MGT504 - Introduction to Accounting Theories or Concepts Assignment

Assignment Task

Research and referencing: You are required to engage in some research into the theories or concepts underpinning this topic and use other relevant sources beyond the provided reading material in order to successfully complete this assignment. Ensure you are choosing relevant academic sources and using them well to support your arguments Ensure you include citationsYou are required to engage in some research into the theories or concepts underpinning this topic and use other relevant sources beyond the provided reading material in order to successfully complete this assignment. Ensure you are choosing relevant academic sources and using them well to support your arguments Ensure you include citations

Background information

You are the accountant employed by Sally Smith, the owner of the company Smith’s Clothing Limited located in Arrowtown. It is a privately-owned New Zealand company that 2 manufactures and distributes high-quality fashion clothing that would sell at a premium. Last year, she experimented with a new business strategy that focused on two things:

1) lowering manufacturing costs by investing in robotic machinery and using lower-quality materials.

2) increasing sales volume by increasing the advertising budget.

It has warehouses in Wellington and Christchurch. It has a year-end of 31 December. The industry has been in a favorable cycle for the past few years and that trend is continuing in the current year. Industry profits are reasonably favorable, and there are no competitive or other apparent threats on the horizon, except for the rising New Zealand dollar. Smith’s Clothing Limited started exporting its clothing to Japan at the beginning of year as part of an international expansion plan. It is likely to require additional funding to finance this expansion and is contemplating a share issue sometime next year.

All sales and purchases are made on credit. The issue of ordinary shares occurred on 31 December this year and the shares have a market value at the end of this year and last year of $6.50 and $3.50 respectively.

The balance sheets for the years ended 31 December for the past three years are included on the following pages, as well as the income statements for the years ended 31 December for the last and current year

1. Include in your report an interpretation of each of the financial ratios. They should include a comparison between the;

• Current year and previous year 
• The ratios for Smith’s Clothing Limited compared with industry ratios (refer to pages 6 to 7 of this assessment for the relevant industry ratios

Summarise

• At least two financial strengths.
• Two weaknesses you have identified from your financial analysis (b) above, and a recommendation for each.
• Discuss two limitations of analysing financial information.

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