ACCT11081 Introductory to Financial Accounting

Term 2 2020 CQUniversity

Hayley Sheehan

Assignment Step 7

As I was looking through Farm Pride Food’s annual reports, I found that there were two separate inventories within each annual report. The inventories are classified as current assets and expenses. Initially, I was not sure which one I am supposed to go off and found it quite difficult, therefore, I posted on the unit Facebook page about my question and a peer was able to comment back however, I am still a little confused. However, I believe after careful consideration and looking through the exemplars that the inventories that we will be focussing on for this part of the assignment is the inventories as a current asset.

From Farm Pride Foods annual reports, it can be gathered that in 2019 there was a total of $4,858 worth of inventories. Following this, in 2018 there was a total of $6,919 worth of inventories and in 2017 there was a total of $4,572 worth of inventories. From this data it can be gathered that in 2019 the total of inventories within Farm Pride Foods was less than in 2018 by $2061. It can be inferred that this may be due to the salmonella outbreak which continuously occurs throughout Victoria which impacts the operations within the firm. In 2018 Farm Pride Foods had a successful year therefore, more produce was required to meet customer supply and demand. However, prior to this in 2017, the firm must not have had a very successful sale rate as there was a total of $4,572 worth of inventories, significantly less than in 2018.

In 2017 after going through to the notes there are other categories within inventories these include; Raw materials at cost, finished goods, total inventories and of the total inventories an amount is held for NRV (Net Realisable Value). In 2017 Farm Pride Foods had a total of raw materials at $2,275. The finished goods a total of $2,297 and therefore, the total inventories were $4,572. Of the total inventories $341,000 is held for the NRV. In 2018 it is evident that Farm Pride Foods has two main categories which are the raw materials – at cost and finished goods. The raw materials – at cost in 2018 is $3,530, the finished goods were $3,389. Therefore, the total inventories for the period of 2018 was $6,919, with the total inventories of a value of $501,000 which is held at NRV. Whereas, in 2019 from the notes of the inventories it is evident that the raw materials – at cost is $3,169, the finished goods had a value of $1,689. Therefore, the total inventories for this period is $4,858.

Evidently after looking at the past three years of Farm Pride Foods inventories it can be gathered that the raw materials – at cost from 2017 to 2018 there was an increase of $1,255. However, a decrease in inventories value occurred from 2018 to 2019. Furthermore, for the finished goods an increase between 2017 to 2018 of a value of $1,092, however between 2018 and 2019 Farm Pride Foods had a significant decrease in finished goods inventories by $1,700. This is an obscene amount for a company to decrease their inventories by. I was a little shocked to see how significant of a decrease of from 2018 to 2019 across all areas, this may be due to salmonella outbreaks or other issues occurring within the business. There was an increase between all categories within the inventories of Farm Pride Foods between 2017 and 2018 but decrease in all categories occurred from 2018 to 2019 which would be expected to some extent due to the issues surrounding the production of eggs throughout Australia with the salmonella outbreak during this time. Once I found where my companies inventories are listed I was required to go to the notes to find out further details surrounding what categories are held within inventories where I located that my firm has raw materials – at cost and finished goods, along with the net realisable value (NRV). I did not find anything that stood out to be in regard to the company disclosure of information, however, I thought that my company would have more categories within inventories, which I was surprised that it did not as I thought that there would be several categories within inventories simply due to them being inventories. After looking at the years of inventories for Farm Pride Foods, I did not find that there were any changes within the inventories other than the differing decrease and increase for the value of inventories within the business. I was excited and intrigued to see what type of inventories system that my company used however, I was not able to locate where they disclosed this information, therefore, I thought well maybe my firm does not wish to disclose this information for the public. However, when I think about inventories and the methods being either perpetual or periodic I realised that where I work on Saturday’s and holidays we use the perpetual method and we physically stocktake each and every item within the store, which takes a little while especially since the shop does not shut during this time, therefore, customers are constantly around and employees are both assisting customers and completing stocktake. At the shop where I work it is a retail western wear shop and we manually write down what the shop has of each detail, yes, I know we actually WRITE IT DOWN! Not many places do this anymore.

Assignment Step 8

For Step 8 I decided to have the company as Hayley’s custom tags which is my own little side business where I customise customers ear tags and ear tag key rings. I thought if I used a company that I knew relatively well it would make getting used to MYOB that little bit easier, which I think it did, YAY!

MYOB Set up screen:

Last screenshot of setup:

Last screenshot of training video:

Last Screenshot of my own Company entries “Hayley’s Custom Tags”:

STEP 8 Online test screenshots:

I had some difficulty in finding the quiz as the link in the task sheet did not work, therefore, I googled the name of the quiz hoping that it is the correct quiz as I did ask others on the unit Facebook page however, did not receive any replies. However, the task sheet said that the students have 30 minutes to complete the quiz and it had 13 questions which this quiz had, therefore, I thought it would be the correct quiz.

Assignment Step 9

Step 9:

Hypothetical Transactions: Farm Pride Foods.

When using MYOB, I used the items layout for the invoices, the item number is measured in dozens of eggs from Farm Pride Foods. The payments below have been inputted using MYOB spend money function located in the banking command centre. All of these payments are GST inclusive and require no freight therefore, this cost has not needed to be implemented into the costing of the products. I understood this step quite easily however, I have been having severe technical difficulties which made me stressed and frustrated as I knew exactly what I had to do however, technology just was not on my side for a couple of days but thankfully it is now! YAY! The spreadsheet below shows the ten hypothetical transactions for Farm Pride Foods.

Date

Transactions Entry

15/08/2020

Payment to Bunnings Warehouse for $850.00 inclusive of GST for repairs and maintenance

Payment to Eggs R Us for $50.00 inclusive of GST for purchase of eggs from the supplier

Payment to Dixie Smith for $15.50 inclusive of GST for purchase of eggs from the supplier

Payment to Sparkle Cleaning Services for $1050.00 inclusive of GST for cleaning and personal hygiene

within the facility due to COVID-19 and government regulations

21/08/2020

Payment to Dixie Smith for $80.00 inclusive of GST for purchase of eggs from the supplier

Payment to Eggs R Us for $58.80 inclusive of GST for purchase of eggs from the supplier

Payment to Dixie Smith for $280.00 inclusive of GST for purchase of eggs from the supplier

Payment to Sparkle Cleaning Services for $350 inclusive of GST for cleaning and hygiene

of the facility due to COVID-19 and Salmonella

Payment to Sparkle Cleaning Services for $250 inclusive of GST for cleaning of the facility

due to COVID-19 and Salmonella

Payment to Eggs R Us for $85.95 inclusive of GST for purchase of eggs from the supplier

As I finished this I re-read through the task sheet which requires us to submit the reports of, All journals, Income statement, Balance Sheet and the Statement of Cash Flows. I found locating this quite simple compared to what I originally thought it would be as there is an entire discussion topic surrounding this area of work. However, I have encountered an issue. The issue is that MYOB says that I cannot display the report on the actual report, however, I thought that I could screenshot where the details are even though it may not be the exact journal.

All Journals transactions Report

Additionally, from the screenshots above it is evident that I have also entered in some other transactions for my company as I believe it would give some further depth for my company and for me to get a better understanding of how to operate each different function within MYOB. I found this step quite fun and interesting as I did not realise that MYOB has so many different command centres.

Income Statement (also known as Profit/Loss Statement):

Balance Sheet:

Statement of Cash flow:

Discussion:

From the financial statements it can be seen that there are both debits and credits in the financial statements, however in the statement of cash flow the net income is observed as a negative number. Therefore, this shows that from the hypothetical transactions within Farm Pride Foods, has impacted the overall result of the financial statements as these transactions are not what the company does, hence the reason for, hypothetical transaction, therefore, this activity in the statements is not exactly what the finances within the company would be. To analyse these financials, this can be done by looking individually analysing each statement to evaluate as to what is going on within each statement and to discover if there are any trends or patterns occurring throughout these financials. From the hypothetical transactions that have been created, which reflects on Farm Pride Foods and the payments that the company would make, it can be gathered that the firm has only made payments therefore, not an adequate measure could be evaluated upon as they would not only make payments to suppliers, they would also make payments to employees, other services, like the cleaning company as in Victoria there are constantly outbreaks of salmonella, and especially at the moment thorough cleaning would need to be undertaken due to COVID-19. Furthermore, Farm Pride Foods would also gain income into their account, not just payments.

Assignment Step 10

Step 10: Depreciation and Amortisation, Depreciation Policies.

2017 Annual Report Depreciation:

Throughout Farm Pride Foods annual reports, it is evident that the business has items of depreciation within the enterprise. In the 2017 Consolidated Statement of Profit or Loss and Other Comprehensive Income, depreciation is displayed within the statement which is then linked to Note 6. Within Note 6 there are three main depreciation items; these include land improvements, buildings, plant and equipment. A screenshot below shows the 2017 Note 6 statement showing the depreciation within Farm Pride Foods.

From the screenshot above, it can be analysed that an increase from 2016 to 2017 was evident for land improvements, however, depreciation decreased on buildings. Finally, plant and equipment decreased from 2016 to 2017. The increase in land improvements may be due to further land enhancements resulting in the land being worth more as a valuation, however, buildings and plant and equipment decrease in depreciation quickly as they no longer are able to be classified as new and in perfect condition resulting in a smaller valuation cost.

Furthermore, within 2017 in Note 14, property, plant and equipment has a prominent accumulated depreciation within freehold land and land improvements, buildings and building improvements, and plant and equipment. Therefore within Farm Pride Foods, as an operation, it is evident that the company has various depreciating items held within the business. From the annual report document, the accumulated depreciation for freehold land and land improvements has increase by $60,000. Furthermore, buildings and building improvements has also increased from 2016 to 2017 by $483,000. Finally, the plant and equipment within Farm Pride Foods resulted in an increase from 2016 to 2017 by $462,000. The screenshot below shows Note 14 of the property, plant and equipment.

2018 Annual Reports Depreciation:

The annual report from Farm Pride Foods shows depreciation and amortisation in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. From the statement below it can be gathered that from 2017 to 2018 there was an increase of $431,000.

Within the Consolidated Statement of Profit or Loss and Other Comprehensive Income depreciation it led to a notes section. The note which was linked to the depreciation is note 6. There are three depreciation types within Farm Pride Foods, these include; land improvements, buildings, and plant and equipment. From the screenshot below it is evident that from 2017 to 2018 the land improvements decreased by $9,000. The buildings value of depreciation for Farm Pride Foods resulted in an increase of a value of $422,000. Furthermore, the plant and equipment depreciation also had an increase in value of $18,000. Therefore, from the below screenshot this shows note 6, in particular, to focus on the details of the depreciation of non-current assets.

Furthermore, the statement below is Note 14 providing more depth regarding property, plant and equipment within Farm Pride Foods. These are categorized into three main components of property, plant and equipment. The categories include; freehold land and land improvements; buildings and building improvements, and; plant and equipment. From the statement below, it can be interpreted that for freehold land and land improvements overall resulted in an increase from 2017 to 2018 by $3335,000. Furthermore, the buildings and building improvements also had an increase from 2017 to 2018 by $6671,000. Finally, Farm Pride Foods plant and equipment depreciation resulted in an increase also, however not as significant as the other categories, resulting of an increased value of $958,000.

2019 Annual Report Depreciation:

Farm Pride Foods has provided the public to be able to view the firm financial annual reports. From the Consolidated Statement of Profit or Loss and Other Comprehensive Income the value of depreciation has increased from 2018 to 2019 by $374,000. From this financial statement further details can be located in the notes section of the report, in particular, note 5.

Note 5 displays the two present depreciations held within Farm Pride Foods, these include; land and buildings, and; plant and equipment. From this already, it is evident that in the 2018 annual report for Farm Pride Foods the depreciation of separate categories of land and land improvements, and; building and building improvements. For the 2019 report it is evident that the two have been condensed into one, including; land and buildings and a separate category for plant and equipment. Additionally, from this statement from 2018 to 2019 in the land and buildings there has been an increase in value of $252,000, along with a slight increase for the plant and equipment recorded at a difference of $122,000.

Therefore, from analysing Farm Pride Foods annual reports focusing on depreciation and overall trend which occurred to me was that in the Consolidated Statement of Profit or Loss and Other Comprehensive Income that the land improvement is the only category that has an increased depreciation over the period of these statements. This could be due to land is able to be improved through varying the pastures, however, the buildings, plant and equipment all depreciate in value. A key concept which I analysed from these statements is that accumulated depreciation can increase, I did not realise this as I thought that as soon as something is no longer classified as “new” then it automatically depreciates in value. Furthermore, a key difference which I identified within Farm Pride Foods annual reports looking specifically at the depreciation within the business is that in the 2019 report, evidently two categories held under depreciation have been condensed into one category. The practice is demonstrated when the land and buildings is one category along with a separate category for plant and equipment, however, in previous annual reports the business has had separate categories for, land and land improvements, and then another category for buildings and building improvements. Therefore, this changes the manner in which it is calculated as some of the depreciation would go towards the land and some would go towards the buildings. From this, I believe that it would not be an accurate measure, as land usually increases in value whereas, buildings usually depreciate in a negative manner.

Depreciation is expressed to be an estimate of the amount of economic benefit of assets that are used for the given period. Throughout the depreciation process the accountants are responsible for the valuation of depreciating equipment and the estimated residual value. The accountants would usually conduct the income statement for the firm and a balance sheet to ensure that these statements interconnect with each other and are reflect each other. Within an income statement the depreciation is considered to be an expense for the firm which is incorporated within the operating expenses. When the firm has an increase of the depreciation as an expense, the operating profit and net income suffers a decrease. The balance sheet is affected when new assets are purchased by the business in one year, however, the following year the asset is depreciated in the expense component of the balance sheet. Therefore, from the statements provided within Farm Pride Foods annual report I found it quite easy to locate the relevant information by simply using the CTRL F function. From the financial statements I was then directed to the notes to gain a better more in-depth knowledge about the depreciations present within Farm Pride Foods.