Jayde Roberts Assignment 2 ACCT11059

ASSIGNMENT #2

RESTATED FINANCIAL STATEMENTS

ACCT11059- ACCOUNTING FOR DECISION MAKING

T3 2016

JAYDE ROBERTS

STUDENT NUMBER- S0278102

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Jayde Roberts Assignment 2 ACCT11059

Contents Page

Step 1- KCQs Chapter 4 Page 3-5

Step 2 Restating Firms Financials Page 4-10

Step 3 Contribution Margin Page 11-12

Step 4 Feedback Page 13-17

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Jayde Roberts Assignment 2 ACCT11059

Step 1

Analysing Financial Statements – Chapter 4 of the Study Guide

Another blistering hot Saturday has crept up on me. I would much rather be lazing around on my bed in the air-conditioning, but I have learnt from past mistakes! In order to not fall asleep I shall sit at the kitchen bench on a mildly uncomfortable bar stool and attempt Step 1 of Assignment 2. If I hit some good form I might even commence Step 2.

Unlike some of the other chapters, I found chapter 4 very difficult to engage with. I found it to be confusing, frustrating and I struggled to relate a lot of the concepts to my everyday life. All of the concepts were new to me and therefore I had to invest a very large amount of my time to not only read the chapter but to also ensure I actually understood what I was reading.

I tried a different approach to the KCQs this time around. Instead of reading the entire chapter before I consider jotting any initial thoughts down, I made comments on my reactions and understanding as I went along, pausing my reading to capture these thoughts.

First thoughts

The initial quotes by Marc Bloch, Machiavelli and G.K. Chesterton immediately set my mind into motion. These quotes are usually something I would see as slightly irrelevant and head straight to the actual paragraphs. However, on this occasion I force myself to read them. They get me thinking about life in general and how I find myself constantly reflecting on the past in order to make informed decisions moving forward. For example- selling your home. If I was looking to list my house for sale I would immediately research past sales in the area and study comparable homes and the settlement prices they achieved via their sales. This would assist me in marketing my property at a realistic listing price. This is just one example, but I find myself constantly researching the past in order to make the best decision I can moving forward with my life. Like enrolling with CQU, one of the main reasons I decided to switch from Deakin University to CQU was because I noticed CQU offered subjects with less exams. Due to my anxiety and stress levels around exam periods, I felt the degree offered by CQU would better suit my learning preferences. Not to mention I had several friends who also recommended CQU. I consulted my past fears in order to make an informed decision moving forward with my degree. I find myself regularly consulting the past and also the present to ensure I am not aimlessly wandering my way through life.

I guess I see equity investing as a bit of a gamble. Not like playing poker or roulette, but more like gambling on horse racing. I am not an avid gambler, but every year when Melbourne Cup rolls around I generally see myself researching the line-up. This includes their last placings, which barrier they have been allocated, their jockey (including weight), their financial odds and also who they are up against. I guess equity investing is similar, you don’t always know if your investment is going to pay off, but with appropriate research, including past financial statements and competition, you are able to better predict a firm’s future.

Mid way thoughts

As I begin to reading further on I do become quite confused by the abbreviations and technical accounting jargon the author uses. I feel as though I could have benefited from truly understanding and memorising each accounting term before I began reading this chapter. I hope that things will begin to make better sense as I progress. The chapter appears to allude to this being the case for most people and that once the task of restating our financial statements rolls around we will “allegedly” gain a greater understanding of financial statements. Let’s hope!

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Jayde Roberts Assignment 2 ACCT11059

The comparisons between Marks Inc and Kings Enterprises I surprisingly found quite interesting and easy to comprehend. Looking at the tables and figures for both companies initially it is easy to assume which company you believe would be best investing in- before considering other financial details. However, once you consider that King Enterprises expects to invest less each year to achieve the same earnings growth as Marks Inc, its then simple to understand why Kings Enterprises would be the better company to buy shares in.

I am beginning to get slightly excited that this particular chapter might in fact greatly assist me with completing the “restating financial statements” aspect of assignment 2, which just so happens to be my most feared aspect of assignment 2. Instant relief sets in. The more I read about operating and financial activities, the more I think I might actually sleep well tonight after all. No more nightmares about “restating financial statements” with numbers and accounting lingo/slang repeatedly flying around my head. Hope has been restored…

Ok, I think I get it. Restating financial statements is actually just changing the format of the existing financial statements (from assignment 1) to make more sense to those of us reading them? Shuffling things around somewhat and placing everything into a re-jigged format to assist us in analysing everything so we can understand the realities of the business better and you start this by splitting assets and liabilities into operating and financial activities? I think I am getting the gist of things here.

KCQ’s

I do wonder why this restating actually needs to occur though? Why don’t businesses already provide “restated financial statements” for all stakeholders to begin with? Why is this information not already readily available for their investors? I know the information is already available, but why wouldn’t businesses have these different “restated financial documents” on hand for their investors? Do the current/existing statements need to be altered to better reflect the realities of the business? I’m must say I am kind of surprised that with technology advances these days that restated financials don’t already form part of the annual report and aren’t somewhat automatically generated? Or is this just me being lazy? Perhaps? However, it still seems logical!

I also wonder why dividends are not a measure of value adding? This chapter clarified that dividends are a transfer of value in a business, over a creation of value. This helped to explain things so I could understand better.

I wonder if it’s possible to see if one business is doing better than another business based purely on Free Cash Flow?

Why would a business exclude some earnings from their income statement? Curiosity has me thinking about whether there is an obligation to separate their other comprehensive income?

I noticed with not only Ryman Heath care but also the other exemplars that operating tends to have a larger total than financing. I wonder if this is always the case?

Looking further into the Restated Statement of Changes in Equity, the Restated Balance Sheet and the Restated Income Statement, I was originally worried about why the restated income statement had a second net profit after tax? After I re-read over things (about 10 times!) I am able finally grasp that this is due to other comprehensive income/loss which isn’t included to begin with. At least I hope I am on the right track

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Jayde Roberts Assignment 2 ACCT11059

here?Now that the formulas and technical accounting jargon has disappeared from the text momentarily, I find myself immediately more interested. I also begin to crave chocolate with the subtle mention of a kinder surprise. Mmmm chocolate.

As I continue reading I begin to stumble across more abbreviations and instant fear sets in, but the way this section is written is very easy for me to follow and understand despite my fear of all things accounting. I appreciate that the author has walked me through everything leading up to figure 4.2 and explained all aspects of the operating and financial activities. Sure I may not remember everything- but it’s a nice introduction for me.

I take a long pause from writing KCQ’s to actually highlight and write down key notes for my assignment two. I am beginning to feel a lot less stressed about restating financial statements as I continue reading this chapter.

I very much appreciate the inclusion of examples in respect to Ryman Healthcare’s restated financial statements. For someone with “no clue” on accounting, I think I will gain a lot from these exemplars.

End thoughts

I’m definitely going to need to come back to this reading when it comes time to restate my financial statements. However, I am beginning to notice a pattern here. I feel as though the author makes a blatant effort to incorporate different writing and teaching styles throughout each chapter. So although I might find a particular section very engaging and easy to follow, I understand that some students might actually get excited about acronyms. I am definitely not one of those students, but I believe the author is attempting to connect with a greater audience and appeal to different students and their preferred learning styles. This is most likely my AH HUH moment for this chapter.

Below memes included to add humour and further % to assignment

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Jayde Roberts Assignment 2 ACCT11059

Step 2- Restating Mears Groups Financial Statements

Included on separate excel spreadsheet attachment and thoughts and feelings also posted to blog here Blog Link

Drafts posted to Blog here: Draft assignment 2 blog post

I found the restating learning task very difficult. As I have said from the beginning, accounting is not something that comes naturally to me. It is something I have very limited experience with. I never studied accounting in high school and I don’t have any exposure to it in my current job, nor have I have any exposure in any of my previous jobs. It is something I fear and possibly ever borderline “hate.”

However, I am REALLY trying here! I want to remain positive about the subject and at the risk of getting the accounting staff off side I am at least trying to “like it.” I guess there are aspects I have enjoyed more so than others. I must say that the whole restating process has been the least favourable exercise for this subject to date.

I have no experience using excel formulas and I now understand the importance of using them. I neglected to use them in my first assignment and I now realise how much they would have assisted me with my assignment 2. I picked up several data inputting errors from assignment 1 and it was very time consuming trying to fix it up and navigate where the error occurred exactly.

When I went to restate my company’s statement of movements in equity, I realised that I did not detail my other comprehensive income for this statement in my Assessment 1. I had included a total figure for other comprehensive income instead. Therefore, with Assignment 2, I had a little extra work to do to on the re-stated movements in equity in order to detail the line items pertaining to other operating comprehensive income. I had trouble working out the operating and financial income on my Statements of Movement in Equity to begin with as mentioned, neither were listed on my original spreadsheets and my feedback from assignment one didn’t indicate anything was wrong here. I found I had to go back to the annual statements and check the notes to try and work out what these were. I was under the assumption that anything listing “shares” in the title was a shareholder transaction. I also found it a bit strange that I didn’t have any financial income. Hoping I haven’t missed anything here!

Based on some conversations I read between Belinda Donaldson and Boden Abel regarding Cash Flow Hedges, I was able to confirm my viewpoint on the hedging reserve and I included this item as operating within my Statements of Movement in Equity. Discussion on Bel Donalds Blog

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Jayde Roberts Assignment 2 ACCT11059

I admit that I, like several other students needed to watch Maria’s lecture countless times. I have no idea how some students managed to complete their restating within the lecture. I had never needed to separate operating and financial line items before and I found it difficult to actually separate the 2 based on both my lack of experience and knowledge in this area. I am thankful that Martin provided simple examples within the study guide to help me understand the concepts and differences.

I was initially quite overwhelmed when trying to get my head around separating assets and liabilities, but once I understood the differences it became easier for me to grasp. Once I understood that total NFO + total equity was equal to NOA everything started to fall into place a little bit easier and my spreadsheet started to match up. However after repeated attempts to fix the 2 years that weren’t balancing I was forced to give up and admit defeat. I would be very interested to see where I went wrong here as it drove me almost insane trying to work it out. I copied all of the items accurately and my excel formulas appear to be correct so I am at a loss as to why this isn’t balancing!? I really hope this doesn’t lose me too many marks.

There were a few line items where I had to refer back to the notes in the annual report to ascertain what they were. Most of the items I found fairly straight forward as I did not have a comprehensive list with confusing terminology. I also referred to other exemplars to assist me with my assumptions.

Needless to say I feel a lot more confident in actually separating operating and financing activities and using excel formulas now. I had very limited knowledge with accounting terminology to begin with so it has been a very tedious task trying to actually decipher which items belonged where and what they actually meant.

Having now completed the restating process I do feel as though I am a lot more knowledgeable on accounting terms and restating in general. Sure it’s taken me the best part of my Christmas holidays to complete, but I guess it was my choice to do the summer semester wasn’t it!?

I honestly don’t know how I would have approached this task without the assistance of the Ryman Health Care data, Wesfarmers and other student exemplars. I found these incredibly helpful and without them I think I would have been very lost. So I think it is important that I note the significant assistance I gained from these exemplars when it came to setting out my restated financials and also separating operating and financing activities.

On a more positive note I have really enjoyed the blog side of this assessment and the active student interaction. I have noticed many students who are quite active on the blog and some students who have really taken the time to help others. This is very pleasing to me as I know a lot of students would probably struggle with this assessment and can gain a lot from other student interaction. Boden Abell in particular has been very active and very helpful to a lot of students. Its students like

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Jayde Roberts Assignment 2 ACCT11059

Boden that don’t go unnoticed. I hope that one day I will have enough knowledge to assist other students in the same way that Boden has. Shout out to you Boden! I don’t know you but you seem like a top bloke!

In conclusion, do I hope I never need to restate anything ever again as long as we all shall live? Most definitely! Here’s to me hoping that the copious amount of time that I have put into this assessment piece shows when the results roll in.

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Jayde Roberts Assignment 2 ACCT11059

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Jayde Roberts Assignment 2 ACCT11059

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Jayde Roberts Assignment 2 ACCT11059

Step 3

Identify 3 products/services of Mears Group, Estimate selling price, variable cost and CM

Services Selling Price Estimated Cost

Contribution Margin £

Contribution Margin %

Grounds maintenance

£50.00For standard mow, whipper snip and

weed removal

£30.00 £20.00 40%

Cleaning £100.00Standard cleaning call out fee

£60.00 £40.00 40%

Gas services £80.00Call out fee

£45.00 £35.00 43.75%

Average £76.66 £45.00 £31.66 41.25%Contribution Margin (CM) = Sales (S) – Variable Costs (VC)

Commentary- contribution margins

I found it difficult to estimate the figures for my company as Mears Group does not manufacture and distribute products, they instead offer services to their clients. I found it a bit harder to actually research costing for services in the UK, but thankfully I was able to produce estimates based on some prior knowledge and experience working in the field of property management and having to arrange trades for rental properties in this former position.

Service Identification of ServiceService 1- Grounds Maintenance

Grounds maintenance is quite possibly one of Mears Groups lowest cost services. The selling price is quite reasonable and covers lawn mowing, whipper snipping and basic weed removal. The actual outlay costs for Mears are quite small. There is fuel to attend the job, as well as fuel for the equipment (mower, whipper snipper) and then the costs of dumping the green waste and finally the labour costs at roughly £15.00 per hour and approximately 1 x hour labour. As most homes in the UK have quite small yards, the job itself would typically take the contractor less than an hour to complete. The incremental profit earned per service sold is quite low at 40%, and the individual service cost is quite low as well, therefore many services are requiring to be sold to make a substantial profit.

Service 2- Cleaning

Cleaning is again, a similar contribution margin. The service requires cleaning products, fuel and often hard and intensive labour from the cleaning contractors at approximately £20.00 per hour and a minimum call out of 2 hours’ labour. This particular service charge may very between cleaning jobs. Your basic cleaning call out fee is stipulated in the above table, whereas a full bond clean would come in at a higher cost and quite possibly a slightly different contribution margin.

Service 3- Gas call out

Gas call out fees come in at a similar contribution margin again. The service itself only really requires fuel to attend the job and parts required are often quite inexpensive. Expert knowledge is needed to complete the job by a qualified tradesperson and an hourly rate is charged at £30.00 per hour. Mears Group would find that they would need to pay this gas tradesperson more from the contribution margin than the tradesperson completing Service 1- Grounds Maintenance would require.

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Jayde Roberts Assignment 2 ACCT11059

Important note

As Mears Group offers services to primarily the lower socio economic demographics in social housing, their contribution margins are most likely a lot less than privately run cleaning companies and tradespeople. Mears Group must also offer reasonable pricing to continue their contracts with local governments. Mears Group are an extremely large company with employment reaching 20,000 who provide support and maintenance to around 30,000 people a year, so although their services might be low costs, they are in high demand.

Constraints- identify and commentary

Although I found this task a lot easier than the re-stating step, it was still quite time consuming by the time I researched Mears group’s services and made relevant assumptions with pricing. I was also a bit disappointed that it was only worth 4%.

I determined Mears Groups constraints to be restrictions on the resources essential to finish a job or project. I also envisage Mears group would be likely to encounter similar problems to many other businesses. I believe management need to have appropriate policies and procedures in place to deal with these problems if and when they arise in order to make informed decisions moving forward.

Staff limitations have already been listed within Mears Groups annual report and have also been reported on in news articles. This is an existing problem, primarily within the social housing care arm. This problem needs to be addressed sooner rather than later.

Other possible constraints in addition to staffing might be: unavailable vehicles, lack of cash flow, lack of materials during certain times of the year, failed contract negotiations, political and even economic pressures.

Companies often have limited resources. These can be: restrictions on land/office spare, staffing, or even on things like equipment. This can mean that production capabilities are limited and managers must choose which products to make and sell. It is not uncommon for managers to use the method of separating contribution margin by a measure of the constrained resource to specify which services provide the most success from strained resources.

In order to decide which services should take precedence, Mears group will need to look past the contribution margin per unit and consider looking more closely at their controlled resources contribution margin (cm/labour hour) as even though a particular service may have a lesser contribution margin per unit, the higher service per hour may result in a larger contribution margin per hour. In some cases, it might be more profitable to carry out services with a smaller contribution margin per unit in order to achieve more regular business.

Turnover is about selling services. Services with higher contribution margins are often sold less often than those with lower contribution margins. To make a sufficient profit businesses have to sell services. It is often better to sell cleaning services at a constant rate, for a lower contribution margin, than to be selling renovation works once every 6 months at a higher contribution margin. A constant flow of cash for low contribution margin services is desirable to have rather than relying on the “occasional” transfer of services with higher contribution margins.

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Jayde Roberts Assignment 2 ACCT11059

Feedback

In the first assignment, I was encouraging of exchanging feedback, despite the lack of feedback that was provided to me by other students. With this assignment I found I was almost dreading giving feedback. As this subject continues further into the unknown for me, I am fearful of providing feedback to students on something I have only just become familiar with myself. I have tried my best to provide honest and valuable feedback to students as I believe assignment 2 (carrying the largest marks) will most likely be the most difficult and also the most beneficial for students seeking feedback.

I hope to receive a better response with feedback personally with assignment 2 than I received with assignment 1. I was left quite disheartened after I provided a total of 6 students with feedback to only receive feedback from one student before I had submitted my final product for marking with assignment 1. I’m sure, like assignment 1, a lot of students have probably invested their time in the assignment itself rather than the feedback because the percentage is worth so little. But I am hoping for a miraculously turn of events this time round and will gladly welcome any feedback!

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Jayde Roberts Assignment 2 ACCT11059

Feedback From: Jayde Roberts

Feedback To: Kym Cook

My CommentsStep 1KCQs

Well thought out reflections.All I would suggest here as that you haven’t listed a lot of questions that come to your mind whilst doing the readings. I know I was marked down on my SPA one for mostly summarising and paraphrasing a lot, but not noting KEY QUESTIONS. Perhaps re-look at this area and try and note some key questions that come to mind.

Step 2Restated Statement of Changes in Equity Balance Sheet Income Statement Commentary and discussion with others (Note: You may wish to give some comments on their Excel spreadsheet)

I could see no major mistakes in your spreadsheet, however keep in mind I have just spent 1000+ hours doing my own restating so my mind may not be super sharp in this area at the present moment. I will say however that the inclusion of extra comments in the side referencing your notes is a nice inclusion. I liked this as it helps make sense of the numbers and what you have done.

Step 3Identify three products/services Estimate selling price, variable cost & CMs Commentary – CMs Constraints – identify and commentary

I realise you have not yet completed this section of the assignment. I would recommend viewing the exemplars to get some hints on layout and the different constraints each organisation might face. I understand the markers aren’t specifically concerned about your estimates on CM but more so that you understand what contribution margin is. Remember this section is only four marks so it may not be necessary to spend too much time here.

Overall ASS#2 I found this assignment extremely challenging. I might even go as far as to say this has been the most difficult assignment I have completed in university to date. I think you are off to a good start especially with your spreadsheet. Remember the spreadsheet is worth the most marks too! Good luck for the rest of the semester Kym, and thank you for providing me feedback so early. It will give me a chance to make challenges promptly before submitting my final assessment.

og

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Jayde Roberts Assignment 2 ACCT11059

Feedback From: Jayde Roberts

Feedback To: Adrian Pegler

My CommentsStep 1KCQs

Obviously your KCQs still need to be completed.All I would suggest here is that you include a lot of questions that come to your mind whilst doing the readings. I know I was marked down on my SPA one for mostly summarising and paraphrasing a lot, but not noting KEY QUESTIONS. Perhaps re-look at this area and try and note some key questions that come to mind.

Step 2Restated Statement of Changes in Equity Balance Sheet Income Statement Commentary and discussion with others (Note: You may wish to give some comments on their Excel spreadsheet)

I realise your draft is still a work in progress. It might help to expand a little on your thoughts and feelings when carrying out the restating process. I do like the inclusion of dot points though.I could see no major mistakes in your spreadsheet, however keep in mind I have just spent 1000+ hours doing my own restating so my mind may not be super sharp in this area at the present moment. Good inclusion of notes at the bottom. I liked this as it helps make sense of the numbers and what you have done.

Step 3Identify three products/services Estimate selling price, variable cost & CMs Commentary – CMs Constraints – identify and commentary

I would recommend viewing the exemplars to get some hints on layout and the different constraints each organisation might face. I understand the markers aren’t specifically concerned about your estimates on CM but more so that you understand what contribution margin is. Remember this section is only four marks so it may not be necessary to spend too much time here. I have utilised tables when displaying my 3 services and their contribution margins to make ease of their visual appearance. This might be something you might also like to consider with yours.

Overall ASS#2 I found this assignment extremely challenging. I might even go as far as to say this has been the most difficult assignment I have completed in university to date. I think you are off to a great start especially with your spreadsheet. Remember the spreadsheet is worth the most marks too! Good luck for the rest of the semester Adrian.

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Jayde Roberts Assignment 2 ACCT11059

Feedback From: Jayde Roberts

Feedback To: Boden Abell

My CommentsStep 1KCQs

Excellent work on your KCQs. You have included great key concept questions and it is evident you have an in depth understanding on accounting already. Your KCQ’s have been well set out. I like the use of italics and bullet points. Your work does not seem disjointed like some others I have come across.

Step 2Restated Statement of Changes in Equity Balance Sheet Income Statement Commentary and discussion with others (Note: You may wish to give some comments on their Excel spreadsheet)

I actually used your spreadsheet to assist me significantly with my spreadsheet. Our company’s seemed to classify their different line items under similar titles so I found that your company and my company were similar in that regard. I must commend you on the time you have taken to assist other students with their difficulties classifying different items. This has not gone unnoticed. You have obviously spent a great deal of your personal time helping others which is commendable. I could see no major mistakes in your spreadsheet, however keep in mind I have just spent 1000+ hours doing my own restating so my mind may not be super sharp in this area at the present moment. Good inclusion of notes at the bottom and also to the side. I liked this as it helps make sense of the numbers and what you have done.

Step 3Identify three products/services Estimate selling price, variable cost & CMs Commentary – CMs Constraints – identify and commentary

Great job with step 3 as well. I wouldn’t be surprised if you were headed towards a HD! I understand the markers aren’t specifically concerned about your estimates on CM but more so that you understand what contribution margin is. I wish I could provide you more valuable feedback but it really seems to me that you know what you are doing and are very across this assessment piece. I like that you have selected items with very different contribution margins. This gives a great overall view of your company’s offerings. It’s nice to see you haven’t taken the easy road here. I imagine these products would have been difficult to estimate costing on and research.

Overall ASS#2 I found this assignment extremely challenging. I might even go as far as to say this has been the most difficult assignment I have completed in university to date. I think you are off to an incredible start especially with your spreadsheet. Remember the spreadsheet is worth the most marks too! Good luck for the rest of the semester Boden. Although I didn’t think I would be able to provide you as good of feedback as some student’s (who may have more areas to improve in) I did want to take this opportunity to thank you for your contributions this semester. The help you have provided other students is commendable and I’m sure may others have noticed this too. While trying to find your blog

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Jayde Roberts Assignment 2 ACCT11059

one day I came across an article that said you won a scholarship with CQU. So I guess this is unrelated to assignment 2, but I am glad that other people have noticed your contributions and you should be very proud of yourself for your achievements. All the best with your degree!

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