Insights on Company Annual Reports, Budgeting Methods, Financial Ratios, and Budgeting Process of a

Question 1

Discuss the contents of companies’ annual reports, the information requirements of various stakeholders and the structure of the following accounts:

• Income statement
• Statement of comprehensive income
• Statement of retained earnings
• Statement of financial position

You should also explain the flow of information between these accounts.

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Question 2

Discuss the characteristics of the following budgeting methods

• Fixed budgeting
• Flexible budgeting
• Incremental budgeting
• Zero-based budgeting

Evaluate the benefits and limitations of the budgeting process and explain how aspects of people behaviour may undermine the value of this process

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Question 3

B Star Ltd had the following ratios at 31 December 2020 and 31 December 2019:

1. Explain how each ratio in the table above is calculated
2. Give possible reasons why the gross profit margin has decreased from 2019 to 2020.
3. Give possible reasons why the return on assets has decreased from 2019 to 2020.
4. What explanations could there be for B Star Ltd to be paying its trade payable 4 days more quickly in 2020 than in 2019.
5. Explain what may have occurred to have led to the change in trade receivable days between 2019 and 2020.
6. Explain what may have occurred to have led to the change in inventory days between 2019 and 2020.

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Question 4

A mobile phone manufacturer, has the budget set out below for its product for the coming year:

Required:

1. Calculate the selling price, variable cost and contribution of each unit
2. Calculate the break-even point in units
3. What is the margin of safety in units and as a percentage (%)? 
4. How many mobile phones should be sold to achieve a target profit of £1,000,000?
5. The company has had an offer to utilize its spare capacity by making 500 new mobile phones for a price of £170 per unit. The directors intend to reject this offer as the price is well below the normal selling price. Advise the directors, with reasons, why the offer should rather be accepted.