On 1 October 2006 Harbin Purchased the Whole of the Net Assets of Fatima (Previously a Privately Owned Entity) for. $100 Million.

Topics: Financial ratios, Generally Accepted Accounting Principles, Balance sheet Pages: 7 (2273 words) Published: December 1, 2012
This report is relating to the financial performance and position of Harbin Corporation for the year ended 30 September 2007 compare to the previous year. Since Harbin Corporation purchase the whole net assets of Fatima for RM100 million, which is previously a private owned entity, the impacts of it also will be stated in this report. By the way, Appendixes are provided with calculation of financial ratio and formulae relating to them. In this report, we include profitability ratios, activity ratios and liquidity and financing ratios. They includes ratios of Return in year-end capital employed (ROCE), Net asset turnover, Net profit margin, Current ratio, closing inventory holding period and so on. Besides, we will establish an analysis based on 2006 ratio, 2007 with Fatima net asset ratio and 2007 without Fatima net asset ratio.

Findings/ Body
Firstly, to calculate ratio without Fatima asset, we need to do some adjustment in income statement by deducting the contribution of purchasing asset of Fatima. Besides, the ‘non-current liabilities’ also changed from ‘100,000,000’ to ‘nil’ without purchasing of Fatima. Table 1.1 below shows income statement of Year 2007 with purchase of Fatima and without purchase of Fatima. Income Statement| 2007 With Purchase of Fatima| 2007 Without Purchase of Fatima | Revenue | 250,000| 180,000|

Cost of Sales| ------------------------------------------------- (200,000)| ------------------------------------------------- (160,000)|
Gross Profit| 50,000| 20,000|
Operating Expenses| (20,000)| (18,000)|
Finance Costs| ------------------------------------------------- (8,000)| -------------------------------------------------
Profit Before Tax| 16,000| 2,000|
Income Tax Expenses (at 25%)| ------------------------------------------------- (4,000)| -------------------------------------------------
Profit for the period| 12,000| 1,500|
Table 1.1 Income statements of 2007 with purchase of Fatima and without purchase of Fatima. Income statement is a financial statement that measures a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year. By deducting the contribution of Fatima asset, the profit before tax changed from RM 16,000 to RM 2,000, which means that Fatima asset contribute RM 12,000 in the income statement of Harbin Corporations. Besides, this also affects the retained earning calculation of Harbin. Retained earnings refer to the portion of net income which is retained by the corporation rather than distributed to its owners as dividends. Similarly, if the corporation takes a loss, then that loss is retained and called variously retained losses, accumulated losses or accumulated deficit. Retained earnings and losses are cumulative from year to year with losses offsetting earnings. We can see in table 1.2 below, showing there are 8,500 differences if Harbin Corporation does not purchase Fatima. | With Fatima Assets| Without Fatima Assets|

2006 Retained Earning| 12,000| 12,000|
Add: Net Profit| ------------------------------------------------- 12,000| -------------------------------------------------
| 24,000| 13,500|
Less: Dividend Paid| ------------------------------------------------- (10,000)| ------------------------------------------------- (8,000)|
2007 Retained Earning| 14,000| 5,500|
| | |
Table 1.2 Comparison of Retained Earning With and Without Purchasing of Fatima Moreover, to determine the performance of Harbin Corporation, we have profitability ratios, activity ratios and liquidity and financing ratios. The workings and calculations are provided in Appendixes. There are Net...
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