Accounting TENTH EDITION John Hoggett John Medlin Keryn Chalmers Claire Beattie Andreas Hellmann Jodie Maxfield Tenth edition published 2018 by John Wiley & Sons Australia, Ltd 42 McDougall Street, Milton Qld 4064 First edition published 1987 © John Wiley & Sons Australia, Ltd 2018 Australian edition © John Wiley & Sons Australia, Ltd 1987, 1990, 1992, 1996, 2000, 2003, 2006, 2009, 2012, 2015 Typeset in 10/12pt Times LT Std The moral rights of the authors have been asserted National Library of Australia Cataloguing-in-Publication data Author: Title: Edition: ISBN: Subjects: Other Authors /Contributors: Hoggett, J R (John Robert), 1948–, author Accounting / John Hoggett, John Medlin, Keryn Chalmers, Claire Beattie, Andreas Hellmann, Jodie Maxfield Tenth edition 9780730344568 (ebook) Accounting — Australia — Textbooks Accounting — Australia — Problems, exercises Medlin, John, author Chalmers, Keryn, 1961– author Beattie, Claire, author Hellmann, Andreas, author Maxfield, Jodie, author Reproduction and Communication for educational purposes The Australian Copyright Act 1968 (the Act) allows a maximum of 10% of the pages of this work or — where this work is divided into chapters — one chapter, whichever is the greater, to be reproduced and/or communicated by any educational institution for its educational purposes provided that the educational institution (or the body that administers it) has given a remuneration notice to Copyright Agency Limited (CAL) Reproduction and Communication for other purposes Except as permitted under the Act (for example, a fair dealing for the purposes of study, research, criticism or review), no part of this book may be reproduced, stored in a retrieval system, communicated or transmitted in any form or by any means without prior written permission All inquiries should be made to the publisher Cover and internal design image: yienkeat / Shutterstock 10 CONTENTS CHAPTER Decision making and the role of accounting Chapter preview 1.1 The dynamic environment of accounting 1.2 Decisions in everyday life Steps in decision making 1.3 Economic decisions 1.4 The nature of accounting Accounting defined 1.5 Users of accounting information 10 1.6 Using information in economic decisions 11 1.7 Accounting information and decisions 13 1.8 Management and financial accounting 14 What is management accounting? 14 What is financial accounting? 14 Management accounting versus financial accounting 15 1.9 Accounting as a profession — Australian perspective 16 1.10 Public accounting versus commercial accounting 17 Public accounting 17 Accountants in commerce and industry 18 Public sector and not‐for‐profit accounting 20 1.11 Ethics and accounting 20 Ethics in business 21 Ethics and professional accounting bodies 22 Ethics in practice 22 Key terms 24 Discussion questions 24 Exercises 25 Decision analysis 31 Critical thinking 31 Communication and leadership 32 Ethics and governance 33 Financial analysis 33 Acknowledgements 34 CHAPTER Financial statements for decision making 35 Chapter preview 37 2.1 Types of business entities 37 2.2 Management functions 38 Role of managers 38 2.3 Basic financial statements 40 The balance sheet 41 The income statement 44 The statement of changes in equity 45 The statement of cash flows 45 2.4 Assumptions made and characteristics of information 48 The accounting entity assumption 48 The accrual basis assumption 48 The going concern assumption 49 The period assumption 49 Fundamental qualitative characteristics 49 Enhancing qualitative characteristics 50 The concept of materiality 51 Benefits and costs 51 2.5 The effects of transactions on the accounting equation and financial statements 52 Key terms 58 Discussion questions 60 Exercises 60 Problems 65 Decision analysis 74 Critical thinking 74 Communication and leadership 75 Ethics and governance 75 Financial analysis 76 Acknowledgements 77 CHAPTER Recording transactions Chapter preview 79 3.1 Transactions 80 Types of transactions 80 Transactions of a business entity 80 Source documents 81 3.2 The accounting cycle 82 The ledger account 83 Account formats 85 Accounts commonly used 86 Accounts: balance sheet 86 Accounts: income statement 88 General ledger 89 Chart of accounts 89 78 3.3 Double‐entry accounting 92 Debit and credit rules 92 Normal account balances 94 Expanded accounting cycle 94 3.4 General journal 95 Recording transactions in a journal 95 Posting from journal to ledger 96 Illustrative example of journal and ledger 98 3.5 Trial balance 112 Limitations of the trial balance 113 Correcting errors 114 Use of dollar signs and decimal points 114 Key terms 116 Discussion questions 117 Exercises 118 Problems 124 Decision analysis 131 Ethics and governance 133 Financial analysis 133 Appendix Introduction to the goods and services tax in Australia 134 The GST in practice 135 Accounting for the GST 136 Accounts for recording GST 137 Acknowledgements 137 CHAPTER Adjusting the accounts and preparing financial statements 138 Chapter preview 139 4.1 Measurement of profit 140 Cash basis 140 Accrual basis 140 4.2 The accounting cycle — expansion to include adjusting entries 142 The need for adjusting entries 143 4.3 Classification of adjusting entries 144 Adjusting entries for deferrals 145 Adjusting entries for accruals 152 4.4 Adjusted trial balance 157 Preparation of financial statements 159 4.5 Distinguishing current and non‐current assets and liabilities 163 Current assets 163 4.6 Preparing financial statements from a worksheet 165 Preparation of the worksheet 165 Preparation of financial statements 170 iv CONTENTS 4.7 Financial statements and decision making 172 Key terms 174 Discussion questions 175 Exercises 176 Problems 182 Decision analysis 193 Communication and leadership 193 Ethics and governance 194 Financial analysis 194 Acknowledgements 194 CHAPTER Completing the accounting cycle — closing and reversing entries 196 Chapter preview 197 5.1 The complete accounting cycle 198 5.2 Closing temporary accounts 199 5.3 Using the worksheet to record adjusting entries 200 Recording adjusting entries 202 5.4 The closing process 203 Closing the income (including revenue) accounts 206 Closing the expense accounts 207 Closing the Profit or Loss Summary account 208 Closing the Drawings account 209 Account balances after the closing process 209 The post‐closing trial balance 218 5.5 Accrual entries in subsequent periods 219 Reversing entries 220 5.6 Accounting procedures applicable to a partnership or a company 225 Accounting for a partnership 226 Accounting for a company 226 Key terms 229 Discussion questions 229 Exercises 230 Problems 236 Decision analysis 248 Critical thinking 248 Communication and leadership 249 Financial analysis 249 Acknowledgements 249 CHAPTER Accounting for retailing Chapter preview 252 6.1 Inventory 253 Retail business operations 253 251 6.2 Condensed income statement for a retailer 254 6.3 Accounting for sales transactions, including GST 255 Retailing and the goods and services tax 255 Tax invoices 255 Adjustment notes 256 Accounting for sales transactions 258 Sales returns and allowances 258 Cash (settlement) discounts 259 Trade discounts 261 Freight outwards 261 6.4 Accounting for purchases and cost of sales 262 Perpetual inventory system 262 Periodic inventory system 268 Perpetual and periodic inventory systems contrasted 272 6.5 End of period processes 274 Illustration of worksheets in retail businesses 274 Perpetual inventory system 277 Periodic inventory system 277 6.6 Detailed income statement for a retailer 278 6.7 Net price method and settlement discounts 280 6.8 Profitability analysis for decision making 281 Gross profit ratio 281 Profit margin 281 Expenses to sales ratio 282 Inventory turnover 282 Ratios illustrated 282 Key terms 284 Discussion questions 285 Exercises 286 Problems 289 Decision analysis 297 Critical thinking 297 Ethics and governance 298 Financial analysis 298 Acknowledgements 298 CHAPTER Accounting systems 300 Chapter preview 302 7.1 Operation and development of an accounting system 302 Operation of an accounting system 302 Converting data to information 303 Development of an accounting system 303 Important considerations in developing an accounting system 304 7.2 Internal control systems 305 Internal control systems defined 305 Principles of internal control systems 306 Limitations of internal control systems 308 7.3 Manual accounting systems — subsidiary ledgers 309 Control accounts and subsidiary ledgers 309 7.4 Manual accounting systems — special journals 311 Sales journal 312 Purchases journal 314 Cash receipts journal 316 Cash payments journal 320 Use of the general journal 323 7.5 Abnormal balances in subsidiary ledgers 325 Account set‐offs 326 Demonstration problem 327 7.6 Accounting software 333 Electronic spreadsheets 333 General ledger programs 334 Computerised accounting — advantages and disadvantages 334 7.7 Accounting cycle — manual and computerised 336 Key terms 337 Discussion questions 337 Exercises 338 Problems 345 Decision analysis 357 Critical thinking 358 Ethics and governance 358 Financial analysis 359 Acknowledgements 359 CHAPTER Partnerships: formation, operation and reporting 360 Chapter preview 361 8.1 Partnership defined 362 8.2 Advantages and characteristics of a partnership 362 Characteristics of a partnership 362 8.3 Partnership agreement 364 8.4 Accounting for a partnership 365 Method 1: Capital accounts that include profits and losses 365 Method 2: Fixed capital accounts 365 8.5 Accounting for the formation of a partnership 366 CONTENTS v 8.6 Allocation of partnership profits and losses 368 Fixed ratio 369 Ratio based on capital balances 369 Fixed ratio after allowing for interest and salaries 370 8.7 Drawings and loans made by partners 373 Drawings 373 Loans or advances by partners 375 8.8 Financial statements for a partnership 376 Key terms 379 Discussion questions 379 Exercises 380 Problems 384 Decision analysis 394 Communication and leadership 394 Ethics and governance 394 Financial analysis 395 Acknowledgements 395 CHAPTER Companies: formation and operations 397 Chapter preview 398 9.1 Types of companies 399 Limited companies 399 Unlimited companies 401 No‐liability companies 401 Special companies 401 Advantages and disadvantages of the corporate entity 401 9.2 Forming a company 403 Replaceable rules and constitution 403 The certificate of registration 404 The prospectus 404 Administering a company 404 9.3 Categories of equity in a company 406 Share capital 406 Retained earnings 407 Other reserves 407 9.4 Accounting for share issues 408 Private share placements 408 Public share issue, payable in full on application 409 Public share issue, payable by instalments 410 Undersubscription and oversubscription 413 Rights issue of shares 414 Bonus share issues 415 Formation costs and share issue costs 415 Preference shares 416 vi CONTENTS 9.5 Dividends 417 Cash dividends 418 Preference dividends 418 Share dividends 420 Share splits 421 Comparison of share dividends and share splits 422 9.6 Reserves 422 Creation of reserves 422 Disposal of reserves 423 9.7 Income tax 423 9.8 Preparing the financial statements 424 Illustrative example: preparation of financial statements 424 Key terms 431 Discussion questions 432 Exercises 432 Problems 436 Decision analysis 446 Critical thinking 448 Communication and leadership 448 Financial analysis 448 Acknowledgements 449 CHAPTER 10 Regulation and the Conceptual Framework 450 Chapter preview 452 10.1 Regulation and development of accounting standards 452 Brief history of regulation 452 Financial Reporting Council 454 Australian Accounting Standards Board 454 Australian Securities and Investments Commission 455 Australian Securities Exchange 456 International Accounting Standards Board (IASB) 456 The IFRS Interpretations Committee 457 Financial Accounting Standards Board (FASB) 457 The Asian‐Oceanian Standard‐Setters Group (AOSSG) 458 10.2 The Conceptual Framework 459 Background to developing the Conceptual Framework 460 10.3 The reporting entity 461 10.4 Objectives of general purpose financial reporting 464 10.5 Qualitative characteristics of financial information 465 Fundamental characteristics 466 Enhancing qualitative characteristics 468 The cost constraint on relevant, faithfully representative information 470 10.6 Definitions of elements in financial statements 470 Assets in the current Conceptual Framework 470 Assets in the proposed framework 471 Liabilities in the current Conceptual Framework 472 Liabilities in the proposed framework 472 Equity in the current Conceptual Framework 473 Income in the current Conceptual Framework 473 Expenses in the current Conceptual Framework 474 10.7 Recognition of the elements 475 Asset recognition in the current Conceptual Framework 475 Liability recognition in the current Conceptual Framework 475 Asset and liability recognition in the proposed framework 475 Income recognition in the current Conceptual Framework and standards 476 Expense recognition in the current Conceptual Framework 479 10.8 Measurement 481 Measurement in the proposed framework 481 Concepts of capital 481 Key terms 483 Discussion questions 484 Exercises 485 Problems 490 Decision analysis 498 Critical thinking 498 International issues in accounting 499 Financial analysis 499 Acknowledgements 499 CHAPTER 11 Cash management and control 501 Chapter preview 502 11.1 Cash defined 502 11.2 Control of cash 503 Control of cash receipts 504 Control of cash payments 505 11.3 Bank accounts and reconciliation 507 Cheque accounts 507 Electronic funds transfer 508 The bank statement 509 Bank reconciliation 511 11.4 The petty cash fund 516 Establishing the fund 516 Making payments from the fund 517 Reimbursing the fund 517 11.5 Cash budgeting 520 Need for cash budgeting 520 Preparation of a cash budget 520 11.6 Cash management 523 Principles of cash management 523 11.7 Analysing adequacy of cash flows 524 Key terms 525 Discussion questions 525 Exercises 526 Problems 531 Decision analysis 544 Critical thinking 544 Ethics and governance 544 Financial analysis 545 Acknowledgements 545 CHAPTER 12 Receivables 546 Chapter preview 547 12.1 Types of receivables 548 Accounts receivable 548 Bills receivable 548 Other receivables 549 12.2 Accounts receivable (trade debtors) 549 Recognition of accounts receivable 549 Valuation of accounts receivable 550 12.3 Bad and doubtful debts 550 Allowance method of accounting for bad debts 551 Estimating doubtful debts 552 Writing off bad debts 555 Recovery of an account written off 556 Direct write‐off method 557 Demonstration problem 558 12.4 Management and control of accounts receivable 560 Credit policies 560 Monitoring credit policies 561 Internal control of accounts receivable 563 Disposal of accounts receivable 563 Key terms 566 Discussion questions 566 Exercises 567 Problems 569 Decision analysis 574 Critical thinking 575 CONTENTS vii Communication and leadership Ethics and governance 576 Financial analysis 576 Acknowledgements 577 575 CHAPTER 13 Inventories 578 Chapter preview 579 13.1 Determining the cost of inventory on hand 580 Performing a stocktake 580 Transfer of ownership 581 Goods on consignment 581 The cost of inventory 581 13.2 Assignment of cost to ending inventory and cost of sales — periodic system 582 Specific identification method — periodic 584 First‐in, first‐out (FIFO) method — periodic 585 Last‐in, first‐out (LIFO) method — periodic 586 Weighted average method — periodic 586 Comparison of costing methods 587 Consistency in using a costing method 589 13.3 Costing methods in the perpetual inventory system 589 First‐in, first‐out method 590 Last‐in, first‐out method 592 Moving average method 592 13.4 Comparison of inventory systems 593 13.5 The lower of cost and net realisable value rule 595 13.6 Sales returns and purchases returns 597 Returns using the first‐in, first‐out method 598 Returns using the moving average method 599 13.7 Inventory errors 599 13.8 Estimating inventories 601 Retail inventory method 602 Gross profit method 604 13.9 Presentation in financial statements 605 13.10 Effect of costing methods on decision making 605 Key terms 607 Discussion questions 608 Exercises 608 Problems 613 Decision analysis 623 Critical thinking 623 Communication and leadership 624 Financial analysis 624 Acknowledgements 624 viii CONTENTS CHAPTER 14 Non‐current assets: acquisition and depreciation 625 14.1 The nature of property, plant and equipment 626 14.2 Determining the cost of property, plant and equipment 627 14.3 Apportioning the cost of a lump‐sum acquisition 629 14.4 Assets acquired under a lease agreement 630 14.5 Depreciation 631 The nature of depreciation 631 Determining the amount of depreciation 632 Depreciation methods 633 Comparison of depreciation methods 637 Revision of depreciation rates and methods 638 Accumulated depreciation does not represent cash 639 14.6 Subsequent costs 639 Day‐to‐day repairs and maintenance 640 Overhauls and replacement of major parts 641 Leasehold improvements 641 Spare parts and service equipment 642 14.7 Property and plant records 643 14.8 Disclosure of property, plant and equipment 645 14.9 Analysis, interpretation and management decisions 645 Analysis and interpretation 645 Management decisions 646 Key terms 648 Discussion questions 649 Exercises 650 Problems 653 Decision analysis 659 Critical thinking 659 Communication and leadership 660 Ethics and governance 660 Financial analysis 661 Acknowledgements 661 CHAPTER 15 Non‐current assets: revaluation, disposal and other aspects 662 Chapter preview 663 15.1 The revaluation model 664 Initial revaluation increases 664 Initial revaluation decreases 667 Reversals of increases and decreases 667 15.2 The impairment test 669 15.3 Derecognition of non‐current assets 671 Scrapping non‐current assets 671 Sale of non‐current assets 672 Derecognition of revalued assets 674 Exchanging non‐current assets 674 Exchanging dissimilar assets 674 15.4 Composite‐rate depreciation 675 15.5 Mineral resources 677 Exploration and evaluation costs 677 Development costs, construction costs and inventories 678 Amortisation 678 Depreciation of related construction assets 679 15.6 Biological assets and agricultural produce 679 15.7 Intangible assets 681 Separately acquired intangibles 681 Internally generated intangibles 682 Intangibles subsequent to initial recognition 682 Amortisation 683 Patents and research and development costs 683 Copyrights 684 Trademarks and brand names 684 Franchises 684 15.8 Goodwill in a business combination 686 Key terms 688 Discussion questions 689 Exercises 689 Problems 694 Decision analysis 703 Critical thinking 704 Communication and leadership 704 Financial analysis 704 Acknowledgements 705 CHAPTER 16 Liabilities 706 Chapter preview 708 16.1 Liabilities defined 708 Present obligation 708 Past event 709 Future outflow of resources embodying economic benefits 709 16.2 Recognition of liabilities 710 Why recognition is important 710 Criteria for recognition 710 16.3 Provisions and contingent liabilities 711 Nature of provisions 711 Items excluded from provisions — future costs 712 Contingent liabilities 712 16.4 Classification of liabilities 714 Need for classification 714 Basis of classification 714 Categories 714 16.5 Current liabilities 715 Accounts payable (trade creditors) 715 Bills payable 715 Employee benefits 717 Warranties 721 Onerous contracts 722 GST payable 723 16.6 Non‐current liabilities 725 The types of non‐current liabilities 725 Debentures 726 Other non‐current liabilities 728 Why finance through long‐term debt? 731 16.7 Analysing liabilities for decision making 732 Liquidity ratios 733 Financial stability ratios 734 Illustration of ratios 735 Key terms 737 Discussion questions 738 Exercises 739 Problems 742 Decision analysis 746 Communication and leadership 747 Ethics and governance 747 Financial analysis 747 Acknowledgements 748 CHAPTER 17 Presentation of financial statements 749 Chapter preview 751 17.1 External reporting requirements 751 Annual financial report 751 Concise report 753 Interim financial report 754 General requirements for the annual report 17.2 Statement of profit or loss and other comprehensive income 757 Disclosure of income and expenses 758 17.3 Statement of financial position 760 17.4 Statement of changes in equity 762 17.5 Demonstration problem 764 754 CONTENTS ix This text indicates that one of the roles of managers is to make decisions about organising resources 10 How can a human resources manager use differential analysis in deciding the appropriate number and levels of staff in a large professional office such as a marketing, law or accounting firm? A business manager was heard to remark: ‘Quantitative analysis may be all right for some businesses but I’d rather make decisions based on my intuition and years of experience.’ Do you agree? Explain How can the ideas of ‘evaluation of a make‐or‐buy decision’ be used in deciding whether to use existing staff expertise and existing resources in a new marketing campaign for a clothing brand name or whether to employ an external professional marketing firm’s expertise? Other than costs, what factors should be taken into account in such a decision? You are responsible for managing a large department store Explain how the section on ‘product mix decisions’ in this chapter might be relevant to deciding which departments you would include in the store and where you might position such departments within the store On presenting your manager with the differential analysis of two possible uses for a piece of land that cost the company $2 million, your manager believes you have made a major error because you omitted the cost of the land Explain the term ‘sunk costs’ and why you have not made an error An accounting student said, ‘In making capital budgeting decisions it is necessary to determine the relevant cash flows from the proposal rather than the income and expenses based on normal accrual accounting.’ Do you agree? Explain ‘Calculation of present value and determining discounted cash flows are two techniques that are the same.’ Do you agree? Explain your stance ‘The method of depreciation used has no effect on the capital budgeting decision.’ Discuss Comment on the following statement: ‘Cost of capital is the cost of the capital raised to pay for a particular project If the money is borrowed from the bank, then the interest rate charged on the loan by the bank is the cost of capital.’ EXERCISES 25.1 Decision‐making process LO1 Mixon Marketing is considering employing another marketing consultant to help with managing its clients The human resources manager of the firm is weighing up whether to employ a marketing graduate or a marketing manager with at least years’ experience Required (a) Using the decision‐making process outlined at the beginning of this chapter, describe the process the human resources manager would follow, including possible goals of employing someone, the type of information required on the alternatives, and how the manager could evaluate the outcomes and make a decision 25.2 Differential analysis LO2 David Booth operates Booth Bootcamp Pty Ltd David is a graduate of a sports and recreation course and offers customised adventures for business groups wanting to develop their staff Two clients have approached Booth Bootcamp Pty Ltd to run an adventure in the first week of April but David can run only one adventure at a time and has to choose which alternative will maximise profit Both adventures will require a week of David’s time at a cost of $1100 and the use of the company’s specially fitted‐out SUV at a cost of $2800 One client wants a rock climbing adventure for 10 people and will pay up to $860 per person The cost per person for food and equipment is $180 and fixed setup costs are $2500 The other client wants a white water rafting adventure for people and will pay up to $900 per person David estimates the cost per person for food and equipment is $170 and the fixed setup costs are $2500 Required (a) Using only the differential income and expenses, determine which adventure David should provide 1168 Accounting 25.3 Special order LO2 McKenzie Music Ltd manufactures hand‐held game players at a per‐unit cost of the following Direct labour Direct materials Variable factory overhead Fixed factory overhead $ 18 36 30 Total unit cost $90 The company sells each player for $240 and is presently operating at 80% of its capacity of 200 000 units per year The company has received a special order from an e‐retailer for 1000 units per month for year only at a price of $199 per unit The units sold to the e‐retailer would have a different cover from the company’s regular players, which would add an extra $5 per unit to direct materials McKenzie Ltd would have to purchase a new machine for $120 000 to produce the new covers The machine would have no alternative use or residual value at the end of the year The sales by the e‐retailer would have no impact on the company’s regular sales, because of the different cover and markets involved Required (a) Should the company accept the special order? Explain (b) What would be the impact on profits of accepting the order? 25.4 Decision‐making process LO2 Blagojevic Ltd manufactures hard disk recorders for television and makes all parts for the machines, including the outside casing The cost per unit of the casings at a production level of 150 000 units is as follows Direct labour Direct materials Variable factory overhead Fixed factory overhead $ 24 Total unit cost $46 The fixed factory overhead cost is direct, and half of the direct fixed overhead cost could be eliminated if the casings were purchased rather than produced An outside supplier has offered to produce and sell to Blagojevic Ltd 150 000 casings at a price of $40 per unit Required (a) Should the offer be accepted if there are no alternative uses for the manufacturing capacity currently being used to produce the casings? Why? 25.5 Employ full time or use casual staff LO2 Fo University Ltd is a private provider of diplomas in human resource management and is trying to decide whether to employ a new full‐time staff member or whether to use casual staff paid by the hour to cover the increased demand for its courses The costs of employing a new staff member to teach five classes for hours each per week for 40 weeks per year and to perform associated assessment and administration tasks are shown below Direct salary Direct on‐costs Variable costs of extra office space Fixed costs of office space Total costs Cost per hour for casual staff $ 80 000 24 000 000 24 000 $ 136 000 48 CHAPTER 25 Differential analysis, profitability analysis and capital budgeting 1169 For each hour of teaching, the casual staff are also paid for an hour of marking and an hour of administration at a rate of $24 per hour Required (a) Calculate whether it is more cost‐effective to employ a new permanent staff member or to employ casual staff on an hourly basis What factors, other than costs, should be taken into consideration in making the final decision? 25.6 Differential analysis and joint products LO2 Gazzola Ltd produces four joint products — A, B, C and D — at a total cost of $325 000 The company can sell the products immediately at the split‐off point for $100 000, $40 000, $90 000 and $85 000 respectively Alternatively, the products can be processed further and sold as shown below Product Further processing costs Sales (excluding GST) A B C D $ 94 000 200 000 215 000 50 000 $200 000 240 000 290 000 140 000 Assume that all costs after the split‐off point can be avoided for any product that is not processed beyond the split‐off point Required (a) Which products should be processed further and which should be sold at the split‐off point? Show calculations to justify your decisions 25.7 Product mix decisions LO2 Tscharke Ltd manufactures and sells four products — A, B, C and D The selling prices, variable costs, and number of machine hours required to produce each product are as follows Product Selling price Variable costs A B C D $60 80 85 70 $34 42 58 42 Machine hours per unit 5.5 Each of the four products is produced using a single machine The machine has a maximum production capacity of 10 000 hours per year Required (a) How many units of each of the four products can be produced in a year if the company produces only that product? (b) Assuming that the company can sell all units produced, which product or mix of products should be produced? (c) Assuming that the company must produce 1000 units of Product B, which additional products should be produced? 25.8 Profitability performance LO3 Violante Ltd operates four departments, and data relevant to each are as follows Department Electrical goods Furniture Kitchen Decorating 1170 Accounting Assets Sales Cost of sales Other expenses Beginning End $920 000 765 000 125 000 55 300 $765 000 460 000 92 000 21 500 $ 99 000 169 850 11 440 14 040 $380 000 780 000 92 000 112 000 $420 000 810 000 104 000 96 000 Required (a) Rank the four departments based on return on assets (b) What is the residual profit of each department, assuming that the company requires a minimum return on the average investment in assets of 14%? 25.9 Return on investment analysis LO3 Phone Screens and Computer Screens are two divisions operated as investment centres of Siciliano Ltd Management wants to know which of the two earned the highest return on investment for the year ended 30 June 2020 The details for each division for the year ended 30 June 2020 were as follows Sales revenue Interest expense Profit before tax Assets July 2019 Assets 30 June 2020 Phone Screens Computer Screens $2 000 000 40 000 240 000 000 000 500 000 $2 500 000 80 000 360 000 800 000 600 000 Required (a) Calculate the return on investment for each division 25.10 Residual profit analysis LO3 Siciliano Ltd, from exercise 25.9, requires a minimum return on investment of 16% Required (a) Calculate the residual profit for the Phone Screens and the Computer Screens divisions of Siciliano Ltd using the data from exercise 25.9 25.11 Capital budgeting methods LO3, 6, Chocolate Daydreams Ltd produces chocolates and is evaluating the purchase of a new machine that will cost $1 060 000 and have no residual value Annual net cash inflows (including tax payments) for each of the next 10 years are expected to be $190 000 The average annual profit is expected to be $95 250 The company has a cost of capital of 12% Required (a) Calculate the payback period (b) Calculate the net present value (c) Calculate the return on average investment 25.12 Cost of capital LO6 Qin Ltd wants to determine its cost of capital to use in future capital budgeting decisions The company’s capital structure is as follows Source of capital Amount After‐tax cost Borrowings Preference shares Ordinary shares Retained earnings $ 600 000 200 000 000 000 700 000 9% 7% 10% 10% Required (a) Calculate the company’s cost of capital based on the information available 25.13 Discounted cash flows and payback period LO5, Home whitegoods manufacturer, Mozzi Ltd, is evaluating the purchase of a new machine that will cost $580 000 and be paid for in cash The machine will be depreciated over 10 years with a resale value at the end of $60 000 Annual before‐tax cash savings from better productivity are expected to be $60 000 The company has a cost of capital of 10% Assume an income tax rate of 30% CHAPTER 25 Differential analysis, profitability analysis and capital budgeting 1171 Required (a) Determine the annual after‐tax cash savings from the machine (b) What is the payback period for the investment? (c) What is the net present value of the investment? 25.14 Capital budgeting decision LO6 Fizulic Filters is considering the purchase of equipment that will produce net after‐tax cash savings over the useful life of the equipment of years as follows Year After‐tax savings $14 300 13 800 13 300 12 800 12 400 Required (a) What is the maximum price the business should pay for the equipment, assuming a discount rate of 10%? 25.15 Capital budgeting evaluations LO6, Bradshaw Bakeries Ltd is evaluating investment alternatives for three machines and has compiled the following relevant information Investment Machine M1 Machine M2 Machine M3 Initial investment $ 600 000 $ 860 000 $ 560 000 Net cash inflows: Year $ 140 000 140 000 140 000 140 000 140 000 140 000 $ 240 000 240 000 240 000 240 000 240 000 $ 180 000 180 000 180 000 180 000 The company requires a 10% minimum return on new investments Required (a) Calculate the payback period for each investment (b) Calculate the net present value for each investment (c) Determine the net present value index for each investment (d) Based on your analysis in requirements (a), (b) and (c) above, which machine (if any) should be purchased? PROBLEMS ⋆ BASIC | ⋆ ⋆ MODER ATE | ⋆ ⋆ ⋆ CHALLENGING 25.16 Make or buy decision ⋆ LO2 The screens for mobile phones are currently purchased from an outside supplier at a cost of $40 each by Futuristic Phones Ltd The company is concerned about the quality of the screens it is buying as in 500 is found to be faulty within a year of using them to make mobile phones If the company decides to manufacture the screens, it would have to purchase new machines at a cost of $9 000 000 The new machinery would enable the company to produce its annual requirement of 600 000 screens and would have to be scrapped at the end of a 5‐year useful life The following costs per unit would be required to produce the screens (excluding the cost of the new machinery) 1172 Accounting Direct materials Direct labour Variable factory overhead Fixed factory overhead — allocated Total $10 12 20 $48 The allocated fixed factory overhead would be a reassignment of existing costs based on estimated sales volume Required (a) Should the company make or buy the screens for the mobile phones? Explain why 25.17 Make or buy decision ⋆ LO2 Butterworth Boats Ltd produces boats for water skiing The motors for the boats are currently purchased from an outside supplier at a cost of $4000 each Some factory space that Butterworth Boats Ltd currently rents to another company for storage purposes could be used to produce the motors The annual rental revenue from the factory space is now $1 500 000 If the company decides to manufacture the motors, it will have to purchase new machines at a cost of $60 000 000 The new machinery will enable the company to produce its annual requirement of 60 000 motors and will have to be scrapped at the end of a 5‐year useful life The following costs per unit will be required to produce the motors (excluding the cost of the new machinery) Direct labour Direct materials Variable factory overhead Fixed factory overhead — direct Fixed factory overhead — allocated Total $ 500 1600 800 500 800 $4200 The direct fixed factory overhead will be required to start producing the motors, and the allocated fixed factory overhead will be a reassignment of existing costs based on estimated sales volume Required (a) Should the company make or buy the motors for the boats? Explain why 25.18 Differential analysis and joint products LO2 ⋆ Hentschke Ltd produces two products, X and Y, at a joint cost of $480 000 The company can sell 620 000 units of product X for $30 per unit, or the units can be processed further at a cost of $160 000 to produce 16 000 units of product A, 20 000 units of product B, and 25 000 units of product C The unit selling prices for products A, B and C are $45, $30 and $40 respectively The company can sell 24 000 units of product Y or they can be processed further to produce 10 000 units of product D and 15 000 units of product E The additional processing to produce products D and E will cost $120 000 The per‐unit selling prices are product Y $60, product D $100, and product E $60 Required (a) Which of the products should be sold at the split‐off point and which processed further? 25.19 Cash flows in a capital budgeting decision ⋆ LO5 Kellaway Ltd is considering installing a computer controlled production line to significantly reduce its manufacturing costs The annual after‐tax cost savings are expected to be $460 000, and the production line will cost $1 800 000 Its useful life will be years and its resale value at that time is estimated at $200 000, net of tax effects However, a major upgrade costing $80 000 will be required at the end of the third year The company’s cost of capital is 12% Required (a) Using the net present value method, determine whether the computer controlled system should be purchased Justify your conclusion CHAPTER 25 Differential analysis, profitability analysis and capital budgeting 1173 25.20 Special order ⋆ ⋆ LO2 Abeer Kalaba is the owner of Champion Chips Pty Ltd, which produces communication chips for mobile phones The company has two production lines, one for a standard communication chip that is also produced by several competitors and one for custom communication chips built to customer specifications Financial results of the company for the previous year are as shown below Sales Direct materials Direct labour Rent Depreciation Electricity Other fixed manufacturing costs Profit Custom chips Standard chips Total $ 150 000 $ 110 000 $ 260 000 24 600 48 000 12 400 15 100 800 400 28 800 32 500 600 10 500 450 080 53 400 80 500 16 000 25 600 250 480 106 300 76 930 183 230 $ 43 700 $ 33 070 $ 76 770 The building has been leased for 10 years at $22 000 per year The rent, electricity, and other fixed manufacturing costs are allocated based on the amount of floor space occupied by each production line Depreciation is specifically allocated to the machines used on each line Abeer recently received an order from one of his best customers to produce 5000 custom‐built communication chips and is trying to decide whether he should accept the order His company is currently working at full capacity and is required by contract to produce all specialty orders already received He could reduce the production of standard chips by a third for the next year to accept the new special order The customer has offered to pay $24 per chip with the new order The direct costs will be $16 per chip, and Abeer will have to buy a new tool costing $20 000 to produce the custom‐built chips The tool will be scrapped when this order has been delivered Required (a) Should Abeer accept the order? In your answer, identify the unavoidable costs, differential income and costs, and opportunity costs 25.21 Make or buy decision ⋆ LO2 SpeedBurn Ltd manufactures DVD burners and is considering expanding production A distributor has asked the company to produce a special order of 3000 DVD burners The burners will be sold using a different brand name and will not influence SpeedBurn Ltd’s current sales The plant is currently producing 28 000 units per year Total capacity is 30 000 units per year, so the company will have to reduce the production of units sold under its own brand name by 1000 units if the special order is accepted The company’s income statement for the previous financial year ended 30 June 2020 is summarised below SPEEDBURN LTD Income Statement for the year ended 30 June 2020 Sales (28 000 units) Cost of sales: Direct materials Direct labour Factory overhead GROSS PROFIT Selling and distribution expenses Administrative expenses PROFIT 1174 Accounting $3 920 000 $1 260 000 560 000 250 000 070 000 850 000 520 000 300 000 820 000 $ 30 000 The company’s variable factory overhead is $30 per unit, and the variable selling and distribution expenses are $10 per unit The administrative expenses are completely fixed and will increase by $10 000 if the special order is accepted There will be no variable selling and distribution expenses associated with the special order, and variable factory overhead per unit will remain constant The company’s direct labour cost per unit for the special order will increase 5%, and direct materials cost per unit for the special order will decrease 5% Fixed factory overhead and fixed selling and distribution expenses will not change Required (a) If the distributor has offered to pay $110 per unit for the special order, should the company accept the offer? Show calculations to support your conclusion 25.22 Make or buy decision LO2 ⋆ Retelsdorf Ltd manufactures tablet screens Recently, the company has been producing slightly below 75% of capacity and management is considering how to use currently unused plant capacity One proposal is to produce a component used in several of the company’s products that is currently being purchased from a supplier for $80 per unit The company uses 20 000 of these components per year The estimated cost of producing each component is as follows Direct materials Direct labour (1 hour @ $30) Factory overhead $28 30 30 Total $88 Factory overhead is applied to all products on the basis of direct labour hours The expected capacity for the year is 300 000 direct labour hours Fixed factory overhead for the year is budgeted at $3 600 000 Required (a) Should the company continue to purchase the component or produce it internally? What is the total cost differential involved? 25.23 Joint product costs ⋆ ⋆ LO2 Green Gnome Ltd produces garden fertilisers The fertilisers are made into pellets which are sold in kg packets The fertilisers are based on a basic mix of minerals and nutrients that make up 80% of each packet To this basic mix are added special nutrients and minerals for special purpose fertilisers such as the lawn mix, the rose mix, the Australian native plant mix as well as a general mix, which is made up entirely of the basic mix Green Gnome Ltd can make up to 100 tonnes of the basic mix each year at a cost of $200 000 and it needs to decide how to divide this between its four product lines To some extent this is determined by how many kg packets the company can sell of each product line The following data is relevant Product General Mix Lawn Mix Rose Mix Australian Native Mix Cost of kg of special nutrients and minerals Selling price per kg packet Same as basic mix $3 $4 $3 $20 $26 $30 $20 Estimated maximum number of packets can sell 15 000 12 000 000 12 000 packets packets packets packets Required (a) Determine the most profitable mix of products given the amount of basic mix that can be produced each year and the estimated market for each product CHAPTER 25 Differential analysis, profitability analysis and capital budgeting 1175 25.24 Profitability analysis ⋆ ⋆ LO3 Truong Trucking Co Ltd operates a freight service and is planning the next year’s operation The company’s assets are estimated to be $30 400 000 at the beginning of the financial year and $30 700 000 at the 30 June end of financial year The company expects that it will deliver 25 000 000 kg of freight during the year The variable costs per kilogram averages $2, and total fixed costs are budgeted at $8 000 000 Required (a) What price should the company charge to deliver a kilogram of freight to earn an 18% before‐ tax return on the estimated investment in assets? (b) Calculate the approximate profit margin earned and turnover of assets expected for the company’s next financial year The company will not have any interest expense Use the price from requirement (a) (c) If the company can reduce the variable costs needed to deliver a package by $0.20, what will be the effect on the return on the estimated investment in operating assets? (d) If the company actually delivers 27 500 000 kg of freight at the price determined in requirement (a), what is the company’s rate of return on its budgeted average investment in assets? (e) Refer to requirement (a) If the company requires a return on investment of 14%, how much residual profit can be expected for the next financial year? 25.25 Return on investment LO3 ⋆⋆ Pierre Ltd is a catering business owned by well‐known chef Pierre Boudin It is organised as two divisions, each with its own manager There is the Shop Division, managed by Louise Lane, which runs retail outlets in a number of shopping centres throughout the city, and the Catering Division, managed by Brett Spark, which provides food for corporate functions, parties and public events Pierre is considering going into semi‐retirement and wants one of the managers to run the overall business Pierre has decided to assess the return on investment of the two divisions and to hand over the management of Pierre Ltd to whichever manager runs the division with the higher return on investment Relevant information for the divisions is as follows Sales revenue Selling & administrative expenses Interest expense Profit before tax Tax expense Profit Average total assets Shop Division Catering Division $ 400 000 $ 800 000 600 000 60 000 200 000 80 000 740 000 220 000 520 000 160 000 520 000 360 000 $ 200 000 $ 600 000 Required (a) Which manager should Pierre appoint to take over management of the company? 25.26 Capital budgeting evaluations ⋆⋆⋆ LO6 Wilde Marketing Partnership, marketing consultants, is considering a project requiring considerable expansion of its current operations This would require the purchase of equipment at a cost of $600 000 The new equipment would have a 10‐year life and then have no resale value The new project would produce a net increase in cash inflows of $120 000 each year The company has a cost of capital of 12% Required (a) What is the payback period for the equipment? (b) Calculate the net present value of the equipment (c) What is the net present value index for the equipment? (d) Should the firm purchase the equipment? Why or why not? 1176 Accounting 25.27 Capital budgeting evaluations LO6, ⋆⋆⋆ Medrano Ltd is a furniture manufacturer The company is looking at three alternative specialised machines to replace its existing production line Data for each of the machines are as follows Machine Furniture Fixer Framing Furniture Carpenter’s Mate Expected annual profit increase Estimated annual net cash inflows increase Estimated life Initial cost $590 000 510 000 520 000 $400 000 320 000 320 000 10 years 12 years years $1 500 000 200 000 100 000 The company’s cost of capital is 12% Required (a) Rank the three machines using each of the following methods: i net present value method ii net present value index method iii payback period iv return on average investment (b) Comment on the rankings under the four methods of evaluating the machines and explain which method will provide the best result for the firm and why payback period or return on average investment might be preferred by Medrano Ltd 25.28 Capital expenditure decision LO6, ⋆⋆⋆ Evans Engineering is an engineering consulting firm specialising in the installation of electronic communications systems The company is considering the purchase of testing equipment that will be used on jobs The equipment will cost $1 740 000 and will have no residual value at the end of its 6‐year life The firm’s accountant projects revenue and expenses for the operation of the equipment that are equal to the cash inflows and cash outflows associated with it, except for depreciation A summary of the cash flows expected from the equipment (without considering taxes) is as follows Year Revenues Expenses (excluding depreciation) $820 000 800 000 780 000 810 000 820 000 820 000 $420 000 390 000 410 000 400 000 390 000 430 000 Assume the company’s cost of capital is 12% and its expected tax rate is 30% Required (a) Calculate the return on average investment for the equipment (b) Determine the annual net cash inflows (after tax) expected from the operation of the equipment (c) Calculate the net present value for the investment (d) Determine the net present value index for the investment (e) Should the testing equipment be purchased? Explain why CHAPTER 25 Differential analysis, profitability analysis and capital budgeting 1177 25.29 Alternative capital budgeting methods LO6, ⋆⋆⋆ Flasher Freight Ltd is considering three investments for the new year The company has a cost of capital of 12% Summary information concerning the net cash inflows of the investments and their initial costs is shown below Investment Year A B C 10 11 12 Initial cost $ 48 000 48 000 48 000 48 000 48 000 48 000 48 000 48 000 $ 36 000 36 000 36 000 36 000 36 000 $ 24 000 24 000 24 000 24 000 24 000 24 000 24 000 24 000 24 000 24 000 24 000 24 000 (124 730) (198 493 ) (120 875 ) Required (a) Calculate the payback period for each investment (b) What is the net present value for each investment? (c) What is the net present value index for each investment? (d) Should any of these investments be accepted? If so, in what order should they be accepted, given limited available funds? 25.30 Comprehensive example LO6, ⋆⋆⋆ Ben’s Big BBQs Pty Ltd makes large barbecues and sells them through specialist barbecue stores and outdoor furniture stores Ben’s Big BBQs Pty Ltd has been approached by a national department store, DMart, to produce 2000 barbecues per year for the next years on their behalf Ben’s Big BBQs Pty Ltd has the capacity to produce 20 000 barbecues per year but is currently making and selling only 15 000 under its own brand name at a wholesale price of $300 per barbecue DMart wants the barbecues made for them to have DMart’s brand name on them and to have special features not on the standard model produced by Ben’s Big BBQs Pty Ltd DMart is prepared to pay only $200 per barbecue If Ben’s Big BBQs Pty Ltd takes the order it will need a special machine that will cost $200 000 and last only the years of the deal with DMart — it will then be scrapped for $20 000 This machine will be depreciated using straight‐ line depreciation Currently the variable cost per barbecue is $150, and this will be the same variable cost for the DMart barbecues Fixed costs for Ben’s Big BBQs Pty Ltd are $1 200 000 per year and this will not change if the special order is accepted, except for the depreciation costs of the new machine Ben’s Big BBQs Pty Ltd is taxed at the company rate of 30% The capital structure of Ben’s Big BBQs Pty Ltd is as follows Type of financing Percentage of total capital After‐tax cost of borrowings and shares Borrowings Preference shares Ordinary shares 40% 20% 40% 12% 18% 19% 1178 Accounting Required (a) Calculate the annual increase in cash flows if the special order for DMart is accepted Assume all sales and variable expenses are eventually received and paid in cash (b) Calculate the weighted average cost of capital for Ben’s Big BBQs Pty Ltd (c) Calculate the net present value of the new machine that Ben’s Big BBQs Pty Ltd will have to purchase if the special order for DMart is accepted (d) Calculate the net present value index for the new machine (e) Calculate the payback period for the new machine (f) Calculate the return on average investment for the new machine (g) Comment on whether Ben’s Big BBQs Pty Ltd should purchase the new machine based on your calculations above, and suggest factors other than financial ones that should be taken into consideration when making the final decision about whether to accept the special order from DMart DECISION ANALYSIS MAKE OR BUY PLASTIC CASINGS Fonus Ltd produces mobile phones The machine used to manufacture the plastic casings for the phones is increasingly producing twisted and deformed casings and is in urgent need of replacement You are the accountant for Fonus Ltd, and have investigated the possibility of either replacing the machine with an updated version or buying in the casings from an outside supplier that produces plastic parts for other manufacturers You have summarised your findings thus far Make the plastic casings The new machine required to manufacture the plastic casings costs $720 000 and has a useful life of years The equipment will have no final resale value The machine can manufacture all the different‐shaped casings needed for Fonus Ltd’s range of mobile phones by simply changing the mould that is used The cost of the various plastic casings is estimated to be the same regardless of the shape or size Each year, Fonus Ltd makes 300 000 mobile phones that all require one plastic casing each The company’s costs incurred in producing a plastic casing with the old machine were as follows Direct materials Direct labour Factory overhead: Variable portion Fixed portion Total cost per unit $ 4.20 3.00 $1.20 6.40 7.60 $ 14.80 Included in the fixed factory overhead costs is depreciation of the old plastic casings moulding machine of $0.75 per unit The new equipment will be more efficient and will reduce direct labour costs and variable overhead cost by 30% The direct materials cost will be reduced by $0.20 per unit but fixed factory overhead will not change, except for the depreciation, if the new equipment is purchased The new plastic casings moulding machine has a capacity of 500 000 casings per year and Fonus Ltd has no other use for the space involved Buy the plastic casings You have found a supplier who is prepared to produce the plastic casings for the company for $7.60 each The supplier will sign a contract fixing that price for the next years Required (a) Assuming that Fonus Ltd continues to produce 300 000 phones each year, should the plastic casings be made by Fonus or bought? (b) If Fonus Ltd produced 500 000 phones each year, would your decision be different? If so, why? CHAPTER 25 Differential analysis, profitability analysis and capital budgeting 1179 (c) If the space involved in the production of the plastic casings could be leased for years at an annual rent of $100 000, how would this affect your decision? (d) What non‐financial considerations should be taken into account in the decision to make or buy the plastic casings? COMMUNICATION AND LEADERSHIP CAPITAL BUDGETING DECISIONS The Hyupp Group runs five‐star hotels in most major cities The group is looking to build a six‐star luxury resort in South‐East Asia on a remote island The chief financial officer prefers to use the payback method to evaluate the new investment The senior accountant believes the return on average investment would be a better approach as it uses the accounting records of the firm The assistant accountant paid attention in her lectures on discounted cash flow during her recent time at university and believes that it is the superior method for analysing capital budgeting decisions The three agree to make notes on their preferred method and then compare the three approaches Required (a) In groups of three, each person takes on the role of one of the finance staff and writes a page on the pros and cons of the method chosen by that character Try to convince the other two people in the group that your method would be the most appropriate in this instance ETHICS AND GOVERNANCE CONFLICT OF INTERESTS Creekside Cement Ltd is considering purchasing a new cement mixing truck The supplier of trucks, Sea Meant Trucks Ltd, sells its trucks for $350 000 cash or customers can purchase them by paying annual instalments of $60 000 per year over 10 years at a discount rate of 10% Di Shonest is the chief financial officer for Creekside Cement Ltd and her husband, Barry, works for the Loans & Savings Bank Barry earns a 0.1% commission on any loans he makes Barry has told Di that he can organise a loan for Creekside Cement Ltd to purchase the cement mixing truck with repayments of only $52 000 per year This loan will be over 15 years with a discount rate of 12% Creekside Cement Ltd is experiencing some cash flow problems at the moment so it cannot afford to pay cash for a new cement mixing truck, though it could afford annual payments of $60 000 Di has done all the relevant calculations and recommends to the board that Creekside Cement Ltd should borrow the $350 000 from the Loans & Savings Bank on the terms Barry suggested Required (a) Calculate the present value of the three finance options available to Creekside Cement Ltd (b) Who are the stakeholders involved in the machine purchase decision? (c) What are the ethical issues, if any, involved? FINANCIAL ANALYSIS Refer to the latest financial report of JB Hi‐Fi Limited on its website, www.jbhifi.com.au, and answer the following questions A perusal of the report clearly indicates that JB Hi‐Fi Limited does make capital budgeting decisions of some magnitude What evidence is there of these activities? What method of capital budgeting would you expect JB Hi‐Fi Limited to use? Explain your answer Does JB Hi‐Fi Limited fund capital projects through special borrowings or through equity? Explain your answer What does the investing activity section of the statement of cash flows tell us about capital budgeting for the previous 12 months? 1180 Accounting ACKNOWLEDGEMENTS Photo: © KenDrysdale / Shutterstock.com Photo: © Andrey_Popov / Shutterstock.com Scene setter: © Chartered Accountants Australia Business insight: © Australian Stock Report © 2016 Australian Accounting Standards Board AASB The text, graphics and layout of this publication are protected by Australian copyright law and the comparable law of other countries No part of the publication may be reproduced, stored or transmitted in any form or by any means without the prior written permission of the AASB except as permitted by law For reproduction or publication permission should be sought in writing from the Australian Accounting Standards Board Requests in the first instance should be addressed to the Administration Director, Australian Accounting Standards Board, PO Box 204, Collins Street West, Melbourne, Victoria, 8007 Copyright © International Financial Reporting Standards Foundation, All rights reserved Reproduced by John Wiley & Sons Australia, Ltd with the permission of the International Financial Reporting Standards Foundation® Reproduction and use rights are strictly limited No permission granted to third parties to reproduce or distribute The International Accounting Standards Board, the International Financial Reporting Standards Foundation, the authors and the publishers not accept responsibility for any loss caused by acting or refraining from acting in reliance on the material in this publication, whether such loss is caused by negligence or otherwise CHAPTER 25 Differential analysis, profitability analysis and capital budgeting 1181 WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA ...Accounting TENTH EDITION John Hoggett John Medlin Keryn Chalmers Claire Beattie Andreas Hellmann Jodie Maxfield Tenth edition published 2018 by John Wiley & Sons Australia,... Australia, Ltd 42 McDougall Street, Milton Qld 4064 First edition published 1987 © John Wiley & Sons Australia, Ltd 2018 Australian edition © John Wiley & Sons Australia, Ltd 1987, 1990, 1992,... have been asserted National Library of Australia Cataloguing-in-Publication data Author: Title: Edition: ISBN: Subjects: Other Authors /Contributors: Hoggett, J R (John Robert), 1948–, author