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THE CHINESE UNIVERSITY OF HONG KONG

School of Accountancy
ACCT 2111 Introductory Financial Accounting
(First Term, 2017-18)

Group Assignment Annual Report Project (Case)

The objective of this project is to help students pull together various accounting concepts
learned in this course and apply them to real-world business situations. The project is team-
based. Students will be organised in small groups of two to five students each. Each group is
required to do online research of two companies in Hong Kong or abroad. Students, expected
to work closely together as a team, need to gather background information and the most
recent annual reports (or similar documents) of the selected companies. Based on information
found, students are required to develop a critical analysis of the financial health and
performance of the selected companies.

Instructions to Students

The project report should be clear, concise, and coherent. In writing the report, you should
refer to publicly available information of the companies, quoting references from the sources
with page numbers where appropriate. Remember to use proper citation. Using references
from other sources without clear quotation violates the academic honesty code and is
subject to University policy and regulations (www.cuhk.edu.hk/policy/academichonesty)

The report should be no more than 10 pages (12 pt. Times New Roman font or equivalent)
plus any exhibits and reference, if any. There is no correlation between length of the report
and points earned. It is important to answer all questions directly and please identify the
question number in your report.

The deadline of the project will be set later, via VeriGuide.

Instructions on how to find an annual report

Typically, annual reports can be found in multiple ways. Financial Statements of Hong Kong
listed companies can be obtained from the website of Hong Kong Stock Exchange:
http://www.hkexnews.hk/listedco/listconews/advancedsearch/search_active_main.asp.
Annual reports are usually also available from stock exchange websites in other countries.

In most cases, and for non-listed companies, you can also find the annual report of a company
from the companys website. They are usually provided under an About Us, Investor
Relation or similar section.

The Companies

Ten years after graduation from CUHK, you are promoted to partner at a large accounting
firm. As part of your new responsibilities, your Managing Partner asks you to assess the
performance of companies in an industry that your company does not currently audit, the
jewelry business. You start by identifying one of the largest and most profitable jewelry
businesses in Hong Kong, Chow Tai Fook Jewellery Group Limited (CTF). Next, your team
decides to also compare Chow Tai Fooks performance against an international competitor,
Tiffany and Co., based in New York.

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Part A (30%)

Download and read the most recent annual report for CTF (fiscal year 2016/17) and answer
the following questions. Remember to cite any direct quotations along with page number if
you choose to take sections from the annual report. Quoting phrases/paragraphs directly
from the annual report is appropriate (with proper citation), but you must
explain/summarize the text in your own words for full credit.

1. Provide a brief introduction of the companys history, business structure (including share
ownership), and primary businesses (1 page or less).

2. Read the Chairmans Statement, Managing Directors Strategic Report, and Management
Discussion and Analysis sections.
(a) What are the main challenges faced by the firm?

(b) Discuss the outlook for the future, including actions taken by the company to
position itself going forward?

3. Locate the Independent Auditors Report.


(a) Who is Chow Tai Fooks Auditor?
(b) Who is responsible for the preparation of the financial statements?
(c) What is the Auditors responsibility?
(d) What is the audit opinion given to CTFs 2016/17 Annual Report? What does
this mean?

4. Answer the following questions by reading the financial statements and accompanying
Notes to the Financial Statements. If you cant find pertinent information state that fact
in your report.
(a) What are the accounting policies for property, plant and equipment? What
depreciation method(s) is (are) used and what are the terms?
(b) How does CTF account for Inventories?
(c) How does CTF account for foreign currencies?
(d) What is the accounting policy for leases?
(e) Who are CTFs primary creditors?
(f) What are the two largest categories of property, plant, and equipment reported
by CTF as of 31 March 2017? What are the cost, accumulated depreciation, and
carrying values for these two categories (in terms of carrying value)?
(g) What is the total amount of trade receivables currently owed to CTF and how
much is the total allowance for doubtful debts? What is the amount of bad debt
expense charged to income during the current year?

Part B (20%)

Compute the financial ratios for CTF for 2016/17 using information from the Annual Report
and Financial Statements. Show detailed calculations. Use the average of account balance
where appropriate.

Ratio/Value Numerator Denominator Answer


A Current Ratio

B Quick Ratio

C (Trade) Receivable Turnover*

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D Inventory Turnover

F Return on Assets

G Return on Total Equity

H Debt Ratio

I Times-Interest-Earned**

*Assume 25% of sales (revenues) are credit sales and group together trade and other receivables.
**Use profit before taxation and interest for operating income.

Occasionally you might need to read the notes to financial statements to find relevant
information. If you cant find the necessary data to compute certain ratio(s) please state that
fact in your report.

Part C (20%)

Next, locate a copy of the annual report for Tiffany & Co. for the year ended 31 January
2017.

(a)Provide a brief introduction of the company, highlighting its history and ownership,
operational performance, and future plans (less than page).
(b) Based on the information from the annual report, compute the same ratios (Part B
above) for Tiffany & Co. (2017). Where the data is not provided, simply answer N/A
(not available) in the table.

Part D (30%)

Using the above ratio analyses and other relevant information you were able to find related to
the two companies, summarize your assessment of their performance and the overall
environment for jewelry stores in Hong Kong. In particular, focus on the following points:

(a) Profitability: Is CTF profitable? How does CTF compare with Tiffany and Co.? What
additional factors must be considered when evaluating the profitability of these two
companies, especially in terms of Return on Total Equity?
(b) Short-term liquidity: How do the two companies compare in terms of liquidity? Does
it appear as though either company will have difficulty in meeting short-term
obligations?
(c) Long-term solvency: Consider the long term solvency of the two companies. Is this a
cause for concern?
(d) Overall, what is your assessment of the operating environment for the jewelry
business in Hong Kong and abroad? What are some additional points to consider
when deciding how to pursue a strategy to work with companies in the jewelry
business in Hong Kong?

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