flow for every dollar of sales. In
other words, the company’s ability to turn sales into cash. For every dollar earned, $0.053 pence of
cash are available for year 2017 and 0.057 in 2016. There is a slight percentage decrease of 0.32%
which indicates that performance level declined.
APPENDIX
1. Other Information in the Annual Report
1.1 Subsidiary
Figure 1.1
1.2 Long Term Incentive Plan
Figure 1.2
2. Content of Financial Statements
2.1 Revenue
Figure 2.1
2.2 Expense
Expenses
Cost of Goods Sold
Selling expense
Administration expenses
Share of net profit/(loss) of equity- accounted associate
Dilution of investment in equity- accounted associate
Restructuring and store exit costs, onerous lease expense and
impairment of assets
Finance costs
Income tax expense
Total Expense
Figure 2.2
2016
1,527,552
842,217
318,039
620
18,250
2017
1,421,394
819,055
292,212
1,176
1,338
65,615
15,447
20,152
2,742,277
11,259
18,274
2,630,323
2.3 Assets
2016
%
2017
%
45,207
37,883
2.3
1.9
30,591
27,602
1.63
1.47
396,297
351
479,738
20.3
0.02
24.5
372,374
430,567
19.8
Non- Current Assets
Property, plant and equipment
Intangible assets
Derivative financial instruments
Investment in associate
Other non- current assets
Total Non- Current Assets
445,379
1,019,671
80
9,203
2,271
1,476,604
22.8
52.1
0.004
0.5
0.1
75.5
460,211
985,657
2094
1,447,962
24.5
52.5
0.11
77
Total Assets
1,956,342
100
1,878,529
100
Current Assets
Cash and cash equivalents
Trade and other receivables and
prepayments
Inventories
Derivative financial instruments
Total Current Assets
22.9
Figure 2.3
2.4 Liabilities
2016
%
2017
%
Current Liabilities
Trade and other payables
Provisions
Differed income
Derivative financial instruments
Current tax liabilities
Other liabilities
Total Current Liabilities
400,590
94,228
10,812
7,127
7,033
795
520,585
47.2
11.1
1.3
0.8
0.8
0.1
61.3
379,740
87,295
9,817
7,944
1,627
591
487,014
47.1
10.8
1.2
1
0.2
0.07
60.4
Non- Current Liabilities
Borrowings
Provisions
Deferred income
Deferred tax liabilities
Derivative financial instruments
Total Non- Current Assets
147,273
19,754
69,702
88,444
2,819
327,992
17.4
2.3
8.2
10.4
0.3
38.7
143,367
13,821
75,927
84,574
958
318,647
17.8
1.7
9.4
10.5
0.12
39.6
Total Liabilities
848,577
100
805,661
100
Figure 2.4
2.5 Equity
Equity
Contributed equity
Retained earnings
Reserves
Total Equity
2016
%
2017
%
739,338
379,483
(11,056)
1,107,765
66.7
34.3
1
100
739,329
342,146
(8,607)
1,072,868
68.9
31.9
0.8
100
Figure 2.5
2.5.1
Contributed equity
Figure 2.5.1
2.6 Cash Inflow
Figure 2.6
2.7 Cash Outflow- Investing Activities
Figure 2.7
2.8 Cash Outflow- Financing Activities
Figure 2.8
Key
Notes
Net operating cash inflow
Net investing cash outflow
Net financing cash outflow
2016 ($’000)
149,490
(58,251)
(99,355)
2017 ($’000)
149,278
(109,456)
(54,438)