THE UNIVERSITY OF

NEW SOUTH WALES

Australian School of Business

School of Accounting
ACCT 1501: Accounting and Financial Management
1A
Week 1

Introduction to Financial Accounting & Key

Financial Statements
Student Handout

Lecturer:
Dr. Youngdeok Lim
School of Accounting
UNSW
QUAD 3069
youngdeok.lim@unsw.edu.au

Blackboard: http://telt.unsw.edu.au.

Session 1, 2012

WEEK 1: Introduction to Financial Accounting & Key Financial

Statements

Welcome to Accounting and Financial Management 1A.

In this first lecture you will be introduced to the lecture staff on the course and be
given the Course Outline. We will be outlining the objectives of the subject, its
structure and requirements as described in the Course Outline and answer any
questions you may have about the course. We will be referring to the Woolworths
2007 Annual Report (WW2007) throughout the course. The annual report is included
as an appendix in your course textbook (Trotman & Gibbons (T&G) pages 709-748).
We will then begin to explore the nature of accounting and introduce general purpose
financial reports.

Learning objectives
At the end of this topic you will be able to:

Understand the overall course requirements and assessment tasks for this unit.

Define Accounting

Begin to become familiar with the Woolworths 2007 annual report and the
information it contains.

Be aware of key financial statements and the users of these reports.

Understand the foundations of modern accounting practices including the

underlying assumptions of financial reporting

Begin to understand the accrual concept

Required Reading
ACCT1501: Accounting and Financial Management 1A: Course Outline
Trotman & Gibbins Chapter 1: sections 1.1 to 1.4, & 1.9 - 1.11; Appendix 1
(WW2007)

AFM1A

2.

Tutorial Questions Week 2

Preparation Questions
You should attempt these questions before the tutorial. The answers to the preparation
questions will be made available on the course website at the end of the relevant
lecture week. In this way you can check your understanding of these questions before
the tutorial class. You are welcome to raise any unresolved issues that you have with
the preparation questions with your tutor.
This will be important and essential information for you when you complete your
reflection task.

DQ 1.1, 1.2, 1.3, 1.7,

P1.6, P1.16,

C1A (1-7)

Tutorial Questions
The answers to tutorial questions are the focus of the tutorial class work:

DQ 1.12, 1.16,

P1.7, P1.15, P1.25

AFM1A

ABC faced insolvency in 2007

Colin Kruger
May 22, 2010
ABC Learning was staring down the barrel of a $1.78 billion loss for the 2008
financial year when it collapsed, but the company may have been insolvent as early as
mid-2007, according to a report from its administrators, led by Ferrier Hodgson's
Greg Moloney.
In the final drafts of ABC's financial statements prepared for the year ending June 30,
2008, its auditors included impairment charges totalling $1.168 billion, and a $364
million loss on the disposal of a majority stake in ABC's US business.
Significant contributors to the loss - $1.2 billion more than previous estimates - are a
$686 million cut in the valuation of childcare licences and a $127 million write-down
of debts owed by ABC's childcare developer, 123 Group.
The massive loss means the net assets on ABC's balance sheet were reduced from
$2.22 billion the previous year to just $284.5 million at June 30, 2008, putting the
company in breach of its covenants almost five months before administrators were
appointed.
But the bombshell in the report to creditors is the administrators' analysis that for the
2007 and 2008 financial years ABC had just 30 and 40, respectively, of current
assets for every dollar of current liabilities.
This equates to a current ratio of 0.3 and 0.4 for those years. The administrator's
report notes that ''a current ratio and quick ratio less than one may indicate a potential
liquidity crisis''.
An analysis of the company's quick ratio showed ABC had just 20 of ''liquid'' assets
for every dollar of current liabilities in 2007, and 10 in 2008.
The quick ratio is lower because it does not include potential proceeds from assets
held for sale.
''This indicates that there was a reliance on the sale of assets to discharge short-term
liabilities as at 20 June 2008,'' the report said.
In an examination into ABC's collapse, senior executives told the Federal Court last
month there were no liquidity concerns when ABC began a fire sale of assets in early
2008, despite evidence to the contrary from junior ABC management.
The report also spells out just how reliant ABC was on the banks and investors for its
cash. Over the six-year period leading up to its collapse, ABC generated $3.43 billion
from debt and equity markets against $375 million cash generated from its childcare
operations.

AFM1A

''This reliance on external capital, combined with failing support by equity and debt
investors as well as underwhelming financial performance, led to a liquidity crisis and
was a major contributor to the failure of the ABC Group,'' the report said.
The administrators said they have yet to determine exactly when ABC became
insolvent.
The second creditors' meeting, expected to vote to wind up ABC, is scheduled to be
held June 2 at the Tattersall's Club in Brisbane.

Read more: http://www.smh.com.au/business/abc-faced-insolvency-in-200720100521-w1tf.html#ixzz1Rc0qPPKJ

AFM1A

Accounting and Financial

Management 1A

Week 1
Session 1
1, 2012

Lecturer in Charge
Dr Youngdeok Lim
Quad 3069

Todays lecture objectives:

Ensure you have an understanding of the Course
Outline especially what you need to do to be
successful in this course,

& the administrative side of the course.

Begin to be familiar with annual report

Develop a brief understanding of the
nature
t
off accounting:
ti

the financial statements,

key principles & assumptions

The Course Outline

What you need to know?

1. Understand the course
structure
2. Course objectives

Australian School of Business

School of Accounting

3. Clarify roles and

responsibilities

ACCT1501
ACCOUNTING AND FINANCIAL
MANAGEMENT 1A

COURSE OUTLINE
SESSION 1 2012

Introduction

Teaching staff
Dr. Youngdeok Lim (Lecturer-in-Charge)
Jeffrey Knapp (Lecturer)
Dr. Tami Dinh Thi (Lecturer)
Other tutors Wei, Jo, Radzi, Alex, Carone, Tara,
Amanda, Candice, Sunny, Brent, Wendy, Abarna, Rommo,
Li, Bonnie, Cece, Abby, Michelle, Stella, Chloe, Karen,
Dominic
Take a couple of minutes and introduce yourself to two people near you. Ask
them what tutorial group they are in & what else they are studying.

Required Texts
Lecture outlines
and additional
readings
Available on
Blackboard

Trotman & Gibbins

T
Gibbi
4th Edition

Practice Set

http://www.perdisco.com.au/home.asp
All the instructions on how to log on and
use Perdisco are covered in the Course
Outline

Course schedule (see page 15 in course outline )

Lectures:
How do you prepare for lectures
Read the assigned reading materials before the lecture

Lectures
L
t
are only
l a summary and
d are nott a substitute
b tit t for
f
reading

Bring your Lecture Notes to every lecture & tutorials !!!!!

The lecture notes follow the lecture outline with space for you to
make your own additional notes during the lecture

Lecture notes will be posted on Blackboard.

Lectures will be Podcast recorded with screen captures of the

lecture slides. This is recommended as an additional resource
not a substitute for face-to-face interaction in the lectures.

Tutorials:
How to maximize the return on your
investment (ROI)

Participation in class (both lectures & tutorials)

Students

do not benefit from copying solutions

Attempting

your work is essential to identifying concepts/

issues you do not understand

Your tutor will randomly choose 6 weeks to review your written

answers to the assigned tutorial questions and preparation
questions and mark the best 5 weeks ((no half mark).
q
)

How

do you learn to drive or cook, is it by reading only?

Help

tutors help you, by proactively asking questions!

Interaction

in the tutorial helps everybody learn it might

even be fun!!!!

Preparation & Tutorial Questions:

Work you must do to pass the course !!

Preparation Questions: Attempt all preparation questions and check

the solutions on Blackboard before your tutorial. Raise any questions with your
tutor in class or your tutors
tutor s consultation time.
time Refer to Blackboard for the
consultation schedule.

Tutorial Questions (also attempt before class): The goal of the

tutorial is to discuss the questions and clarify any concerns you may have. The
process in an interactive one and you are required to engage with your tutor by
asking and answering questions.

Note: DQ1.1
DQ1 1 means Chapter 1,
1 discussion questions 1
1.
P1.6 refers to problems at the end of chapter 1. Let us try these P4.25 &
P6.22 - How will you find these???

Learning Assessment
(or how to pass AFM1A)
Assessment Item / Due date

Weight

Tutorial participation (complete each week)

10%

Mid
Mid-session
i class
l
t t (Week
test
(W k 7)

15%

Multiple Choice Tests 2 quizzes 5% each

(Week 5 & 12)

10%

Perdisco Practice Set Assignment

(May 11th @ 3pm)

10%

Final examination

55%

TOTAL

100%

You must satisfactorily complete all assessment tasks and score

a total mark of at least 50, including a satisfactory pass mark
in the final exam.

Two Quizzes YOU must read the instructions!!!!

The quiz will consist of 30 multiple choice questions.
It is recommended to be completed in 60 minutes; however
there will be no official time limit. One attempt.

I
Important
t t feedback!!!!
f db k!!!!

For you & us!

This assignment is due May 11th @ 3pm 20 hrs work approx.

Practice Set Assignment (Week 10)

Perdisco on-line practice set an individual assignment.
A practice set is a comprehensive accounting exercise
designed to integrate your knowledge of accounting systems
and the accounting cycle. (Business transactions for 1mth)

This task is expected to take approximately 20 working

hours to complete. Start working on this exercise as early
as possible (around week 5) to be able to complete it by the
due date

DO NOT LEAVE THIS TASK TO THE LAST

MINUTE !!!!

Important note

Special Consideration and Supplementary examinations:

There

is only one opportunity to sit a supplementary

final exam which will be held on 10 July 2012 exams for
the School of Accounting after the final exam session.

If

you are too ill to perform reasonably on the final exam, do

not attend the final and apply for a supplementary instead.

Applying

for special consideration does not automatically

mean that yyou will be g
granted a supplementary
pp
y exam.

Additional resources

Consultation
PASS (Peer Assistance Support Scheme)

The Course Website

Blackboard
http://telt.unsw.edu.au
Announcements!!! your responsibility to read
View preparation and tutorial solutions
Use the Discussion board - 3 Categories
Course

Content
Content,

Course

Administration

On-line

Practice Set (student only)

overseen by staff members

Use appropriately and with respect for others

Student responsibilities:

Preparation for lectures & tutorials

Workload and other commitments balance!!!
Attendance 80% rule University & ASB
Conduct and behaviour respectful to others at all
times in lectures, tutorials, via email and on Blackboard

Keeping informed !!! Read the course outline;

Blackboard Announcements & your university email.

ONLY attend the lecturers and tutorials that you are

officially enrolled to attend.

Introduction to Financial Accounting &

Key Financial Statements (Ch 1)

Ground rules in noise control

Be quiet in my lecture for a student who wants to listen.

To discourage unnecessary noise in my lecture, there will
be a 1 mark penalty to a student who is not quiet.

What is accounting?
Accounting is the process of
id tif i
identifying,
measuring,
i
recording and communicating
economic information to assist
users to make decisions.

Business language
Grammar
Vocabulary
Practice

Accounting System

Financial Accounting System

Managerial Accounting System

Periodic financial statements and

related disclosures

Detailed plans and continuous

performance reports

External Decision Makers

Internal Decision Makers

Investors, creditors,
suppliers, customers, etc.

Managers throughout the

organization

What is financial accounting?

Financial accounting will be the focus of this course.

Financial accounting focuses on the provision of
information to users external to the enterprise.

The focus is on reporting financial position and

financial performance.

What is management accounting?

Management accounting will be the focus of later part of

this courses
courses.

Management accounting focuses on the provision of

information to users within the enterprise (to aid in
operational planning and control decisions).

The rise of economic consequences

Conveys economic information to decision makers

This

is extremely important!!

The rise of economic consequences relating to

financial reporting

Recently we have seen some critical developments in

this area which has impacted this relationship.
The

introduction of IFRS (International Financial

Reporting Standards)

New

Corporate Governance laws

Is accounting really important?

Used by:

Management in making business decisions

Shareholders for decision making
Board of directors in takeover battles
Bankers and creditors in lending decisions

Is accounting really important? (cont.)

Used by:

Boards in rewarding and removing executives

Management and unions in wage negotiations
Impacts communities
Impacts workers

Accounting information and share prices

Qantas shares dive as profit plunges (February 18, 2010,

Sydney morning herald)
Qantas Airways shares have plunged the most in a year
after the airline reported a 72 per cent slide in first-half net
profit and said it would pay no dividends as it was forced to
slash fares to fill aircraft.
Qantas shares ended the dayy down 24 cents,, or 8.1 per
p cent,,
to $2.73. The airline, which delivered results within its own
forecast range but at the lower end of analysts expectations,
said there were some signs of improvement by the end of
the second quarter, but increased fuel and depreciation
costs would be felt in the second half.

Some examples of an economic

consequence
The Accounting Scandals such as Enron,
Worldcom,

Misleading reporting
Mismanagement ABC learning
Collapse of the company
Indictments

The nature of accounting

(ABC Learning Why is accounting important?)

 We have focused mainly on the economic consequences

in the equity markets
The

decision maker in this situation is the investor / owner

Their

decisions are based on what value they are willing

to either buy or sell shares in the market

Can you think of other users of accounting information?

And, for what purposes will they use the accounting
information?

Small group (two to 4 people) discussion.

Other users of accounting information:

Can you think of total salary of CEO of Woolworths

for the year ended 26 June 2011?
25%

25%

25%

25%

1. $ 500,000
2. $ 1,000,000
3. $ 5,000,000
4. Above $5M

How can you find the information?

Information asymmetry, Voluntary disclosure
Annual report

What is an annual report?

Glossy magazine that
contains a lot of descriptive
information about the
company and the general
purpose financial statements.

How to get it?

Financial Statements

The Balance Sheet ((Week 2))

The Income Statement, (profit & loss, P&L) (Week 2)
Statement of Cash Flows (AFM1B will cover in details if you
continue to study Accounting )

Introducing Balance Sheet(1)

Shows financial position as of a certain point in time

Creation of income

Assets

Liabilities

Interest expense

Creditors

Operating income
Equities
qu es

Net profit
Investors

Investment

Financing

Dividends

Distribution of income

Introducing Balance Sheet(2)

Assets

Current assets: Converted into cash in 1 year or operating

cycle, whichever is longer

Non current assets

Cash, Account receivables, Inventories, Short-term investments

Long-term investment, Property, plant & Equipments, Intangible assets

Liabilities

Current liabilities
Noncurrent liabilities

Stockholders Equity

Share capital
Retained profits

Introducing Income Statement

Shows the results of operation during the period

Revenue

Sales revenue
Service revenue, fees earned

Expenses

Resources or services used to generate revenue

Operating and non-operating expenses
Includes cost of
goods sold

Revenue

Operating expenses
Operating income
Non-operating income and expenses
Net profit/loss

Introducing Statement of Cash flows

Shows cash flows (inflows and outflows) by activities during the period

Operating activities

Investing activities

Sales, purchase activities

Purchase and disposal of non current assets
Purchase and disposal of securities

Financing activities
Issuance, retirement of bonds
Issuance of stock

Cash flows from operating activities

xxx

Cash flows from investing activities

xxx

Cash flows from financing activities

xxx

Change in cash

xxx

Cash, beginning balance

xxx

Cash, ending balance

xxx

The key financial statements?

Balance Sheet

Resources and Claims

Income Statement

Profitability

Cash Flow Statement

Receipt and payment of cash

(The next 3 slides are extracts from your textbook view Appendix Woolworths
Financial Statements p.709 in your T&G textbook to view the following slides
in more detail)

Key principles: Double entry book-keeping

What does double entry accounting achieve?

For every transaction, there are two sides i.e. there is a
source for every resource.
resource

RESOURCES = SOURCES
Money must come from somewhere--it doesn't just
"appear. A company has to find the money to fund
resources.

Double-entry accounting is a method of recordkeeping that lets you track:

where the money comes from and

where it goes.

Summary

Resources = Sources

What we have

What we owe

+ What we contributed

Assets

Liabilities

+ Shareholders Equity

Example

You purchase one bed apartment at $500,000 on

1/7/2011 and rent itit.

Financing source: Your own money $100,000, Borrowing

from bank $400,000

Rent revenue (cash) $400/week, Interest expense (cash)

$200/week, Tax expense (cash) $1000/year

Prepare B/S as of 1/7/2011

Financial statement assumptions

Financial statement assumptions include:

accounting entity
accounting period
monetary
historical cost
going concern
materiality.

Accounting entity assumption

The entity for which financial statements are prepared

Activities of the entity are separate from those of its
owners/members

Includes, but not limited to, legal entities

Economic entity a group of entities where the goals of
the controlling entity are pursued:
e.g.

companies, partnerships, funds, associations,

public sector bodies.

Accounting Period assumption

Life of business divided into discrete time periods of equal

length to determine financial performance and position
position.

Production of regular, comparable financial statements.

Monetary assumption

Universally accepted medium of exchange.

Measure economic activity by a common denominator.

Historical cost assumption

Transactions are initially recorded at their original

cost.

Treats assets in terms of their use rather than for

resale.

Going concern assumption

Assumes continued operation of accounting entity into

foreseeable future

There is no intention or need to liquidate

Produces demand for financial information during life of
entity

Materiality assumption

A sub-factor of relevance
A piece of information is said to be material if its
omission or misstatement could influence the
economic decisions of users made on the basis of
the financial statements

No set rules on determining materiality (auditors use

5% as a guide)

Financial statements in $million (see Woolworths

example in the Appendix)

In profit measurement, private transactions of

owners are not taken into account. What
assumption/concept underlies this procedure?
25%

25%

25%

25%

1. Materiality
2. Monetary concept
3. Accounting period
4. Accounting entity

Take away and coming upnext week!

Accounting entity assumption, accounting period assumption
Balance Sheet

Assets

Liabilities

Shareholders equity

Income Statement

Revenue (flow of income generated by selling goods or services)

Expense (flow of expenses incurred in providing the goods or services

for sale)

Cash. Vs . Accrual Profit