Step 7Under Section 102 of the Australian Accounting Standards Board, Inventories are assets: held for sale in the ordinary course of business; in the process of production for such sale; or in the form of materials or supplies to be consumed in the production process or in the rendering of services. There are two main ways to record transactions involving inventories, through the perpetual or the period system. The perpetual inventory system, through technology records each real time transaction of inventories as they occur. The periodic inventory system can only measure the value of a company’s inventories and the cost of goods sold at the end of each period (e.g. end of each month or financial year), by conducting a stock take at the end of the certain period. In addition to recording inventories themselves, from sales and purchases and such, we also need to measure the cost of inventories and the cost of goods sold, an additional asset and expense. There are different cost formulas to use in this situation, the FIFO method, LIFO method and weighted average.

Cleanaway Waste Management, inventories from 2019 – 2016 annual reports;

Inventories 2019 ($’M) 2018 ($’M)

2017 ($’M)

2016 ($’M)

Raw Materials and Consumables – at cost

7.5 6.0 4.3 10.5

Work in Progress – at cost 2.2 4.5 - -Finished Goods – at cost 10.2 10.5 6.8 6.2Total 19.9 21.0 11.1 16.7

It can be seen from the table above, that Cleanaway’s inventories are very strange. I have also found that reading through Cleanaway’s financials regarding their inventory practices is pretty disappointing, as they barely disclose any explanation their amounts. Only certain sections contain footnotes, and when referring to those footnotes in inventories the same written blurb has been copied and pasted into each year, there is no in-depth explanation about the particular year’s numbers, themselves.

The company’s ‘Raw Materials and Consumables – at cost’ for 2016 was incredibly high at 10.5 million and drastically dropped to 4.3 million in 2017 an has been growing slowly by about 1.5 million each year since. If it continues this increase, then the figure for 2020 will not be far off the ones recorded in 2016. There are no footnotes to help decipher why this is the case, even searching through the entire document is no help as the words ‘raw material’ is only mentioned twice throughout and the word ‘consumables’ is only mentioned once. These numbers are large but cannot be considered out of the ordinary for a large-scale

company like Cleanaway, what is out of the ordinary are the different numbers recorded each year as they vary drastically.

For the years 2016 and 2017 there is no such thing as ‘Work in Progress – at cost’, in 2018 this amount was recorded as 4.5 million and in 2019 is it halved to 2.2 million. Cleanaway’s notes to the financial statement do not disclose any information on why this section was added to inventories. Work in progress typically refers to the partially completed good that are still in the production progress. I am going to assume that this amount new to 2018 and 2019 could be involved in the new fleet of electric vehicles that were introduced in 2019 as well as the company building new Energy and Resource Recovery Centres and Organics Treatment Facilities over the past two years. This doesn’t explain why this amount wasn’t present at all in previous years, because I am certain that there would be in fact work in progress occurring in Cleanaway at any given time.

‘Finished Goods – at cost’, refer to the goods that have completed the manufacturing process but have not been sold or distributed yet. This number has been a steady 6 million in 2015 and 2016 and has jumped up to a steady 10 million for 2018 and 2019. Again, the financial statements do not disclose any further information about these figures!

That can be noticed from the total inventory figures from 2017 to 2018 are the most drastic, nearly doubling in total, due to the increase of both raw materials and finished goods with the new additional Work in Progress – at cost added.

The company periodically records their transactions involving inventory, using independent valuers. As mentioned in each financial report, the inventory system that Cleanaway uses is weighted average as the inventory items are so intermingled it is impossible to assign a specific cost to each specific unit.

What are some of the associated issues and costs that your firm might be facing with its Inventories management? Why might this be the case?

Are there any areas where you think your firm could improve its Inventories management? How did you identify these areas?

From my experiences, I used to work at The Reject Shop as they used a perpetual system. Every piece of inventory was barcoded, every piece was individually scanned and when the purchased was process it instantly updated the company data base inventory count. From this, this allowed all employees to have what we called a reference scanner, which allowed us to scan any barcode and know the exact quantity of stock we hand on hand for any particular item at any time. It was fantastic! This method though was not 100% perfect as we also conducted a stock take every year in June, which corrected a lot of faults that still occur each year, from employees scanning the wrong barcode, to double scanning an item or not scanning an item at all. The inventory cost method was first in, first out. Everything that came out of the delivery truck went straight out onto the floor, squeezed into the shelves (since we had a small

stockroom) and anything that couldn’t possibly go out stayed in the stockroom. Every weekend, the excess stock in the back would be checked with what was already out on show, if there was room for more, than it was shoved on the shelf straight away! My current job now is at a small tobacconist/gift shop. Their inventory system is very, very, VERY different, being periodic. Each item of inventory we have (focusing on gifts, as cigarettes are completely different), has a yellow sticker with a specific price on it, this price is typed into the register and the sale is processed. There are no barcodes linked to any items and we do stocktake rarely, about the end of every month if that. We also do the method of FIFO, as the small number of gifts we sell go straight out on the shelves. Both methods incredibly different to each other, one being an organised large company and the other being a locally owned small business. The Reject Shops method is too large scale compared to a small business and vice versa. Each method works for each different business, but personally I much preferred The Rejects Shops inventory system as it was much more organised. But regardless, whatever works for the company, works.

Step 8

Tutorial 1: Starting out with AccountRightCreating Company File – Clearwater

Company File Created

Easy Set Up Assistant – Customise Completed

Easy Set Up Assistant – Accounts

Customising Bank Accounts

Easy Set Up Assistant – Accounts Completed

Easy Set Up Assistant – Sales

Creating Customer List

Easy Set Up Assistant – Sales Completed

Easy Set Up Assistant – Purchases

Creating Supplier List

Easy Set Up Assistant – Purchases Completed

Easy Set Up Assistant - Payroll

Creating Employee List

Easy Set Up Assistant – Payroll Completed

Preferences – Setting Sales Settings

Preferences - Setting Security Settings

Tutorial: Starting out with AccountRight Completed

Tutorial 2: Using AccountRightCreating Customer Quote

Creating a Customer Invoice

Converting a Customer Quote into an Invoice

Receiving Payment from Customer

Processing a Purchase

Recording an Electricity Payment

Completing Bank Reconciliation

Tutorial 2: Using AccountRight Completed

MYOB Skills Quiz Results

Step 9 Business Transactions

1)

Date: 1/4/20

Transaction Details: Electricity Expense paid to Ergon Energy

Amount: $15,000

2)

Date: 3/4/20

Transaction Details: Received Payment from ABC Environmental Services

Amount: 15,000

3)

Date 5/4/20

Transaction Details: Internet Subscription Expense Paid to Telstra Company PTY LTD

Amount: $170

4)

Date: 8/4/20

Transaction Details: Advertising Expense paid to MediaScope Advertising for New Vehicle Stickers

Amount: $4,000

5)

Date: 10/4/20

Transaction Details: Diesel Expense paid to United Group PTY LTD

Amount: $6,000

6)

Date: 14/4/20

Transaction Details: Received Payment from Townsville Copper Refinery to Settle Account

Amount: $15,000

7)

Date: 18/4/20

Transaction Details: Received Payment from Townsville Zinc Refinery to Settle Account

Amount: $15,000

8)

Date: 20/4/20

Transaction Details: Received Payment from W Cameron for Grease Trap Collection

Amount: $250

9)

Date: 30/4/20

Transaction Details: Paid Wages to R Turiano

Amount: $4,000

10)

Date: 30/4/20

Transaction Details: Paid Wages to J Green

Amount: $4,000

11)

Date: 30/4/20

Transaction Details: Received Payment from Townsville City Council

Amount: $10,000

MYOB – Cleanaway Waste Management – All Journals

The all journals report is a report of the company’s transactions over a period of time (showing date, amount and various accounts used), in the case of Cleanaway, the transactions take place the month of April 2020. At the grand total located at the bottom of the sheet, the debits and credits balance at $108,670 meaning that no amounts are missing, have been classified incorrectly or been incorrectly imputed. Since Cleanaway is a Waste Management service, this report shows the cash disbursement, cash receipts and the sales of services conducted by the business.

Profit and Loss Statement

A company’s profit and loss statement (also referred to as an Income Statement) measures the revenue and expenses during a certain period of time. This then provides information about the company, specifically indicating their ability or inability to transform their revenue into their net profit. Using the profit and loss statement as a whole, company’s can analyse, whether to increase their revenue and what costs and expenses can be decreased effectively to increase their profit. It can be seen from the Income Statement that Cleanaway for the month of April is operating at a profit. It was difficult for me to create income for the company using 10 transactions, because a lot of Cleanaway’s income would come from individual customer and business accounts paying a monthly service fee. This fee could range from $200 to $2000 depending on the individual/company, the amount of waste they produce and the type of waste they produce. I ended up using four transactions to show service income, one from an individual customer and three from companies/city council contracting Cleanaway’s service. Cleanaway’s service income would, in real life, operate on a much larger scale, since there are thousands of individuals that contract their services daily, they would have many particular individual accounts. The expenses that I choose to complete a transaction for are more warehouse reflective. The warehouse and office would need electricity and internet. The warehouse would need diesel so they could fill trucks directly from the warehouse for immediate operation and the advertising expense is for self-advertising on company vehicles. As well, there are two wage and salary expenses to employees. Of course, there are many more than two people working at Cleanaway at one given time so the wages and salaries expense for that period would be much higher. Even though these expenses are being conducted on a much smaller scale, I feel like they are very appropriate and reflect the daily operations of the business. There are many ratios

that can be used to analyse a business’ profit and loss statement, using the accounts that are available. The net profit margin can be calculated by dividing the company’s net profit by their revenue, which gives us 3.63%. Unless, this has been calculated wrong, this is a very low margin in this industry which is normally between 10%-12%.

Balance Sheet

A balance sheet is a statement of the assets, liabilities and equity of a business at a certain point, in this case the month of April. This statements purpose, is too show the company how much it owns in its assets and how it owes through its liabilities, it also shows how much equity is invested in the business. Looking at the reports, especially the businesses balance sheet it is hard to analyse and make assumptions, since there is a lot of information that is missing. I was going to add totals for current liabilities and assets and equity and such from the company’s financials but would throw the whole scale of the business out of proportion since those amounts are in the millions. Looking at this balance sheet as it, Cleanaway’s Net Assets and Total Equity equal, meaning its balanced. The company would have more assets and liabilities, making these numbers a lot larger in real life. Not a lot of ratios can be used in this balance sheet. The quick ratio can’t be used since I don’t have in inventory amount (since Cleanaway sells a service in my MYOB example). The debt/equity can’t be used since I do not have an amount of shareholders equity. The only ratio that can be conducted is the current ratio, which determines a firm’s liquidity, by dividing the amount of current assets by the business’ current liabilities. $2,080 divided by $1,163.63

equals 1.79. This means that the company has enough resources (assets) to cover its short-term obligations (liabilities).

Statement of Cash Flows

A cash flow statement shows changes from the balance sheet and profit and loss statement and how they affect cash and cash equivalents, showing where cash is being generated and spent. In Cleanaway’s Cash Flow Statement, the company is only undertaking operating expenses. In real life the company would be undertaking operations in all activities. It can be seen from this statement that the company has a positive cash position, generating an increase for the period of April.

Step 10 Noncurrent assets are a business’s long-term investment, meaning that they are acquired in the business in hope to receive further economic benefits from them in the future. The most common type of noncurrent asset is plant, property and equipment, these are tangible assets, physical touchable things. Although, not all assets last forever, depreciation is a method that spreads the cost of an asset over its useful life. It is essentially the idea of turning an asset into an expense, but more precisely, under paragraph 6 of the AASB, ‘depreciation is the systematic allocation of the depreciable amount of an asset over its useful life’.

My firm, Cleanaway has a significant amount of ‘depreciation and amortisation’ listed in its income statement as well as revaluation of non-landfill land and buildings.

2019 2018 2017 2016Depreciation and amortisation expense (220.8) (173.6) (165.9) (160.8)Impairment of Assets - - (4.4) -Revaluation of non-landfill land and buildings 4.7 (0.2) (0.6) (0.2)

In the balance sheet there is no outright mention of accumulated depreciation and amortisation. Depreciation and accumulated depreciation, amortisation and accumulated amortisation, are detailed under a specific footnote in relation to plant, property and equipment in noncurrent assets.

Footnote 20/21

Plant, Property and Equipment

Year Non-LandfillLand AndBuildings

Landfill Assets

Leasehold Improvements

Plant and Equipment

Capital Work in Progress

2019 Depreciation (2.3) (48.3) (4.2) (134.0) - Accumulated depreciation

(7.4) (414.3) (15.5) (1,135.2) -

2018 Depreciation (2.1) (44.1) (3.7) (106.6) -Accumulated depreciation

(6.5) (366.9) (11.2) (1,042.8) -

2017 Depreciation (2.2) (48.9) (2.7) (99.5) -Accumulated depreciation

(6.7) (323.1) (7.4) (987.6) -

2016 Depreciation (2.0) (43.7) (4.0) (99.0) -Accumulated depreciation

(4.5) (277.9) (6.4) (915.6) -

Footnote 20/21

Intangible Assets

Year Goodwill Landfill Airspace Customer Intangibles and Licence

Other Intangibles

2019 Amortisation - (7.4) (16.0) (8.6)Accumulated Amortisation

- (22.6) (53.2) (45.6)

2018 Amortisation - (6.3) (4.3) (6.5)Accumulated Amortisation

- (15.2) (37.2) (37.0)

2017 Amortisation - - - (12.6)Accumulated Amortisation

- - - (72.3)

2016 Amortisation - - - (12.1)Accumulated Amortisation

- - - (59.7)

Note these figures down as part of your key concepts.

Cleanaway has not changed its depreciation or amortisation methods over the past 4 years. For 2019 – 2016, depreciation of assets, with exception to landfill remediation and cell development assets, is calculated on a straight-line basis. Landfill remediation and cell development assets are depreciated on a usage basis over the individual landfill expected life. Amortisation is charged to the Consolidated Income Statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite.

Depreciation is an incredibly significant expense for Cleanaway, since they have so much land, landfills, warehouses, waste plants, vehicles and other machinery, that will all depreciate significantly as they are used for daily operations.

These are the three journals entries based from Cleanaway’s financial statements;

1) Date Transaction Details DR CR 30/6/2019 Depreciation Expense XXX

Accumulated Depreciation – Buildings XXX

2) 30/6/2019 Depreciation Expense XXXAccumulated Depreciation – Landfill Assets XXX

3) 30/6/2019 Depreciation Expense XXXAccumulated Depreciation – Plant and Equipment XXX

The journals entries that have been created will increase the company’s depreciation expense in the aspect of buildings, landfill and plant and equipment. Things that are all used significantly in the day to day operations of the business. I put XXX to represent these numbers, but they are easily in the few thousands. Cleanaway has a high depreciation expense, which effects a company’s profit. The larger the expense, the lower the company’s net income and vice versa.

If a business wanted to look more profitable to its investors, it can easily manipulate its depreciation expense by overstating or understating it. There are many ways it can do this, by charging less deprecation on assets, increasing the life span of the asset, changing the calculation method and revaluating assets (taking ones of the balance sheet that have no usage). Cleanaway could easily

manipulate their plant and equipment by extending their useful life and changing their depreciation method to diminishing balance to give a more accurate value. Cleanaway could also easily manipulate their landfill assets since they are only evaluated by outsources auditors every three years. Who is to say that they aren’t doing this already?!

Step 11 Feedback Given;

PEER FEEDBACK: Steps 7 – 10Feedback From: Claudia Turiano Feedback To: Step 7InventoriesStep 8 MYOB Set upMYOB Training MYOB Quiz Step 9Business Transactions All Journals ReportFinancials and DiscussionStep 10DepreciationOverall

PEER FEEDBACK: Steps 7 – 10Feedback From: Claudia Turiano Feedback To: Step 7InventoriesStep 8 MYOB Set upMYOB Training MYOB Quiz Step 9Business Transactions All Journals ReportFinancials and DiscussionStep 10DepreciationOverall

PEER FEEDBACK: Steps 7 – 10Feedback From: Claudia Turiano Feedback To: Step 7InventoriesStep 8

MYOB Set upMYOB Training MYOB Quiz Step 9Business Transactions All Journals ReportFinancials and DiscussionStep 10DepreciationOverall

Feedback Received;

PEER FEEDBACK: Steps 7 – 10Feedback From: Feedback To: Step 7InventoriesStep 8 MYOB Set upMYOB Training MYOB Quiz Step 9Business Transactions All Journals ReportFinancials and DiscussionStep 10DepreciationOverall

PEER FEEDBACK: Steps 7 – 10Feedback From: Feedback To: Step 7InventoriesStep 8 MYOB Set upMYOB Training MYOB Quiz Step 9Business Transactions All Journals ReportFinancials and DiscussionStep 10DepreciationOverall

PEER FEEDBACK: Steps 7 – 10Feedback From: Feedback To: Step 7InventoriesStep 8 MYOB Set upMYOB Training MYOB Quiz Step 9

Business Transactions All Journals ReportFinancials and DiscussionStep 10DepreciationOverall