Consider the following note disclosure from the financial results of WW Ltd, a large retailer: 

Settlement discounts, rebates and other purchase allowances totalling $600.9 million currently recognised in other operating revenue, will be reclassified as a reduction in cost of sales of $418.3 million, a reduction in administration expenses of $36.1 million and as an increase in other revenue from ordinary activities of $146.5 million. 

1. Provide a journal entry for the reclassification mentioned above. 

2. Explain the rationale for treating ‘settlement discounts, rebates and other purchase allowances’ as a reduction in cost of sales rather than revenue. 

3. State three financial ratios that the above adjustment would affect and how the adjustment would affect these ratios (increase or decrease).