BUMN039H7 Principles of Financial Reporting Assignment Questions and Answers

Do you want Principles of Financial Reporting Homework Questions and Answers? We have skilled assignment writers and 100% safe service providers; our expectations are highly qualified and well-trained for different subjects. Our teams are compliant with your assignment before the deadline. You will be happy to take our assignment service as our term of writers from QNA Assignment Help.

 

Assessment Questions

Question 1 

The Trial Balance of Company 1 as on 31 December 2022 is given below:

 

Dr Cr
£’000 £’000
1,500,000 ordinary shares of £1 each 1,500
10% Debenture loan: repayable in 2028 200
Accrued utility cost as on 1 January 2022 48
Administrative expenses 1,650
Bank account 87
Debenture interest 10
Disposal account 10
Distribution costs 1,310
Land and Buildings 2,400
Land and buildings: accumulated depreciation 130
Interim dividend paid on ordinary shares 156
Inventory as on 1 January 2022 388
Plant & machinery: accumulated depreciation 220
Plant & machinery: cost 450
Prepaid insurance as on 1 January 2022 23
Provision for doubtful debts 16
Purchases 3,560
Retained profits as on 1 Jan 2022 466
Revaluation reserve 250
Revenue 7,210
Share premium 100
Trade payables 236
Trade receivables 352
10,386 10,386

 

You are given the following information:

 

  • Inventory as on 31 December 2022 cost £280,000. Included in this inventory are items with an original cost of £20,000. They have now become obsolete and are expected to have no scrap value.
  • The land and buildings, at valuation per the Trial Balance, comprise: land £1,600,000 and buildings £800,000.
  • An item of plant and machinery, with an original cost of £30,000 and an accumulated depreciation of £22,000, was sold in the year for £10,000. No accounting entries relating to the disposal have been made in the company’s books of account apart from the entries relating to the sale proceeds, which was credited to the disposal account.
  • Depreciation on non-current assets is to be charged as follows:

Freehold land:             No depreciation

Buildings:                    5% per annum on a straight-line basis

Plant & machinery:     30% per annum on a reducing balance basis

  •  A bad debt of £10,000 is to be written off. The provision for doubtful debts is to be revised to 5% of the remaining trade receivables.
  • Prepaid insurance as on 31 December 2022 is £25,000 while accrued utility expenses, at that date, is £50,000. Both insurance and utility are included in the administrative expenses.
  • Corporation Tax of £54,000 on the current year’s profits and audit fee of £23,000 are to be provided for in the administrative expenses.
  • Interest on the debentures due to be paid on 1 January 2023 is to be provided.
  • The directors also proposed to pay a final dividend of £45,000 for the year ended 31 December 2022.

Required:

 

(a)       Prepare an income statement for the year ended 31 December 2022 and a statement of financial position at that date, in good style for the directors.                                                    (30 marks)

 

(b)       Explain the rationale for providing depreciation and the choice of using different depreciation methods for different types of non-current assets in terms of relevant accounting concepts. (10 marks)

            Total 40 marks

 

Question 2

 

A well-known (real life) manufacturing company’s financial information is given below:

 

Balance Sheet      
Balance Sheet as of: Dec-31-2019 Dec-31-2020 Dec-31-2021
Currency in million GBP GBP GBP
ASSETS
Cash And Equivalents             4,443.0             3,452.0             2,621.0
Short Term Investments                    6.0                    8.0
Trading Asset Securities                  49.0                  42.0
  Total Cash & ST Investments            4,498.0            3,494.0            2,629.0
Accounts Receivable             4,525.0             3,989.0             3,666.0
Other Receivables             2,025.0             2,194.0             2,276.0
  Total Receivables            6,550.0            6,183.0            5,942.0
Inventory             4,320.0             3,690.0             3,666.0
Prepaid Exp.                604.0                837.0                950.0
Other Current Assets                100.0                415.0             2,128.0
  Total Current Assets          16,072.0          14,619.0          15,315.0
Gross Property, Plant & Equipment           11,182.0           11,334.0           10,573.0
Accumulated Depreciation         (4,370.0)         (5,414.0)         (5,453.0)
  Net Property, Plant & Equipment            6,812.0            5,920.0            5,120.0
Long-term Investments                619.0                671.0                616.0
Goodwill                994.0             1,074.0             1,026.0
Other Intangibles             1,785.0             1,776.0                874.0
Deferred Tax Assets, LT             1,887.0             1,826.0             2,249.0
Deferred Charges, LT             2,663.0             2,295.0             2,141.0
Other Long-Term Assets             1,434.0             1,336.0             1,333.0
Total Assets          32,266.0          29,517.0          28,674.0
LIABILITIES
Accounts Payable             2,822.0             2,001.0             1,758.0
Accrued Exp.             1,840.0             1,449.0             1,401.0
Short-term Borrowings                    8.0                307.0                    7.0
Current Portion of Long-Term Debt                458.0                745.0                  27.0
Current Portion of Leases                340.0                259.0                270.0
Current Income Taxes Payable                172.0                154.0                101.0
Unearned Revenue, Current             4,240.0             4,203.0             3,627.0
Other Current Liabilities             5,111.0             4,810.0             4,691.0
  Total Current Liabilities          14,991.0          13,928.0          11,882.0
Long-Term Debt             2,905.0             4,387.0             6,105.0
Long-Term Leases             2,014.0             1,784.0             1,474.0
Unearned Revenue, Non-Current             6,683.0             6,311.0             6,749.0
Pension & Other Post-Retire. Benefits             1,378.0             1,580.0             1,373.0
Def. Tax Liability, Non-Current                618.0                494.0                451.0
Other Non-Current Liabilities             7,031.0             5,908.0             5,276.0
Total Liabilities          35,620.0          34,392.0          33,310.0
Common Stock                386.0             1,674.0             1,674.0
Additional Paid in Capital                319.0             1,012.0             1,012.0
Retained Earnings         (5,299.0)         (8,914.0)         (8,525.0)
Treasury Stock
Comprehensive Inc. and Other             1,218.0             1,331.0             1,177.0
  Total Common Equity         (3,376.0)          (4,897.0)          (4,662.0) 
Minority Interest                  22.0                  22.0                  26.0
Total Equity         (3,354.0)          (4,875.0)          (4,636.0) 
Total Liabilities and Equity          32,266.0          29,517.0          28,674.0

 

Income Statement      
For the Fiscal Period Ending 12 months
Dec-31-2019
Reclassified
12 months
Dec-31-2020
12 months
Dec-31-2021
Currency in million GBP GBP GBP
 
Revenue      16,587.0      11,491.0      11,218.0
Cost Of Goods Sold      15,645.0      10,378.0        9,082.0
  Gross Profit           942.0        1,113.0        2,136.0
Selling General & Admin Exp.        1,105.0           772.0           893.0
R & D Exp.           770.0           723.0           778.0
  Other Operating Exp., Total        1,875.0        1,495.0        1,671.0
  Operating Income       (933.0)        (382.0)            465.0
Interest Expense       (168.0)       (253.0)       (172.0)
Interest and Investment Income             31.0             21.0               7.0
  Net Interest Exp.       (137.0)        (232.0)        (165.0) 
Income/(Loss) from Affiliates           104.0           190.0             45.0
Currency Exchange Gains (Loss)           101.0       (332.0)             55.0
Other Non-Operating Inc. (Exp.)       (158.0)       (163.0)       (132.0)
  EBT Excl. Unusual Items    (1,023.0)        (919.0)            268.0
Gain (Loss) On Sale of Assets           139.0         (14.0)             56.0
Asset Write-down       (481.0)
Other Unusual Items           (7.0)    (1,385.0)       (618.0)
  EBT Incl. Unusual Items       (891.0)     (2,799.0)        (294.0) 
Income Tax Expense           420.0           302.0       (418.0)
  Earnings from Cont. Ops.    (1,311.0)     (3,101.0)            124.0
Earnings of Discontinued Ops.         (68.0)           (3.0)
  Net Income to Company    (1,311.0)     (3,169.0)            121.0
Minority Int. in Earnings           (4.0)           (1.0)           (1.0)
  Net Income    (1,315.0)     (3,170.0)            120.0

 

Cash Flows Statement (Summarised)      
For the Fiscal Period Ending 12 months
Dec-31-2019
Reclassified
12 months
Dec-31-2020
12 months
Dec-31-2021
Currency in million GBP GBP GBP
 
  Cash from Ops.              2,297.0           (3,009.0)             (259.0) 
Capital Expenditure              (747.0)              (585.0)             (328.0)
Sale of Property, Plant, and Equipment                   50.0                   23.0                 61.0
Cash Acquisitions                (43.0)              (106.0)
Divestitures                 453.0                   23.0                 99.0
Sale (Purchase) of Intangible assets              (627.0)              (347.0)             (226.0)
Investment in Marketable & Equity Securities                  (4.0)                (18.0)               (22.0)
Other Investing Activities               (12.0)
  Cash from Investing              (918.0)            (1,010.0)             (428.0) 
Long-Term Debt Issued                   22.0              4,774.0            2,005.0
Long-Term Debt Repaid           (1,407.0)           (3,168.0)         (1,339.0)
Issuance of Common Stock                   24.0              1,972.0
Repurchase of Common Stock                (15.0)                  (1.0)
Common Dividends Paid              (220.0)                (91.0)                 (3.0)
Other Financing Activities              (196.0)              (462.0)             (751.0)
  Cash from Financing           (1,792.0)               3,024.0              (88.0) 
Foreign Exchange Rate Adj.              (104.0)                   56.0               (82.0)
  Net Change in Cash              (517.0)               (939.0)             (857.0) 

 

Required

  • Compute the following ratios (for both 2020 and 2021 only) for this company:
    1. Gross profit margin
    2. Operating profit margin
    3. Return on average capital employed
    4. Average asset turnover
    5. Average working capital cycle
    6. Gearing ratio

Full workings must be provided for each ratio calculated.

(15 marks)

  • Discuss the profitability, liquidity and financial risk of this company using the ratios calculated in (a) and other financial information provided in this question. State any assumptions you make. (40 marks)

 

  • Explain the main limitations in trend analysis of financial statements for a single company. (5 marks)

                                                                                                                  Total 60 marks

 

For REF… Use:#getanswers2002602

 

Leave a Reply

Your email address will not be published. Required fields are marked *