Accounting: Nimbin Pty Ltd. Assessment Answers

Discuss about the Accounting for NIMBIN Pty Ltd.

As per the given financial statement of NIMBIN Pty Ltd as 30^thJune 2016, the financial ratios are evaluated based on the four perspectives including the company’s liquidity, profitability, efficiency and financial gearing. During the company’s liquidity assessment, the company’s current and liquid ratios are calculated and compared it with the industry. Currently, the company’s current ratio is 2.21. Though it is below to the industry average, but the company is quite efficiently pay off its short-term liabilities with its current assets.

Company 2016	Industry Ratio
Current ratio (Current assets/current liabilities)	2.21	2.5
Liquid ratio (Quick assets/current liabilities)	1	1.3

(Source: Created by author) (Refer to excel)

On the other hand, the profitability ratios of NIMBIN Pty Ltd have shown their growth in the last financial year. The earnings per share is 59.89 which is much higher compare to industry average, i.e. 45. This indicates the company’s profitability on a shareholder’s basis. Furthermore, the company has successfully maintained the net profit margin which is also higher than the industry average. However, the company needs to improve their ROA which is lower than the industry. This indicates that the company needs to improve their efficiency while managing its assets to produce profits during a period.

Return on Total Assets (Net income/Average total assets)	15%	22%
Return on Ordinary equity (net income-pref dividend/common shares outstanding	33%	20%
EPS	59.89	45
Net Profit margin (NP/Sales)	7.93%	4%
Price earnings ratio (MV/EPS)	20%	12%

(Source: Created by author) (Refer to excel)

Lastly, the company’s financial gearing condition indicates the condition of investors. According to the dividend yield ratio, investors are getting fewer dividends against their every dollar investment. The company needs to improve this rate because industry rate is quite higher. On the other hand, the debt ratio indicates the firm’s solvency that measures the company’s total liabilities as a percentage of its total assets. The debt ratio of the company is 53% which is much higher than industry.

Dividend yield ratio (cash dividend per share/market value per share)	3%	5%
Dividend payout ratio(Total dividend/Net Income)	63%	70%
Debt ratio (total liabilities/total assets )	53%	40%

(Source: Created by author) (Refer to excel)

Therefore, NIMBIN Pty Ltd has been secured a good financial condition in the last financial year.

Human capital is a measure of the economic value of the skill sets (Hamilton and Liu 2014). As per the given case study of the local restaurant, the main secret of the organization’s success was its fine chef. In this context the value of the Chef in that restaurant must be considered as the assets. This is a long term intangible assets. As per the conventional approach, it is important to recognize the human capital value which helps clients in choosing the suitable consumption level. Being the most valuable assets of the local restaurant, the company must incorporate the chef on the statement of the financial position. Such human capital shall be valued at the present value in terms of dollars that a chef’s skills are worth over his expected remaining work life minus taxes and personal consumption (Hendricks and Schoellman 2016). However, the risk is involved in human capital because it cannot be hedged. Furthermore, the demand for the chef’s skill set may fall and result the operational inefficiencies within the workplace of the local restaurant (Flamholtz 2012).

According to Mouritsen and Kreiner (2016), accounting information helps decision making process and the activities of the management. Srivastava and Lognathan ( 2016) stated that one of the important assumption in decision making process and improvement economy is existence of the quality information. The following people would need to make economic decisions with the use of accounting information.

A manager of the human resource will finalize the suitable candidates as per the requirement of the organization. However, the decision regarding their salaries must be fixed up considering the current financial position of the firm. Thus the accounting information like ongoing salary expenses for the existing employees must be verified before taking the final decision. The managers of the human resource will consider information like salary expenses, net income of the organization to make the decision decisions.

A factory manager must plan for work activities, worker scheduling, budget maintenance scheduling and many others. Taking decisions to make an effective work plan by him, the manager must consider the projected work costs based on the accounting information like” per unit cost of activities”, “staff salaries”, “total investment” made by the organization and so on. 

The management team of Australian Football team club must organize a football match considering the amount details of the sponsorship costs. Furthermore, decisions like taking loans or funding the entire program, the management team must calculate the estimated costs and assess the financial soundness.

If the manager of the second hand clothing charity wants to distribute their cloths to the different people then the associated cost of transportation will be recorded. Such costs will be shown in the statement of income statement.

1	Particulars	Statement of financial position	Statement of financial performance	Statement of Cash flows
2	Purchase Equipment for Cash	Increase total assets	No effect	Decrease cash for investing activities
3	Provide services to a client, with payment to be received within 40 days	Increase total assets	Increase income	No effect
4	Pay of liability	Decrease of liabilities	No effect	Decrease of cash flows financial activities
5	Invest additional cash into the busienss by the owner	Increase equity	No effect	Increase cash for financial activities
6	Collect an account receivable in cash	No effect	No effect	Increase of cash
7	Receive the electricity bill in the mail to be paid within 30 days	Increase liability as outstanding	Increase expenses
8	Sell a piece of equipment for cash	Decrease total assets	No effect	Increase of cash for investing activities
9	Withydraw cash by owner for private use	Decrease owners equity	No effect	Decrease of cash flows financial activities
10	Borrow money on the long term basis from a bank	Increase liability	No effect	Increase of cash for financial activities

(Source: Created by author)

References:

Flamholtz, E.G., 2012. Human resource accounting: Advances in concepts, methods and applications. Springer Science & Business Media.

Hamilton, K. and Liu, G., 2014. Human capital, tangible wealth, and the intangible capital residual. Oxford Review of Economic Policy, 30(1), pp.70-91.

Hendricks, L. and Schoellman, T., 2016. Human Capital and Development Accounting: New Evidence from Wage Gains at Migration.

Mouritsen, J. and Kreiner, K., 2016. Accounting, decisions and promises.Accounting, Organizations and Society, 49(C), pp.21-31.

Srivastava, P. and Lognathan, M.S., 2016. Impact of accounting information for management decision making. IJAR, 2(5), pp.171-174.