VCE Accounting

1. The Classified Balance Sheet
A business had the following Balance Sheet…
Balance Sheet as at today
Assets Liabilities
Cash 10,000 Loan 5,000
Inventory 20,000 Loan 20,000
Property 100,000 Mortgage 50,000
Accounts receivable 5,000 Accounts payable 15,000
Vehicle 15,000 Owner’s Equity
Capital 60,000
TOTAL 150,000 TOTAL 150,000
Which Liabilities must be
repaid first?
Which Assets will become
cash soon?
Will some Assets be owned
for many years? E.g. property
Has the business got enough
money to pay its Liabilities?
• This month?
• This year?
• In 10 years?
This Balance Sheet
doesn’t tell us any of this
information

2. The Classified Balance Sheet
Rather than appearing as one big group, each item in the Balance Sheet must be classified
Current Assets: assets that will be turned into cash
or used within the next 12 months, e.g.
• Cash
• Inventory (stock)
• Accounts receivable (debtors )
Current Liabilities: debts that must be repaid within
the next 12 months, e.g.
• Bills and expenses (e.g. phone, power, taxes)
• Short-term loans
• Accounts payable (creditors)
Assets
Non-Current Assets: assets that the business will
own beyond the next 12 months, e.g.
• Property
• Vehicles
Non-Current Liabilities: debts that will be repaid
after the next 12 months, e.g.
• Long-term loans
• Mortgages
Liabilities

3. The Classified Balance Sheet
Balance Sheet as at today
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 15,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Balance Sheet as at today
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 15,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Balance Sheet as at today
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 15,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Balance Sheet as at today
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 15,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Balance Sheet as at today
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 15,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Balance Sheet as at today
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 15,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Balance Sheet as at today
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 15,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Balance Sheet as at today
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 20,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Balance Sheet as at today
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 20,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Balance Sheet as at today
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 20,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Balance Sheet as at today
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 20,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Balance Sheet as at today
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 20,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Which Liabilities must be
repaid first?
Which Assets will become
cash soon?
Will some Assets be owned
for many years? E.g. property
Has the business got enough
money to pay its Liabilities?
• This month?
• This year?
• In 10 years?

4. Why is the Balance Sheet Classified?
Which business would you rather be?
Business A
LiabilitiesAssets
Current
Non-
Current
Total $100,000
$50,000
$50,000
$70,000
$10,000
$60,000
Business B
LiabilitiesAssets
$100,000
$80,000
$20,000
$70,000
$60,000
$10,000
Relevance
Information is relevant if it
influences the decision-making of
the user by helping them:
• Evaluate past, present or future
decisions
• Confirm or correct past decisions
Having the classified information
enables the firm to make decisions
such as:
• How will we finance our Current
Liabilities?
• Should we sell some of our Non-
Current Assets?
• Should the owner provide a capital
contribution?
• Which business should I buy?
• Which business should I sell to?
• Which business should I lend to?

5. Centro Properties
Centro own and operate shopping centres in Australia and New Zealand

6. Centro Properties
For the 2006-07 financial year, Centro released their Balance Sheet as follows…
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 0
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 656.6
Non-Current Assets Non-Current Liabilities
Investments 3,748.9 Creditors 54.2
Financial assets 2,116,4 Loans 3,603.8
Property 392.2 Other debts 283.7
Plant and equipment 14.0 Provisions 1.7 3,943.4
Intangible assets 555.2 Owner’s Equity
Receivables 325 6,827.1 Capital 3,565.1
Total Assets 8,165.1 Total Equities 8,165.1

7. Centro Properties
• But then a few months later the company announced that it needed to restate the
figures in its Balance Sheet
• Specifically, a $1.1 billion loan from JP Morgan was originally classified as Non-Current
when in fact it was Current and due in 3 months
Current Liabilities $ $
Creditors 263.3
Loans 0
Financial instruments 215.7
Provisions 177.5 656.6
Non-Current Liabilities
Creditors 54.2
Loans 3,603.8
Other debts 283.7
Provisions 1.7 3,943.4
Listed in here
Current Liabilitiesc $ $
Creditors 263.3
Loans 1,096.9
Financial instruments 215.7
Provisions 177.5 1,753.4
Non-Current Liabilities
Creditors 54.2
Loans 2,506.8
Other debts 283.7
Provisions 1.7 2,846.4

8. Centro Properties
Updated Balance Sheet…
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 0
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 656.6
Non-Current Assets Non-Current Liabilities
Investments 3,748.9 Creditors 54.2
Financial assets 2,116,4 Loans 3,603.8
Property 392.2 Other debts 283.7
Plant and equipment 14.0 Provisions 1.7 3,943.4
Intangible assets 555.2 Owner’s Equity
Receivables 325 6,827.1 Capital 3,565.1
Total Assets 8,165.1 Total Equities 8,165.1
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 1,096.9
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 656.6
Non-Current Assets Non-Current Liabilities
Investments 3,748.9 Creditors 54.2
Financial assets 2,116,4 Loans 3,603.8
Property 392.2 Other debts 283.7
Plant and equipment 14.0 Provisions 1.7 3,943.4
Intangible assets 555.2 Owner’s Equity
Receivables 325 6,827.1 Capital 3,565.1
Total Assets 8,165.1 Total Equities 8,165.1
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 1,096.9
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 1,753.4
Non-Current Assets Non-Current Liabilities
Investments 3,748.9 Creditors 54.2
Financial assets 2,116,4 Loans 3,603.8
Property 392.2 Other debts 283.7
Plant and equipment 14.0 Provisions 1.7 3,943.4
Intangible assets 555.2 Owner’s Equity
Receivables 325 6,827.1 Capital 3,565.1
Total Assets 8,165.1 Total Equities 8,165.1
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 1,096.9
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 1,753.4
Non-Current Assets Non-Current Liabilities
Investments 3,748.9 Creditors 54.2
Financial assets 2,116,4 Loans 2,506.8
Property 392.2 Other debts 283.7
Plant and equipment 14.0 Provisions 1.7 3,943.4
Intangible assets 555.2 Owner’s Equity
Receivables 325 6,827.1 Capital 3,565.1
Total Assets 8,165.1 Total Equities 8,165.1
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 1,096.9
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 1,753.4
Non-Current Assets Non-Current Liabilities
Investments 3,748.9 Creditors 54.2
Financial assets 2,116,4 Loans 2,506.8
Property 392.2 Other debts 283.7
Plant and equipment 14.0 Provisions 1.7 2,846.4
Intangible assets 555.2 Owner’s Equity
Receivables 325 6,827.1 Capital 3,565.1
Total Assets 8,165.1 Total Equities 8,165.1
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 1,096.9
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 1,753.4
Non-Current Assets Non-Current Liabilities
Investments 3,748.9 Creditors 54.2
Financial assets 2,116,4 Loans 2,506.8
Property 392.2 Other debts 283.7
Plant and equipment 14.0 Provisions 1.7 2,846.4
Intangible assets 555.2 Owner’s Equity
Receivables 325 6,827.1 Capital 3,565.1
Total Assets 8,165.1 Total Equities 8,165.1

9. Impact of the New Classification
Negative impact on the firm’s liquidity.
The ability of the business to meet its short-term debts as they fall due.
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 1,096.9
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 1,753.4
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 0
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 656.6
1st Balance Sheet
2nd Balance Sheet
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 0
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 656.6
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 1,096.9
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 1,753.4

10. Impact of the New Classification
Current
Assets
Current
Liabilities
WCR = = 2.04
Working Capital Ratio (WCR) = a measure of liquidity
1st Balance Sheet
2nd Balance Sheet
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 0
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 656.6
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 1,096.9
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 1,753.4
1,338.0
656.6
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 0
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 656.6
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 0
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 656.6
Current
Assets
Current
Liabilities
WCR = = 0.76
1,338.0
1,753.4
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 1,096.9
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 1,753.4
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4 Creditors 263.3
Debtors 361.2 Loans 1,096.9
Assets for sale 785.4 1,338.0 Financial instruments 215.7
Provisions 177.5 1,753.4
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4
$1.00Debtors 361.2
Assets for sale 785.4 1,338.0
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
$2.04 $1.00
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
Cash 191.4
$1.00Debtors 361.2
Assets for sale 785.4 1,338.0
Centro Properties: Balance Sheet as at 30 June 2007 (in $ millions)
Current Assets $ $ Current Liabilities $ $
$0.76 $1.00
What does this mean?
For every $1 of Current
Liabilities the firm has, the
business has $2.04 in Current
Assets to pay them
What does this mean?
For every $1 of Current
Liabilities the firm has, the
business has $0.76 in Current
Assets to pay them

11. Impact of the New Classification
$-
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Centro Properties Share Price - December 2007
Day of announcement
of error in Balance
Sheet

12. Centro Properties
• The company nearly went bankrupt – changed its name to Federation Centres
• The Australian Securities and Investment Commission (ASIC) sued the 7 Directors on Centro’s board
• Charged for breaching their “fiduciary duty” to properly scrutinise Centro’s financial reports
Sam Kavourakis
Audit Committee
$167,195
Paul Cooper
Audit Committee
$104,231
Jim Hall
Audit Committee
$151,105
Graham Goldie
Compliance
$158,062
Peter Wilkinson
Compliance
$104,231
Andrew Scott
CEO
$3,586,854
Brian Healey
Chairman
$389,840
GUILTY GUILTY GUILTY GUILTYGUILTY GUILTYGUILTY
$0 Fine $0 Fine $0 Fine $0 Fine$0 Fine $30k Fine$0 Fine
No Ban No Ban No Ban No BanNo Ban No BanNo Ban

13. Questions to Answer
• What is a classified Balance Sheet?
• Why is a classified Balance Sheet prepared and what
does this have to do with Relevance?
• What mistake did Centro Properties make when
classifying the $1.1 billion loan in the first Balance
Sheet?
• How did this mistake impact Centro’s liquidity in
terms of its Working Capital Ratio?