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business
international financial management

Questions and Answers of International Financial Management

Journal entries for a small new business At the end of last year, Fergama Productions Ltd, a company in the film industry, had the following closing accounts (in no particular order).$ $Cash 23 415
Finding missing values from ledgers Assets 2022$2021$Liabilities and shareholders’ equity 2022$2021$Cash 50 000 40 000 Accounts payable 45 000 30 000 Inventory 60 000 35 000 Retained profits 36 000
Completing the accounting cycle Take the transactions for Rosewall Ltd (Problem 3.10 in Chapter 3) and complete the following tasks.1 Prepare journal entries.2 Post to the ledger accounts.3 Prepare a
Prepare the closing entries for Jones Ltd.Closing entries JONES LTD PRE-CLOSING TRIAL BALANCE AT 30 JUNE 2022 DR CR $ $Cash 120 000 Accounts receivable 290 000 Inventory 350 000 Prepaid insurance 25
Sanderson Electronics is a new retail store that sells mainly small parts, such as switches, circuit boards and wire. Sanderson’s ledger accounts are shown in T-account form, with entries made for
Wan Chai Ltd is a small wholesaler of electronic components located near Hong Kong’s central business district. The firm has provided a year-end balance sheet at 30 June 2022 and a summary of all
Recording adjusting entries and preparing a balance sheet and income statement PRS Ltd has the following unadjusted trial balance at 31 December 2021.Account titles Debit Credit$ $Cash 19 600
Refer to the Scanlon Ltd example earlier in the chapter. Complete a 10-column worksheet separating out transaction k onwards as adjusting entries.
CANBERRA LTD BALANCE SHEET AS AT 31 DECEMBER 2020$ $Assets Liabilities Current assets Current liabilities Cash 21 000 Accounts payable 27 000 Accounts receivable 39 000 Unearned revenue 32 000
An adjusted trial balance at 31 December 2022 for a toy manufacturer is given as follows:Debit Credit$ $Accounts receivable 295 000 Accounts payable 120 000 Property, plant and equipment 1 000 000
Accounting transactions: reconstruction required The balance sheet and income statement of Reconstruction Limited are reproduced as follows.RECONSTRUCTION LIMITED BALANCE SHEET
CASE 10A Woolworths Ltd Refer to the extracts of the annual report of Woolworths Ltd in this book’s appendix. All questions relate to the consolidated accounts.1 Prepare an example of the assets
CASE 10B Accounting records A newspaper article referred to a Gold Coast building company being wound up owing Queensland businesses more than $7.5 million. The article referred to the liquidator
LO1 explain why cash is considered so important (7.1)
LO2 outline the contents of a statement of cash flows (7.2)
LO3 distinguish between cash flow from operations, cash flow from investing and cash flow from financing (7.2)
LO4 interpret a statement of cash flows (7.3)
LO5 explain the nature and importance of working capital management (7.4)
LO6 calculate the cash flow cycle and develop actions to control the cycle (7.5)
LO7 explain the need for cash forecasting and cash budgets (7.6, 7.7)
LO8 prepare a cash budget (7.7)
LO9 prepare cash flow analysis for capital expenditures and calculate NPV (7.8)
LO10 use Excel to calculate NPV (7.9)
Given the following information, what is cash flow from operations?$000 Cash from accounts receivable 50 Cash sales 30 Cash from issue of shares 70 Payments to accounts payable 20 Payments for wages
Given the following information, what is cash flow from operations?• cash sales, $100 000• credit sales, $250 000• cash received from accounts receivable, $170 000• borrowings from the bank,
If days in inventory, receivables and payables are 40, 40 and 30 respectively:(i) calculate the cash flow cycle(ii) provide two actions that the organisation can take to reduce the cash flow cycle
East Hills Ltd is a small retailer that operates from premises in a suburban shopping centre. Budgeted sales for the 3-month period July–September 2022 are:• $440 000 for July• $640 000 for
Based on the data in the previous table, answer the following questions:(i) What is the effect on NPV if the net cash inflow in Year 5 is only $4000?(ii) What is the effect on NPV if the $50 000 cash
Cash flow statements Given the following information:$Cash sales 300 Cash collected from accounts receivable 250 Dividends received 130 Cash paid to accounts payable 290 Proceeds of sale of
Revenue, expenses and cash flow from operations Peakhurst Ltd provides one-day training programs in financial management. It charges $7000 per day. The following events occurred for the company in
Given the following information, prepare a cash budget for June 2022. The records of the company show the following:• Cash balance on June 1 is $100 000.• Expected sales for June comprise cash
1 Why is managing cash flow important?
6 Companies are required to classify cash flows as either operating, investing or financing. Which of these three categories is most likely to have a net cash outflow over a number of years? Briefly
7 A senior financial executive for a large public company remarked to a stock market analyst:I don’t know why you people worry so much about what is in our statement of cash flows. Managing cash
8 A business commentator made the following remark during a discussion of the financial performance of a large, but struggling, company:These accountants spend lots of money to create complicated
Classifying cash flows The listed items were taken from a listed company’s statement of cash flows. Classify each item as operating, investing or financing. For each item state whether cash is
Cash flow analysis from account information Prepare a statement of cash flows for Sutherland Limited from the following cash account information.$ $Cash, beginning of year 78 840 Proceeds from sale
Effect of transactions on cash flows The financial year for Gamma Limited ends on 30 June 2022. Management has asked you what effect each of the following June transactions will have on net profit
Cash flow statement The following transactions pertain to LMN Ltd for December 2021.a The company issued shares with shareholders investing $250 000 in cash.b Purchased $43 000 worth of inventory on
Interpreting a cash flow statement Using the two years’ cash flow information presented, outline the three most important things you learn about Yellow Ltd.YELLOW LTD CASH FLOW STATEMENTS OVER TWO
Interpreting a statement of cash flows Summarised cash flow statements for the year ended 30 June 2022.Company A Company B Company C$m $m $m Cash flow from operations (100) 100 300 Cash flow from
Interpreting a statement of cash flows COMO LIMITED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2022 Consolidated 2022 2021$000 $000 Cash flows provided by operating activities:Cash receipts
Brewing Behaviour is a large Australian beer brewing company. It sells to wholesalers and commercial outlets, which then deal directly with Brewing Behaviour’s target customers. Brewing
Industry-specific ratios Available seat kilometres is a common measure of productivity in the airline industry. Cost to income ratios are a key measure of comparison across the banking industry.
Inventory valuation, depreciation and ratios Jeans F’ All and Jeans ‘R’ Us are very similar companies in size and operation. Jeans F’ All uses FIFO and the straight-line depreciation method
Performance evaluation using ratios International Business Technology (IBT) has enjoyed modest success in penetrating the personal computer market since it began operations a few years ago. A new
Marlot Limited reported the following information on cash flow for the year 2022.$Cash flows from operations (800 000)Cash flows from investing activities 200 000 Cash flows from financing activities
Use financial statement analysis to evaluate a general manager’s claims The general manager of Titanium Manufacturing Ltd, a medium-sized manufacturing company, wants to renew the company’s
Financial statement analysis The inventory turnover of Aurora Ltd was 3.79 in 2021 and the days inventory on hand 2022 was 140.6.1 Explain the purpose of calculating the inventory turnover ratio.2
Financial statement analysis The following ratios describe the performance of Financial Insights Ltd for 2021 and 2022:Ratio Value Value 2021 2022 Debt-to-equity ratio 1.36 times 1.86 times Inventory
Cash flow statement The following transactions occurred during the year ending 30 June 2021 for RST Limited.a Borrow $100 000 from the bank with the loan due for repayment in two years (ignore
Accounting policy choice Swaffle Ltd, in business for only a year, has capitalised $50 000 in software development costs. The controller argues that the costs should be expensed instead. Assume that
Management is interested in what would have been the impact on net profit before tax for the year ended 30 June 2022 and cash flow from operations for the year ended 30 June 2022 and the current
Interpreting a cash flow statement Adelaide Airways Ltd and Perth Express Ltd are two companies, similar in size, in the commuter airline business. They fly passengers from Adelaide and Perth to
Fantastic Foods Ltd completed a series of transactions, which are listed below. Before the transactions, both the current and quick asset ratios were greater than 1. The cash account has a debit
Effect of transactions on ROA and ROE State whether the following transactions would affect ROA (using EBIT; presently 7 per cent), ROE (presently 11 per cent), both or neither:1 issue bonus shares 2
Cash flow cycle Consider the following three companies, X, Y and Z.Days in payables Days in inventory Days in receivables X 30 50 1 Y 40 80 10 Z 30 3 30 Required:1 Calculate the cash flow cycle for
The following is a summary of the information in the financial statements of RDK Ltd for the years 2021 and 2022.2022 2021$000 $000 Current assets 50 100 Noncurrent assets 350 200 Total assets 400
Cash flow management You are attending a meeting at your new employer, a small wholesaler of home gymnasium equipment. One of the presentations includes a PowerPoint showing the company’s current
Comparative balance sheets and income statements for E-Worths Limited are given as follows.E-WORTHS LIMITED BALANCE SHEETS AS AT 30 JUNE 2022 2021$000 $000 Current assets Cash 41 43 Receivables 79 74
Information taken from the recent annual reports of two retail companies appears as follows (amounts in millions). One of these companies is a discount chain store and the other is a specialty
Leo Limited is consistently profitable. Leo’s normal financial statement relationships are as follows:Current ratio 2.6 times Inventory turnover 3.2 times Debt-to-assets ratio 0.7 times Additional
Analyse the effect of each of the following transactions on the current ratio, quick ratio, debt-to-equity ratio and earnings per share. Assume that the current ratio, quick ratio and debt-to-equity
Budgeted cash collections; budgeted cash payments Information pertaining to STW Ltd’s sales revenue is presented as follows.November 2021 December 2021 January 2022(Actual) (Budget) (Budget)$ $
ROR Ltd is an online business selling a variety of consumer products. At the end of 2021, its major shareholder instigated changes in management in order to improve performance. The financial
Common size income statements Prepare a common size income statement for Woolworths Limited for 2021 and 2020. You will need to use the data in the Consolidated Income Statement for Woolworths
Cash collections and disbursements Consider the following information for XY Limited:Month Sales$Purchases$July 30 000 10 000 August 34 000 12 000 September 38 000 14 000 October 42 000 16 000
Data for White Star Limited is as follows:WHITE STAR LIMITED BALANCE SHEET AS AT 30 JUNE 2022 2021$m $m Current assets Cash 50 330 Receivables 540 310 Inventories 450 260 Total current assets 1 040
16 Explain how the following are possible:a Anh Limited has a high current ratio, but has difficulty paying its bills.b Bailey Limited has a high quick ratio, but has difficulty paying its bills.c
The controller of GH Company is gathering data to prepare the cash budget for April 2022. He plans to develop the budget from the following information.a Of all sales, 30 per cent are cash sales.b Of
Basic ideas of present value analysis 1 Explain what the ‘time value of money’ or ‘present value’ concept is all about. Why would business people be sensitive to it?2 Calculate the present
Present value analysis – buy or lease a truck?Speedy Trucking is trying to decide whether it should buy a new truck for its business or lease the truck from another company. If Speedy decides to
12 In this chapter you have seen several types of ratios used to analyse financial statements and information.a Select two types of ratios and describe what information is conveyed by each.b
11 Use non-technical language to answer the following:a What is financial leverage?b Why is such leverage risky?
10 List the advantages and disadvantages you can see in using ratio analysis of financial statements as a way of evaluating management’s performance. For the disadvantages, try to think of a way
NPV calculations Apt Ltd is considering the purchase of new equipment. The new equipment will cost $400 000 and have an estimated life of three years. Modifications to the equipment will cost an
9 Outline some of the main limitations of ratio analysis.
8 What ratios would you calculate to evaluate a company’s financial structure?
7 What ratios would you calculate to evaluate a company’s liquidity?
6 What ratios would you calculate to evaluate a company’s activity or turnover?
5 What ratios would you calculate to evaluate a company’s profitability?
4 What information sources are available to access the information that you identified above?
3 What information might you gather about a company before you start calculating ratios?
2 What is a common size statement? When is its use most appropriate?
1 What is the purpose of financial statement analysis?
Company A is 100 per cent owned by Dr A. The summary of Company A’s financial statement information is as follows:BALANCE SHEET AS AT 30 JUNE 2022$Total assets 80 000 Total liabilities 35 000 Total
Ratios to measure different kinds of performance 1 Many financial performance measures are ratios of some return over some investment base. Why is such a concept of performance important in
6D Slipshod Ltd has discovered that it has estimated insufficient warranty expenses, because more customers are returning products for repair than had been expected. The company decides to recognise
6C Strapped Ltd, which has $190 000 in current assets and $170 000 in current liabilities, borrows $40 000 from the bank as a long-term loan, repayable in four years. What is the effect of this loan
6B How was Transport’s liquidity at the end of 2022? Is that an improvement since the 2021 financial year?
6A How well did Transport perform in the 2022 financial year as compared to the 2021 financial year?
LO6 perform ‘what if’ analysis to identify the impact of events on the ratios (6.6, 6.7)
LO5 use ratios to analyse and evaluate a firm’s overall financial performance and financial position (6.5)
LO4 calculate commonly used ratios to analyse a firm’s profitability, activity, liquidity and financial structure (6.4)
LO3 prepare common size statements (6.3)
LO2 identify the limitations of financial statement analysis (6.2)
LO1 outline the objectives of financial statement analysis (6.1, 6.2)
Capital investment analysis ABC Division is considering an investment proposal to purchase new equipment. The following data has been gathered:Purchase of equipment $200 000 Modifications to
Using Excel to calculate NPV Alpha Division is considering an investment proposal to purchase new equipment. The following data has been gathered. The cost to purchase the equipment is $500 000.The
CASE 7A Woolworths Limited Refer to the extracts of the annual report of Woolworths Limited in this book’s appendix. All questions relate to the consolidated accounts.1 What are the main components

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