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ABSTRACT

INTRODUCTION

Many small companies, and Multinational Corporations (MNC), are rapidly expanding to get a stake in the local or worldwide market. They position themselves strategically for growth and expansion using long-term investment plans, with the objective to become a brand name, i.e. to �cement their success’ and to be reconciled as a stable strategic partner. Do these companies alone benefit from such an effort? No, it’s not just the company that benefits. The people, who own, run, and those who are connected in the capacity as suppliers, investors, service providers etc all stand to benefit.

One of the most important assets / tool these companies use to stretch their influence and grip is Management and Financial Accounting. With this tool, they are able to make a predictive stance of their financial position, and financial outlook so they can plan, organize and execute their strategic plans, fuse strategic partnerships and claim a stake in the local or worldwide market.

Given the limitations of accounting information, and the types of Management and Financial Accounting used, however varied they may be, the information conforms to set Accounting Standards. This information they provide is of valuable use to many entities that invest with them, who become suppliers, who become consumers, who provide services for them with the overall objective to make the partnership a profit and a success.

Companies share Financial Information about themselves and use Financial Information about other partners to take their business to the next level.

DAVID JONES LIMITED

David Jones Limited colloquially known as DJ's, is an Australian retailing company. Its primary business is an Australia-wide chain of premium department stores retailing in fashion, cosmetics, homewares, electronics as well as other products.

Founded in 1838 by David Jones, a Welsh immigrant, it is known famously by its branding - a black-on-white houndstooth which is now synonymous with the DJs brand and one of the most recognised corporate identities in Australia. David Jones is considered Australia's most upscale and exclusive department store. It is believed to be the oldest department store in the world still trading under its original name. (http://en.wikipedia.org/wiki/David_Jones_Limited)

In 2005, the Company’s Strategic Review Business Model was tested in a challenging retail environment and David Jones Limited delivered an outstanding financial performance. Their 2005 Financial Report reflects these acheivements via the Income Statement, Balance Sheet and the Cashflow Statement which provide the facts needed to answer questions asked in this Assigment.

QUESTION 1a.

The main operating activities in 2005 for the Consolidated Entity of David Jones Limited were focused on retailing through the department stores and providing consumer credit through the David Jones store card. (FY2005 Annual Report Pg. 30).

These main activities strongly contributed to the net profit of $77.862 million after deducting income tax expense of $33.854 million. The full financial position of the Consolidated Entity is shown in the Financial Statements on pages 50 to 52 of the David Jones 2005 Annual Report. (FY2005 Annual Report Pg. 30).

The Core Department Store business reported a 13.7% increase in EBIT to $73.9 million in FY05 from $65 million in FY04. Core Department Store EBIT to Sales Ratio increased from 3.7% in FY04 to 4.1% in FY05. (FY2005 Annual Report Pg. 07).

David Jones’ Credit Card business continued its strong performance track record, reporting growth of 16.6% in EBIT to $32.2 million in FY05 from $27.7 million in FY04. (FY2005 Annual Report Pg. 07).

Source: (http://www.davidjones.com.au/dj_oar2005/pdf ).

QUESTION 1b.

Accruals are in some ways similar to creditors in that they relate to amounts due for goods or services already supplied to the entity. (Contemporary Accounting; Mike Bazley & Phil Hancock, 6th Edition Pg. 229).

This basically amounts to amounts that are receivable and / or payable when a sale or purchase is agreed to, even though no payment has been received. This amount then is recorded as a future income and cash flow to the company.

In the case of David Jones LTD, the receivable accrual is referring to trade receivable from the retail customers when they purchased goods from the company. Customers paying using the store credit card or payment by cheque are examples where the goods are received but the cash is due to David Jones at a later date. But these may end up as bad debts if the customers do not honor the payments due to David Jones.

Payable accrual refers to the amounts that are payable to the creditors, taxes payable and bonus payable to employees as stated in the Current Liabilities of the company. (2005 Annual Reports Pg. 68)

Cashflow refers to where the amounts of monies are originating from (inflows) and what it is being spent on (outflows). The inflows and outflows can be seen in the cash flow statement. Typical inflows are monies generated from operations, new share issues, sale of assets or other forms of long term finance. Typical outflows refer to monies used to buy new non current assets, paying tax and dividends to repay debenture holders or other providers of long-term capital. (Contemporary Accounting; Mike Bazley & Phil Hancock, 6th Edition Pg. 351).

2005 Annual Reports for David Jones reveals that the main cashflows are categorized into:

1. Cash Flow From Operating Activities вЂ" Cash received or used for the business activities of the company. (Refer Appendix 1 вЂ"FY 2005 Annual Report Pg. 52)

2. Cash Flow From Investment Activities - Cash received or used through capital expenditure, investments pr acquisitions. (Refer Appendix 1 вЂ" FY2005 Annual Report Pg. 52)

3. Cash Flow From Financing Activities - Cash received or used as a result of financial activities, such as receiving or paying loans, issuing or repurchasing stock and paying dividend. (Refer Appendix 1 вЂ" FY2005 Annual Report Pg. 52)

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