Question 47 7 pts SECTION 6: Earnings Management (26% or 31 minutes, 26 marks) Read the following information to answer questions 6.1 - 6.4. Case: ToyoMaster imports and distributes a range of motor vehicles into Australia. These are manufactured at factories in Japan, Thailand and the USA and imported into Australia. ToyoMaster currently sells and distributes to retailers in all Australian states except for Western Australia. The business plans to expand to Western Australia and you have been invited to invest in the business. You have been provided with the information below to assist in the decision to invest in the business. Income Statement ToyoMaster Year ending 30 June 2021 Sales revenue COGS 225,570,000 (157,520,000) 68,050,000 Gross profit Operating expenses: Salaries expense Rent expense Bad debts expense Interest expense Net profit (11.522.760) (1,500,000) (250,700) (2,700,900) 52,075,640 You have done some research about the business and have identified that ToyoMaster uses the moving average inventory costing method. The business has used this method to determine cost of goods sold since inception in 2005. Question 6.1: Discussions with ToyoMaster's management team indicate they believe moving average inventory costing method is appropriate as they import and sell many thousands of vehicles to retailer throughout Australia. They claim they sell hatch the stau Rent expense Bad debts expense Interest expense (1,500,000) (250,700) (2,700,900) 52,075,640 Net profit You have done some research about the business and have identified that ToyoMaster uses the moving average inventory costing method. The business has used this method to determine cost of goods sold since inception in 2005. Question 6.1: Discussions with ToyoMaster's management team indicate they believe moving average inventory costing method is appropriate as they import and sell many thousands of vehicles to retailers throughout Australia. They claim they sell batches of vehicles to retailers which are representative of the stock they have available and therefore the moving average inventory costing method is appropriate. However, closer inspection of the storage grounds reveals there are many thousands of small to medium vehicles in stock, however almost no family friendly SUVs (sport utility vehicles). Demand for SUVs has increased significantly during the pandemic as vehicle buyers spend more on SUVs for domestic holidays, rather than overseas holidays. Further discussion with management reveals that they sell all SUVs to retailers as soon as they arrive in the country, including the new 3000 edition Safari Cruiser, however other products can sit many months in the storage grounds. SUVs cost significantly more than small to medium vehicles. As with any vehicle, each has its own VIN which stands for "Vehicle Identification Number". Accordingly ToyoMaster is able to easily identify each vehicle they have in stock and how much it cost to purchase and import each vehicle. Please answer each part of the question as follows: 1. Do you think Toyo Master is attempting to engage in earnings management? Why or why not? Please support your opinion with evidence from the case. (5 marks) 2. Is the decision of ToyoMaster to continue using the Moving Average inventory costing method ethical? Why or why not? (2 marks) Question 49 8 pts Question 6.3 Describe three ways to analyse ToyoMaster's financial performance (reported in the income statement). If you need additional information beyond that presented in the income statement in this question to analyse the financial performance, please specify. Describe a potential concern you have about ToyoMaster's financial performance and how your proposed analysis will provide an indication about whether this concern is valid. Answer this question in the following format: 1. Describe method one to analyse financial performance (2 marks) 2. Describe method two to analyse financial performance (2 marks) 3. Describe method three to analyse financial performance (2 marks) 4. Describe a concern and how analysis (above) will provide an indication of this concern (2 marks) Question 50 2 pts Question 6.4 Describe one form of management accounting information you would like to see to help you to decide whether to invest in ToyoMaster. (2 marks) Edit View Insert Format Tools Table 12pt v Paragraph | B IV Aer T? : I Question 47 7 pts SECTION 6: Earnings Management (26% or 31 minutes, 26 marks) Read the following information to answer questions 6.1 - 6.4. Case: ToyoMaster imports and distributes a range of motor vehicles into Australia. These are manufactured at factories in Japan, Thailand and the USA and imported into Australia. ToyoMaster currently sells and distributes to retailers in all Australian states except for Western Australia. The business plans to expand to Western Australia and you have been invited to invest in the business. You have been provided with the information below to assist in the decision to invest in the business. Income Statement ToyoMaster Year ending 30 June 2021 Sales revenue COGS 225,570,000 (157,520,000) 68,050,000 Gross profit Operating expenses: Salaries expense Rent expense Bad debts expense Interest expense Net profit (11.522.760) (1,500,000) (250,700) (2,700,900) 52,075,640 You have done some research about the business and have identified that ToyoMaster uses the moving average inventory costing method. The business has used this method to determine cost of goods sold since inception in 2005. Question 6.1: Discussions with ToyoMaster's management team indicate they believe moving average inventory costing method is appropriate as they import and sell many thousands of vehicles to retailer throughout Australia. They claim they sell hatch the stau Rent expense Bad debts expense Interest expense (1,500,000) (250,700) (2,700,900) 52,075,640 Net profit You have done some research about the business and have identified that ToyoMaster uses the moving average inventory costing method. The business has used this method to determine cost of goods sold since inception in 2005. Question 6.1: Discussions with ToyoMaster's management team indicate they believe moving average inventory costing method is appropriate as they import and sell many thousands of vehicles to retailers throughout Australia. They claim they sell batches of vehicles to retailers which are representative of the stock they have available and therefore the moving average inventory costing method is appropriate. However, closer inspection of the storage grounds reveals there are many thousands of small to medium vehicles in stock, however almost no family friendly SUVs (sport utility vehicles). Demand for SUVs has increased significantly during the pandemic as vehicle buyers spend more on SUVs for domestic holidays, rather than overseas holidays. Further discussion with management reveals that they sell all SUVs to retailers as soon as they arrive in the country, including the new 3000 edition Safari Cruiser, however other products can sit many months in the storage grounds. SUVs cost significantly more than small to medium vehicles. As with any vehicle, each has its own VIN which stands for "Vehicle Identification Number". Accordingly ToyoMaster is able to easily identify each vehicle they have in stock and how much it cost to purchase and import each vehicle. Please answer each part of the question as follows: 1. Do you think Toyo Master is attempting to engage in earnings management? Why or why not? Please support your opinion with evidence from the case. (5 marks) 2. Is the decision of ToyoMaster to continue using the Moving Average inventory costing method ethical? Why or why not? (2 marks) Question 49 8 pts Question 6.3 Describe three ways to analyse ToyoMaster's financial performance (reported in the income statement). If you need additional information beyond that presented in the income statement in this question to analyse the financial performance, please specify. Describe a potential concern you have about ToyoMaster's financial performance and how your proposed analysis will provide an indication about whether this concern is valid. Answer this question in the following format: 1. Describe method one to analyse financial performance (2 marks) 2. Describe method two to analyse financial performance (2 marks) 3. Describe method three to analyse financial performance (2 marks) 4. Describe a concern and how analysis (above) will provide an indication of this concern (2 marks) Question 50 2 pts Question 6.4 Describe one form of management accounting information you would like to see to help you to decide whether to invest in ToyoMaster. (2 marks) Edit View Insert Format Tools Table 12pt v Paragraph | B IV Aer T