kazun
Jan 5, 2011, 05:51 AM
Case 1 (8 marks)
Bona Bonjela works as a bricklayer and earns $45,500 per annum. His wife, Leslie, has a part-time job in which she earns $18,500 per annum. Leslie has been left an inheritance of $300,000 by her aunty. If this money is invested in a bank deposit, it will generate a 6.5% interest per annum. Bona and Leslie, however, are interested in buying a news agency costing $450,000 (including all inventories, equipments, a vehicle, and all transaction costs (i.e. stamp duty, settlement fees, etc)). Their plan is for both to quit their current jobs and run the news agency.
Bona and Leslie have approached a bank, and the bank has granted them a
Pre-approval for a business loan of $150,000 at 8.25% per annum, with
Interest only payment, repayable over 25 years. The current owner of the
News agency provides sales and expenses information for the previous year,
As follows:
Sales Gross profit
• Newspapers and magazines $1,200,000 15%
• Stationary 154,000 25%
• Books 172,000 15%
• Confectionary 12,500 45%
• Other sales 24,320 25%
The previous year’s expenses were as follows:
• Shop attendant wages $28,500
• Insurance 20,000
• Rent of premises 22,000
• Security 9,880
• Telephone and utility 12,500
• Rates 10,500
• Advertising 3,980
• Vehicle expenses 15,890
• Trade subscriptions 3,200
• Depreciation expenses 11,000
Bona and Leslie ask for your advice regarding this business decision.
Required:
a. What would be your financial advice to Bona and Leslie? Will they be
better-off financially by buying the news agency? Provide your
calculations to support your advice, and provide also all relevant
financial factors that are related to the situation.
4.5 marks
b. What would be your advice to Bona and Leslie regarding other non-
financial factors that they should consider before making a decision?
2 marks
c. Finally, should Bona and Leslie go ahead with the purchase of the
news agency? What would be your professional advice to them?
(write the all answers in a essay format)
1.5 marks
2
Case 2 (7 marks)
Dolgo Bontai, the COO of Rhekep Ltd, has recently reviewed the operations
Of the company, and concerned about the continued weak profit
Performance of the company. The company board has constantly stressed
The need for the company to improve its profits. Otherwise, the company will
Not be able to sustain the confidence of its shareholders and creditors. It is
Now a couple weeks before the end of the year, and hence it is almost certain
That the company will record another low profit at the end of the year. Dolgo
Knows that as a consequence of this low profit performance the company
Will have difficulty in refinancing some loans and will be pushed to pay
Higher interest rates. This will increase the financial burden of the company.
Dolgo realises that it is way too late for operations to increase profits for the year. However, he has come up with a plan, which in his opinion, will enable the company to increase the reported profit for that year. He mentions the fact that the prices of inventory have been failing in recent weeks, and thus he suggests for the company to purchase large amounts of inventory in the remaining two weeks of the year, and uses the LIFO methods for valuing and reporting inventories for that year.
As the junior but talented junior accountant, you are asked by the CEO,
Siganu Gayawela, about Dolgo’s suggestion. Siganu particularly wants to
Know:
(a) whether Dolgo’s plan will enable the company to report higher profit
for the year;
(b) the positive and negative consequences of the proposed plan for the
company and shareholders; and
(c) whether the plan complies with accounting standards.
Required:
Analyse and prepare a written discussion for Siganu Gayawela on the above three issues.
(write the all answers in a essay format)
(a) 1.75 marks
(b) 3.50 marks
(c) 1.75 marks
Bona Bonjela works as a bricklayer and earns $45,500 per annum. His wife, Leslie, has a part-time job in which she earns $18,500 per annum. Leslie has been left an inheritance of $300,000 by her aunty. If this money is invested in a bank deposit, it will generate a 6.5% interest per annum. Bona and Leslie, however, are interested in buying a news agency costing $450,000 (including all inventories, equipments, a vehicle, and all transaction costs (i.e. stamp duty, settlement fees, etc)). Their plan is for both to quit their current jobs and run the news agency.
Bona and Leslie have approached a bank, and the bank has granted them a
Pre-approval for a business loan of $150,000 at 8.25% per annum, with
Interest only payment, repayable over 25 years. The current owner of the
News agency provides sales and expenses information for the previous year,
As follows:
Sales Gross profit
• Newspapers and magazines $1,200,000 15%
• Stationary 154,000 25%
• Books 172,000 15%
• Confectionary 12,500 45%
• Other sales 24,320 25%
The previous year’s expenses were as follows:
• Shop attendant wages $28,500
• Insurance 20,000
• Rent of premises 22,000
• Security 9,880
• Telephone and utility 12,500
• Rates 10,500
• Advertising 3,980
• Vehicle expenses 15,890
• Trade subscriptions 3,200
• Depreciation expenses 11,000
Bona and Leslie ask for your advice regarding this business decision.
Required:
a. What would be your financial advice to Bona and Leslie? Will they be
better-off financially by buying the news agency? Provide your
calculations to support your advice, and provide also all relevant
financial factors that are related to the situation.
4.5 marks
b. What would be your advice to Bona and Leslie regarding other non-
financial factors that they should consider before making a decision?
2 marks
c. Finally, should Bona and Leslie go ahead with the purchase of the
news agency? What would be your professional advice to them?
(write the all answers in a essay format)
1.5 marks
2
Case 2 (7 marks)
Dolgo Bontai, the COO of Rhekep Ltd, has recently reviewed the operations
Of the company, and concerned about the continued weak profit
Performance of the company. The company board has constantly stressed
The need for the company to improve its profits. Otherwise, the company will
Not be able to sustain the confidence of its shareholders and creditors. It is
Now a couple weeks before the end of the year, and hence it is almost certain
That the company will record another low profit at the end of the year. Dolgo
Knows that as a consequence of this low profit performance the company
Will have difficulty in refinancing some loans and will be pushed to pay
Higher interest rates. This will increase the financial burden of the company.
Dolgo realises that it is way too late for operations to increase profits for the year. However, he has come up with a plan, which in his opinion, will enable the company to increase the reported profit for that year. He mentions the fact that the prices of inventory have been failing in recent weeks, and thus he suggests for the company to purchase large amounts of inventory in the remaining two weeks of the year, and uses the LIFO methods for valuing and reporting inventories for that year.
As the junior but talented junior accountant, you are asked by the CEO,
Siganu Gayawela, about Dolgo’s suggestion. Siganu particularly wants to
Know:
(a) whether Dolgo’s plan will enable the company to report higher profit
for the year;
(b) the positive and negative consequences of the proposed plan for the
company and shareholders; and
(c) whether the plan complies with accounting standards.
Required:
Analyse and prepare a written discussion for Siganu Gayawela on the above three issues.
(write the all answers in a essay format)
(a) 1.75 marks
(b) 3.50 marks
(c) 1.75 marks