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Financial Analysis and Reporting: Prestige PLC

Question:

You may use Excel for calculations and workings which form part of your answer or for presenting financial information, but these must not be submitted separately, but must be embedded into your Word document submission. Similarly any handwritten calculations or diagrams that form part of your answer should be photographed and embedded into the Word document.

Explain why an increase in Trade Receivables is shown as a negative amount in the statement of cash flows.

Prepare a statement of cash flows for Prestige for the year ended 31st December 2019, using the indirect method.

Using the financial statements of Prestige, illustrate percentage changes for THREE statement of financial position items using horizontal analysis and explain briefly their implication(s).

Using Ratio Analysis, illustrate the status of this company for both years by analysing profitability, liquidity and solvency with two ratios for each measure. Specifically, write down the ratios, the formula, the calculation and the results of the ratios. Interpret the ratios from the perspective of a potential investor by making brief comments on the compny’s performance. Explain whether or not you would consider investing in Prestige PLC? What other information you would require to make an informed decision?

Calculate the Goodwill arising on the acquisition of Superior Ltd by Prestige PLC.

Prepare the Prestige Group consolidated statement of financial position as at 31 March 2020.

Information pertaining to long-term share investments in 2020 by Prestige PLC follows: i. Acquired 18% of the 320,000 ordinary shares of Esteem Co at a total cost o £1.34 per share on April 1st, 2020. On April 30th

Esteem Co’s reported net income was £374,800 for the year. On the same date, Esteem Co declared and paid a cash dividend of £0.35 per share.

Obtained significant influence over Honour Ltd by buying 35% of Honour's 160,000 outstanding shares at a total cost of £2.10 per share on April 15 th, 2020. On May 1st

Honour Ltd’s reported net income was £176,914. On May 31st Honour declared and paid a cash dividend of £0.52 per share.

Required:

a) Explain, with reasoning, which methods should be used by Prestige PLC to record its investments and related transactions in Esteem Co and Honour Ltd respectively?

b) Prepare all necessary journal entries for 2020 for Prestige PLC related to the transactions detailed above.

Describe the different types of assets that appear on a statement of financial position (SOFP), highlighting clearly the classifications they are grouped under and providing examples of each type.

Explain, with the aid of an example, the concept of Goodwill, describing where it appears in the statement of financial position and its initial and subsequent accounting treatment.

a) Identify five key users of financial information of a company and describe briefly for each type of user which elements of information they are interested in and why.

b) Explain the information that a user can obtain from a statement of cash flows that cannot be obtained from the statement of profit or loss, and thereby discuss why the statement of cash flows has taken the same level of importance in recent years as the other two primary financial statements for the users of financial information identified in part a).