Part A:
You are the senior financial assistant in the accounts department of a large fashion distribution company, BLING. The company commenced trading in 2015 and has been very successful.
The board of directors of BLING is keen to further grow the company and has established ambitious targets for the coming years. To date, all growth has been organic; however, the directors are looking to invest in a retail outlet in a large regional city in the year ahead.
To this end, you have been asked to evaluate two possible takeover opportunities, Blue and Green.
You are provided with the following summarized financial information about these two fashion retail operators:
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2018
BLUE GREEN
SARm SARm
Sales 2,250 1,440
Less cost of sales
Opening stock 810 270
Purchases 1,890 1,080
Less closing stock (990) (450)
Cost of sales 1,710 900
Gross profit 540 540
Less expenses
Wages and salaries 126 90
Directors remuneration 90 90
Other expenses 144 72
Net profit 180 288
Profit from prior years 135 72
315 360
Transfer to general reserve 18 18
Dividends 180 180
Closing balance 117 162
BALANCE SHEET AS AT 31 DECEMBER 2018
BLUE GREEN
SARm SARm Fixed Assets
Equipment 108 27
Vehicles 162 117
270 144
Current Assets
Stock 990 450
Debtors 558 180
Bank 72 90
1,620 720
Creditors: amounts due within one year (810) (144)
Creditors: amounts due after one year
8% Debentures (450) 0
Net Assets 630 720
Capital and Reserves
Share capital 450 450
General reserve 63 108
Profit and loss account 117 162
630 720
Requirements:
(i) Based on the information provided, prepare appropriate ratios to assess the relative performance of the two companies for the year ended 31 December 2018. Please refer specifically to profitability, liquidity, working capital and gearing.
20 marks
(ii) Comment briefly on the ratios calculated.
10 marks
(iii) Explain which company you would select as the better investment and justify your selection.
6 marks
(iv) Comment briefly on the form of investment that you think would be most suitable in
your chosen company.
4 marks
(v) Describe what additional information you would consider useful to assist your analysis of the relative performances of the two companies.
5 marks
PART B
To date, the board of directors of BLING has focused on future growth strategies. However, it has placed little emphasis on financial planning and budgeting. You feel that the operational efficiency and the overall profitability of the business could be improved if an appropriate budgetary control process was introduced.
Draft an essay for the attention of the board of directors which explains the importance of budgeting and details how an effective budgeting mechanism could support the strategic objectives of the board.
You should refer to relevant literature where appropriate.
In relation to answering part B, some guidance is provided below.
35 marks
PART C
Your department has just recruited a new assistant in the accounts department. She completed an undergraduate degree two decades ago but did not enter the workforce at that time.
You have been asked to brief her, by means of a one-page memo, about two key changes to the external business environment in recent years and their impact on businesses and accounting.
20 marks
Total 100 marks
Guidelines for Part B
WORD LIMIT = 1,000 words (excluding references)
MAX LENGTH: 5 pages
Factors for consideration:
The following factors will be taken into consideration when grading the written work.
Content: Relevance, focus, understanding of material, comprehensiveness, depth v breadth
Structure: Organisation of material, development of points, sequence and flow, clear rationale for order of paragraphs and sentences
Writing style: Quality of writing, appropriateness of writing style for an academic paper, clarity of meaning and expression, grammar, syntax, punctuation, spelling, tone should be formal, avoid the use of the first person, referencing (see below)
Presentation: Paper must be typewritten, one-and-a-half spaced using 12 point font size.
Guidelines to be followed when referencing.
Citations in the text should be by the author’s name and year of publication, for example, Black (1997). In the case of citations of books or direct quotations, page numbers should be given, for example, Jones (1996, p.44). Where more than one publication by the same author in a given year is cited, they should be distinguished by lower case letters after the year, for example, Kelly (1994a), Kelly (1994b). Where there are more than two authors, all names should be given in the first citation with et al used subsequently, for example, Tone et al (1997).
References should be listed alphabetically at the end of the manuscript in the following style:
Article
Archibald, T. (1972). “Stock market reaction to the depreciation switch-back”, Accounting Review, 1(1), 22-30.
Bartley, J. W. and Boardman, C. M. (1990). “The relevance of inflation adjusted accounting data to the prediction of corporate takeovers”, Journal of Business Finance and Accounting, 17(2), 53-72.
Article in a Book
Baxter, W. T. (1986). “The future of company financial reporting”, in T. A. Lee (ed.), Developments in Financial Reporting, pp. 270-292, Oxford: Philip Allan.
Bayliss, M. (1984). “The use of current cost information in the Press and stockbrokers’ reports”, in B. V. Carsberg & M. Page (eds.), Current Cost Accounting: The Benefit and the Costs, Vol. 2, pp. 98-100, London: Prentice-Hall & ICAE&W.
Book
Baxter, W. T. (1975). Accounting Values and Inflation, New York: McGraw-Hill.
Direct Quotations
If you use a direct quote you must:
• copy exactly the wording of the original text,
• if the quotation takes up less than two lines in your typed paper, then include it in the body of the paper and enclose it in quotation marks,
• if the quotation takes up more than two typed lines, then indent the whole quotation and use single spacing. Quotation marks should not be used with this format, for example
Heywood (1977, p.1) warned:
that examinations can have a most harmful effect on learning, particularly if they simply cause the regurgitation of the knowledge to found in the syllabus.
Submission
Electronic submission
You must submit an electronic version of your assignment via Loop (closer to the deadline you will see a ‘Submit your assignment here’ line in the HR5120P Loop page) by 12 noon on Sunday 17h March. Please also note that all elements of the assignment must be in a single file for the purposes of the electronic submission.
Marks Allocation
Written Report: 80% of total mark
Part A, B and C above
Oral Defense (in class): 20% of total mark
Each student will have to do an oral defense of their assignment in class on 18th March.
Therefore, attendance at this class is mandatory.
Each student will be asked a question about the work completed in their assignment and will
be allocated a mark based on their ability to demonstrate competence in the subject area.