Master Writing Service: KMBA-712 Finance & Accounting for Managers Case Studies

Finance and Accounting for Managers Week 3 Collaboration Group Work Question A

Equity PLC has the following statements of financial position and income statements for the years ending 31^st October 20X4 and 20X3.

Equity plc

Statements of Financial Position as at 31st

October:

		20X4				20X3
	£ '000	£ '000	£ '000	£ '000		£ '000	£ '000
	Cost	Depn	NBV		Cost	Depn	NBV
Non current asssets
Land & Buildings	58,000	12,000	46,000	40,000		10,000	30,000
Plant & Machinery	32,500	14,500	18,000	30,000		12,000	18,000

	90,500	26,500	64,000	70,000		22,000	48,000

Current Assets:
Inventories		25,000				30,000
Accounts receivable		35,000				28,000
Current Asset Investment		5,000				0
Bank		0				12,000

			65,000				70,000
Total Assets
Total Assets			129,000				118,000

Finance and Accounting for Managers

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Capital:
Ordinary Share Capital	35,000		30,000
Share Premium Account	10,000		8,000
Revaluation Account	2,000		0
Retained Profits	23,000		20,000

		70,000			58,000
Non Current Liabilities
Loans	20,000		15,000
Current Liabilities		20,000				15,000
		20,000				15,000

Accounts payable	27,000		32,000
Proposed Dividends	6,600		11,000
Bank overdraft	3,000		0
Taxation	2,400		2,000

	39,000			45,000
Total Equity and Liabilities
Total Equity and Liabilities		129,000			118,000

Equity Plc

Income Statement for the year ending 31st October 20X4:

£ '000

Sales

98,000

Finance and Accounting for Managers

Cost of Sales		-48,000
Gross Profit		50,000
Other operating expenses		-35,000
Profit before interest		15,000
Interest		-1,200

Profit before taxation		13,800
Taxation		-2,800

Profit after taxation		11,000

The following additional information is available:

1) Equity PLC recorded an increase in the value of its land of £2,000,000 during the year.

2) The company has proposed dividends of £8,000,000 for the year.

3) During the year, an item of machinery that originally cost £3,000,000 was sold for £500,000 - making a loss on disposal of £1,000,000. This item is included in the operating expenses.

Required:

a) Prepare a Statement of Cash Flows for the year ended 31^st October 20X4 in accordance with IAS 7 (revised), using the indirect method.

b) Prepare a Business Report commenting on the cash position of Equity PLC.

Required length for Business Report = 1,500 words; please submit your Assignment to the Turnitin Link provided by End Wednesday, Day 7.

Notes to assist you:

1. Remember, when you are using the indirect method, you need to start with the net profit before interest and tax. Can you see what figure this is?

2. In order to reconcile the profit to the net cash generated from operations, you need to add back non cash deductions such as depreciation for the year and you need to deduct non cash income, such as any gain on the disposal of assets.

Finance and Accounting for Managers

Can you work out the depreciation figure for the year? What does note 3 above tell you about the disposal of the machinery? Are there any other non cash adjustments that need including here?

3. The next step is to work out the adjustments for the changes in working capital items, namely in accounts receivables, accounts payables and inventories. Remember increases in current assets represent a cash outflow and should be deducted here. Decreases in current assets represent a cash inflow and should be added back. The opposite is true for current liabilities.

4. Once these adjustments are done, you have a figure that is the net cash flow from operating activities.

5. The next step is to work out the four main headings in the cash flow statement, namely net cash from operating activities, cash flows from investing activities, cash flows from financing activities, net cash movement during the year and finally this figure is reconciled back to the total cash and cash equivalents at the start and end of the year.

6. In order to work out the net cash from operating activities, you need to deduct any interest paid, income tax paid and dividends paid. Can you work out the cash paid for these items? Remember, it is not just the amounts taken from the financial statements; you need to work out the cash amount, by starting with the opening balance, adding what has been allocated during the year and deducting any closing balance. Refer to the example in the Test Your Knowledge questions relating to taxation for this Week. This principle that you have applied to taxation will also need to be applied to some of the other items such as dividends here and also other assets and liabilities later on. Deduct your taxation, interest and dividend figures to arrive at the net cash from operating activities. The next step is to calculate the cash flows from investing activities. This section deals with the movements in non-current assets. Reading note 3, can you work out the actual cash received from the sale of the machinery? Also, by looking at the opening and closing cost balances of the non-current assets on the SoFP and also taking into account the disposal in note 3, can you work out how much cash has actually been paid for non-current assets? This is using the same principle as explained in note 6 above relating to taxation, apart from you do not have a payment in the year in the income statement, but you do have some information in the notes relating to this. The sum of asset movements will give you the net cash movement from investing activities.

7. You can now work out the cash flow from financing activities. For this you need to work out the changes in share capital and premium and also any changes in long term loans. Has the company received cash or paid out cash in these two areas? You can ascertain this by looking at the SoFP for both years. Add all these up to give you the net cash flow from financing activities.

8. All that is left to do is add all your sub totals together; this will give you the total cash increase or decrease in the year. The final step is to reconcile this cash figure back to the movement in cash and cash equivalents for the year. Can you

Finance and Accounting for Managers

work out the total cash movement in the bank and also any cash equivalents the company may have?

9. Good luck!

You may also find the following pro forma helpful:

Using the Indirect Method

	£’000		£’000
Cash flows from operating activities
Net profit/loss before tax and interest		x
Adjustments for:
Depreciation		x
Investment income		x
Interest expenses		x
- Profit/+ Loss on Sale of Fixed Asset		x
Operating profit before working capital changes		x
Increase/Decrease in trade and other receivables		x
Increase/Decrease in inventories		x
Increase/Decrease in trade payables		x
Cash generated from operations		x
Interest paid		x
Income taxed paid		x
Dividends paid		x
Cash flow before extraordinary items		x
Net cash from operating activities			x

Finance and Accounting for Managers

Cash flows from investment activities
Acquisition of subsidiary	x
Payment to acquire tangible fixed assets	x
Receipt from sales of tangible fixed assets	x
Investment income received	x
Dividends received	x
Net cash used in investing activities		x
Cash flows from financing activities
Proceeds from / (Payment) for share capital	x
Proceeds from / repayment of long-term borrowings	x
Payment of finance lease liabilities	x
Net cash flow from financing activities		x
Net increase/decrease in cash and cash equivalents		x
Cash and cash equivalents at the beginning of the period	x
(Cash + Cash Equiv)
Cash and cash equivalents at the end of the period	x
(Cash + Cash Equiv)

Please remember that all communication in respect to this Team Case Study should take place, or be recorded, in the Group Folder to which you have been assigned. You should also submit a brief audit report that details your group activity in relation to completion of this task, for example details of conversation and work completed by each group member. Your submission for this Assignment should be posted to the Turnitin link provided.

To get Solutions to the above Question, please contact us at masterwriting01@gmail.com

Finance and Accounting for Managers

Finance and Accounting for Managers Week 3 Collaboration Group Work Question B

After many years of uninterrupted growth in sales and profitability, Little Gem plc (a manufacturing company) is facing more difficult trading conditions. Prior to the recent publication of its results a number of analysts had expressed concern about the company and in particular were concerned about levels of profitability, liquidity, utilisation and gearing. The results have now been published and extracts are shown below:

Income statement for the year ended 31 August
	20X3		20X4
	£m			£m
Continuing operations
Revenue	7,620		7,848
Cost of sales	(4,273)			(4,391)
Gross profit	3,347		3,457
Selling and marketing costs	(1,362)		(1,402)
Administrative expenses	(421)		(424)
Other operating income	20		22
Operating profit
	1,584		1,653
Finance cost	(176)		(220)
Finance income		12			15
Profit before income tax	1,420		1,448
Income tax expense	(416)		(418)
Profit for the year from continuing operations
	1,004		1,030
Discontinued operation

Finance and Accounting for Managers

Profit for the year from discontinued operation			27
Profit for the year	1,004	1,057

Statement of Financial Position as at 31^st August
	20X3			20X4
		£m		£m
Non-current assets
Intangible assets	104		194
Property, plant and equipment	4,572		4,972

	4,676		5,166
Current assets
Inventories	349		440
Trade and other receivables	935		1,042
Cash and cash equivalents	176		82

	1,460		1,564
Total assets
	6,136		6,730

Shareholders’ equity
Ordinary shares	750		750
Share premium	160		160
Other reserves	650		900
Retained earnings	1,137		1,562

Finance and Accounting for Managers

Total equity	2,697	3,372
Current liabilities
Trade and other payables	356	358
Current income tax liability	416	418
Provisions for other liabilities and charges	142	97

	914	873
Non current liabilities
Borrowings	2,275	2,338
Provisions for other liabilities and charges	250	147

	2,525	2,485
Total Share holders equity and liabilities
	6,136	6,730

Notes

(a)The increase in other reserves is principally explained by the revaluation of its property.

(b)The increase in intangible non current assets arises from the capitalisation of development expenditure.

4) In the Directors Report, mention is made of the difficult trading conditions, but the Directors remain optimistic about future conditions. In particular they comment that they have resisted the temptation to embark on a programme of cut backs. Rather they remain confident that the organisation is in a good position to take advantage of the recovery when it occurs.

Required:

Finance and Accounting for Managers

You are required to produce a business report for Little Gem. This report should include, as a minimum, the following ratios for both years covered by the accounts:

- operating return on equity

- current ratio

- financial leverage multiplier

- inventory turnover

- return on capital employed

- accounts receivable turnover

- asset turnover

- accounts payable turnover

On the basis of the accounts and notes provided above, your report should also include an analysis of the company’s profitability, liquidity, utilisation and gearing. In your report you should also discuss other critical areas, such as the extent to which Directors are able to influence the value of the organisation (as measured by its share price) by the management of earnings and/or balance sheet items and any other relevant points you consider relevant.

Required length for Business Report = 1,500 words; please submit your Assignment to the Turnitin Link provided by End Wednesday, Day 7.

To get Solutions to the above Question, please contact us at masterwriting@hotmail.com

Finance and Accounting for Managers

Finance and Accounting for Managers Week 5 Collaboration Group Work Question A

Orchid Ltd is a furniture manufacturer. One of its products, a table, has the following standard costs:

	£
Direct materials (8m @ £3/m)	24.00
Direct labour (1 hour @ £25/hr)	25.00
Fixed overheads	16.00
	65.00
Selling price	95.00
Standard profit margin	30.00

The table is made from solid oak and the above materials reflect the size of the table in square metres.

The monthly production and sales are planned to be 800 units. The actual results for

March were as follows:

		£
Sales revenue	75,330
Less Direct materials	(19,250)		(7,000m)
Direct labour	(22,100)	(850 hours)
Fixed overheads	(13,000)

Operating profit	20,980

There was no opening or closing stocks. The company manufactured and sold 810 tables.

Finance and Accounting for Managers

Required:

5) Calculate the flexed and actual budget

6) Calculate the following variances:

Sales variances; volume and price

Direct material variances; usage and price

Direct labour variances; efficiency and rate

Fixed overhead variance; spending

c) Present the above information as a part of a Business Report, providing possible explanations for the variances that you have calculated and suggestions as to how the company might try to improve its cost control.

Please remember that all communication in respect to this Team Case Study should take place, or be recorded in, the Group Folder to which you have been assigned. Your submission for this Assignment should be posted to the Turnitin link provided. It need only be submitted by ONE team member, but we suggest that you post a copy of the Turnitin receipt to your Group Folder as ‘proof’ that the Assignment was successfully submitted by your deadline.

Due Date: End Wednesday, Day 7. Target length for main body of Business Report = 1,500 words.

To get Solutions to the above Question, please contact us at masterwriting01@gmail.com

Finance and Accounting for Managers

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KMBA-712 Finance & Accounting for Managers Case Studies

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