Learning Outcomes assessed

Use basic accounting terminology and techniques to prepare and analyze published financial accounting information

Learning Outcomes assessed

1.�Use basic accounting terminology and techniques to prepare and analyse published financial ��accounting information

2.�Demonstrate an ability to prepare basic management accounting information

3.�Critically assess the techniques and processes used in accounting�

4.�Communicate financial information both orally and in the written form

Objectives �

Both tasks account for 100% of the marks for this module.

In the calculations task (20%) you will demonstrate how to calculate and prepare basic management accounting information using budgeting, ratio analysis and investment appraisal techniques

In the report task (80%) you will demonstrate how to interpret the numbers to make the information useful for managers and investors.

Both tasks encourage research and financial analysis. It also develops and demonstrates an understanding of the decisions based on budgeting, investment appraisal techniques and ratio analysis.

Calculations Task (20%).

Required:

a)�Using the provided financial statements of Carpetright Plc for the year ended 27 April 2019, you are required to select and calculate an appropriate set of ratios to assess the business.

You should clearly show all the formulae and calculations. The figures should be rounded to two decimal places. ���������

b)�Braemar Council wishes to evaluate an investment in machinery used in manufacturing of new type of heating system. �Inverter�. �The �Inverter� would enable the Braemar Council to address the increasing demand for eco-friendly heating systems in housing and business sectors. �The Braemar Council is not sure which Machine to invest in. They have the option to choose from 3 different machines. �Life of the machines and the purchase prices are as follows.

�	Machine A	Machine B	Machine C
Initial investment (�)	300,000	360,000	510,000
Life of the machine	4 years	5 years	3 years

In each case the initial investment represents the purchase of plant and equipment whose residual value will be 20% of initial cost, receivable in addition to the net cash flow, at the end of the life of the project. Forecast sales volume, selling price and other costs are as follows;

�	Sales volume �(units/year)	Selling price per unit (�)	Variable cost per unit (�)	Fixed cost per annum (�)
Machine A	500	1,200	�720	80,000
Machine B	450	1,200	650	80,000
Machine C	650	1,200	570	130,000

The machine B and C have only recently been introduced to the market and has not been fully tested in operating conditions. Because of the higher risk involved, the appropriate discount factor for the machine B and C is believed to 12% per year, 2% higher than the discount rate for Machine A.

Requirement

For each of the three projects:

Calculate the accounting rate of return (based on the average investment method). 3 marks

Calculate the payback period.�

Calculate the net present value.�

a)�Prepare Braemar council�s cash budget from July 2020 to October 2020 from the following budgeted data.

Budgeted data	July	August	September	October
�	�	�	�	�
Sales	14,000	15,400	15,800	16,600
Purchases	13,000	12,600	12,800	13,400
Wages	600	680	740	800
Other overheads	1,100	1,080	1,150	1,180
Capital expenditure	�	�	6,500	�

The following additional information is available:

35% of the customers pay cash and the remainder take 1 month to pay.

45% of the purchases are paid for after 1 month and the remainder in 2 months� time.

Wages are paid in the current month.

Other overheads are paid after 2 months.

Capital expenditure is paid in the following month.

Opening cash balance for July was �2,800 overdraft.

1-�Clearly show all the calculations and the formulae used in your calculations and it should be done MANUALLY rather than copying figures from websites.

2-�You must not depend on the disclosed ratios in the annual reports. You are required to prepare these ratios on your own.

Report writing Task (80%);

Required

a)�Using a selection of the ratios calculated in the calculations task, comment on the profitability of Carpetright Plc and discuss how the cash operating cycle can be improved to increase the profitability of Carpetright plc?

b)�Braemar is a thriving and diverse town, an important commercial and cultural centre and home to over 100,000 people living in more than 35,000 households. The population has grown by 12% over the last 11 years and is expected to continue to grow. Braemar Council provides a wide variety of services including public health, traffic, parking, schools, parks and animal management. �2017/18 was a challenging year for Braemar Council. National reductions in government grant funding, coupled with in-year service demands, led to a �2.2m budget deficit. Panels have been established to decide on the type of budget council should use that can provide more accurate and up to date financial information to assist decision making. �Your role is to write a report to the panel briefly explaining different types of budgets, which type of the budget you think is most suitable for the council and why?

Basic Accounting Terminology:

1. Assets: Assets are resources owned by a business that have monetary value and are expected to generate future economic benefits.

2. Liabilities: Liabilities are obligations of a business that are expected to require the use of assets to settle.

3. Equity: Equity is the residual interest in the assets of a business after deducting liabilities.

4. Revenue: Revenue is the income earned by a business from its normal operations.

5. Expenses: Expenses are the costs incurred by a business in earning its revenue.

6. Profit: Profit is the excess of revenue over expenses.

Techniques to Prepare and Analyse Published Financial Accounting Information:

1. Balance Sheet: A balance sheet is a statement of a business's financial position at a specific point in time. It shows the assets, liabilities, and equity of the business.

2. Income Statement: An income statement is a statement of a business's financial performance over a period of time. It shows the revenue, expenses, and profit or loss of the business.

3. Cash Flow Statement: A cash flow statement is a statement of a business's cash inflows and outflows over a period of time. It shows the sources and uses of cash.

4. Ratio Analysis: Ratio analysis is a technique used to analyze a business's financial performance by comparing different financial ratios. It can help to identify areas of strength and weakness in a business's financial position.

5. Trend Analysis: Trend analysis is a technique used to analyze a business's financial performance over time. It can help to identify patterns and trends in a business's financial data.

6. Common Size Analysis: Common size analysis is a technique used to compare financial data between different companies or different periods. It involves expressing financial data as a percentage of a common base, such as total revenue or total assets.