Department of Accounting

ACCT10001

ACCOUNTING REPORTS & ANALYSIS

Mock Examination - Semester 1 2025

QUESTION 1 (12 marks): Stakeholders and Financial Statements

Question 1.a. (2 marks): The information provided in financial statements is primarily aimed at which of the following stakeholder groups:

A.  Shareholders and creditors

B.   Suppliers and customers

C.  Regulators and the general public

D.  All of the above

Question 1.b. (2 marks): A main feature of accrual accounting as compared to cash accounting is that it smooths cash flows and thus produces less volatile information over time.

True/False

Question 1.c. (2 marks): Provide an example of a non-current asset and explain how it would be categorised as a line item in the balance sheet.

Question 1.d.-f. (Total of 6 marks, 2 marks each): A firm’s journal shows the following aggregate entries for the current financial year 2024/2025:

•    Transactions with customers: Cash (debit) $15, Accounts Receivables (debit) $5 / Revenues (credit) $20

•    Transactions with creditors: Borrowings (debit) $10, Interest Expense (debit) $3 / Cash (credit) $13

•    Transactions with suppliers: PPE (debit) $20 / Cash (credit) $20

By how much will the following financial statement items change. Note: Provide your answer without currency units and use brackets to indicate negative values, i.e., XX and (XX), and show your workings.

•    Total cash flows in FY2024/2025 (cash flow statement)

•    Net income in FY 2024/2025 (income statement)

•    Total liabilities as per 30 June 2025 (balance sheet)

QUESTION 2 (5 marks): Measurement and Recognition of Assets and Liabilities

Question 2.a. (2 marks): In its income statement, a company reports a relatively large amount of “Depreciation and Amortisation Expenses.” This implies that the company predominantly applies fair value accounting for valuing its assets.

True/False

Question 2.b. (3 marks): A company receives a loan over $10,000 from its lender. The loan term is 5 years with monthly repayments and the interest rate is 5%. Which of the following statements is correct.

A.  The loan is initially recognised at its nominal value of $10,000 and is shown under current and noncurrent borrowings in the balance sheet.

B.   The loan is initially recognised at its nominal value of $10,000 plus the present value of interest expenses and is shown under current and noncurrent borrowings in the balance sheet.

C.   Interest expenses as reported annually in the income statement will decline over the loan term.

D.  Interest expenses as reported annually in the income statement will increase over the loan term.

E.   A. and C.

F.   B. and D.

QUESTION 3 (11 marks): Business Valuation

This question concerns the valuation ofCSL Limited, a leading Australian health care company.

Question 3.a. (3 marks): The following is an excerpt of the income statement ofCSL Limited

Calculate the growth expectations for future free cash flows based on the NPAT that can be used in an intrinsic (FCFE) valuation model. Note: Round to two decimal places, provide your answer in percent without the unit sign, i.e., X,XXX.XX, and show your workings.

Question 3.b. (4 marks): GSK is a main competitor ofCSL in CSL’s biopharmaceutical segment. Consider the following segment information of GSK and CSL:

Further note the following information:

-      The non-U.S. revenues of both firms are dispersed across the world

-      In CSL’s specialty and general medicines segments the company focuses on plasma and gene therapies to treat various types of cancers

-      In GSK’s specialty and general medicines segments the company focuses on treatments for respiratory conditions (e.g., asthma)

Which of the following statements is true.

A.  Based on the geographical orientation, GSK is a suitable benchmark company to value the equity of CSL using a relative valuation approach.

B.  Based on the product portfolio, GSK is a suitable benchmark company to value the equity ofCSL using a relative valuation approach.

C.  A. and B.

Question 3.c. (4 marks): You are tasked with valuing CSL relative to GSK based on the P/E (price/earnings) ratio. For the financial year 2024 GSK reported US$3,742 million of NPAT and the company is valued at US$33.82 per share with 4,142 million shares (adjusted for dilution). As for CSL, consider the excerpt of CSL’s income statement in Question 3.a. and assume 485 million shares (adjusted for dilution). Assume that GSK and CSL have the same financial year (=calendar year) and that all information is as per 31 December 2024. Calculate CSL’s share price as per 31 December 2024. Note: Round to two decimal places, provide your answer without a unit sign, i.e., X,XXX.XX, and show your workings.

Question 3.d. (2 marks): Assume that the answer in Question 3.c. is US$200 but the actual share price as per 31 December 2024 is US$180. Based on this information would you buy or sell shares in CSL?

A.  Buy

B.   Sell

QUESTION 4 (14 marks):  Financial Statement Analysis

The following financial information has been extracted from the financial statements of Galaxy Electronics Ltd for the year ended 30 June 2024:

Ratio Formulas

•    ROE = Net Profit After Tax / Average Equity

•    ROA = EBIT / Average Total Assets

•    EBIT Profit Margin = EBIT / Sales Revenue

•    Asset Turnover = Sales Revenue / Average Total Assets

•    Average Days Inventory = (Average Inventory × 365) / Cost of Sales

•    Average Days Collection = (Average Trade Receivables × 365) / Sales Revenue

•    Current Ratio = Current Assets / Current Liabilities

Question 4.a.-4.c. (2 marks each): Calculate the following ratios for Galaxy Electronics Ltd. Note: Round to two decimal places, provide your answer without a unit sign, i.e., X,XXX.XX, and show your workings.

a)   Return on Equity (ROE) in %

b)   EBIT Profit Margin in %

c)   Average Days Inventory

Complementary additional ratios: One might also ask for the following ratios instead of the ratios requested above:

a)   Return on Assets (ROA) in %

b)   Asset Turnover (times p.a.)

c)   Average Days Collection

d)   Current ratio

Question 4.d. (2 marks): Galaxy Electronics Ltd has reported a Return on Equity higher than the industry average. This suggests that Galaxy:

A.  Is underperforming in generating returns for shareholders

B.  Is using its equity base more effectively than industry peers

C.  Has higher debt levels than competitors

D.  Is holding too much inventory relative to sales

Question 4.e. (2 marks): Galaxy’s Current Ratio is below the industry average. This may indicate that:

A.  Galaxy is highly liquid compared to its peers

B.   Galaxy has excess idle current assets

C.   Galaxy may face more difficulty meeting short-term obligations than other firms

D.  Galaxy’s profit margins are above industry average

Question 4.f. (2 marks): Galaxy has an asset turnover below the industry average. This likely indicates that:

A.  Galaxy is generating more sales per dollar of assets than the industry

B.   Galaxy is more asset-efficient than its peers

C.   Galaxy is underutilising its assets compared to industry benchmarks

D.  Galaxy has a faster operating cycle

Question 4.g. (2 marks): Galaxy’s operating cycle is slightly shorter than the industry average. This suggests that:

A.  Galaxy takes longer to convert inventory into cash than its competitors

B.   Galaxy has faster inventory turnover and/or collects receivables more quickly than peers

C.   Galaxy has a longer cash conversion cycle

D.  Galaxy’s net profit margin is below industry average

QUESTION 5 (20 marks): Management Accounting

Alfie Manufacturing Inc. manufactures a specialized component used in industrial machinery. The company's normal production and sales are 50,000 units per year at a selling price of $20 per unit. The company′s annual fixed costs are $400,000, and the variable cost per unit is $12.

Alfie Inc. has received a special order from a customer for an additional 10,000 units at a discounted price of $16 per unit. The company has sufficient capacity to handle this special order, but it will incur additional fixed costs $50,000 to set up a separate production line for the special order.

Question 5.a. (2 marks): Using the above data calculate the company's current annual profit or loss from normal operations. Note: Round to full numbers, provide your answer without a unit sign, i.e., X,XXX, and show your workings.

Question 5.b. (2 marks): Calculate predicted contribution margin from special order. Note: Round to full numbers, provide your answer without a unit sign, i.e., X,XXX, and show your workings.

Question 5.c. (2 marks): On the basis of the information provided indicate whether the company should accept or reject the special order. Provide a brief justification for your recommendation.

Question 5.d. (2 marks): A company's static budget for the production of 20,000 units included the following costs:

Direct materials:            $100,000

Direct labor:                     $80,000           (4,000 hours at $20 per hour)

Variable overhead:                 $20           (per hour)

Variable overhead:          $60,000

Fixed overhead:             $120,000

If the company actually produced 18,000 units, what is the flexible budget amount for variable overhead? Show your workings.

Question 5.e. (2 marks): A company's static budget for selling and administrative expenses was $500,000 for an expected sales volume of $2,000,000. The actual sales volume was $2,200,000. If 60% of the selling and administrative expenses are variable, what would be the flexible budget amount for selling and administrative expenses? Show your workings.

a) 520,000

b) 530,000

c) 550,000

d) 580,000

Question 5.f. (2 marks): RER Company produces two products, Product X and Product Y. The following information is available:

Product X:

•     Selling price per unit: $80

•     Variable cost per unit: $50

•     Units sold: 5,000

Product Y:

•     Selling price per unit: $120

•     Variable cost per unit: $70

•     Units sold: 3,000

The company's total fixed costs are $100,000.

Required: What is the total contribution margin for the company?

a) 200,000

b) 250,000

c) 300,000

d) 350,000

Question 5.g. (4 marks): Using the information provided in Question 5.f. calculate the Weighted Average Contribution Margin. Note: Round to two decimal places, provide your answer without the unit sign, i.e.,  X,XXX.XX, and show your workings.

Question 5.h. (4 marks): M&S Manufacturing Company produces a single product. The company's static budget for the current year allowed for the production of 50,000 units at a total cost of $1,000,000, which includes the following cost components:

•     Direct materials: $300,000

•     Direct labor: $200,000

•     Variable overhead: $150,000

•     Fixed overhead: $350,000

However, due to higher-than-expected demand, the company actually produced 60,000 units during the year.

Prepare a flexible budget for the production of 60,000 units, showing the flexible budget amounts for each cost component. Note: Round to full numbers, provide your answer without a unit sign, i.e., X,XXX, and   show your workings.

QUESTION 6 (4 marks): Sustainability Accounting

Question 6.a. (2 marks): Which of the following best describes a transition risk faced by firms in the context of climate change?

A.  Damage to physical assets caused by extreme weather events

B.  Increased costs of insurance due to more frequent natural disasters

C.  Regulatory changes requiring firms to shift away from fossil fuels

D.  None of the above

Question 6.b. (2 marks): Scenario analysis can help managers and investors better understand potential impacts of climate-related risks under different future conditions.

True/False