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The Statement Of Financial Position As At 31st December 2016 For Soze Limited: Accounting For Managers Assignments, UCD, Ireland

University Dublin City University (DCU)
Subject Accounting For Managers

Question One

The statement of financial position as of 31st December 2016 for Soze Limited is presented below:

Soze Limited
Statement of Financial Position
As of 31st December 2016
ASSETS
Non-Current Assets
Land 120,000
Property, Plant & Equipment 100,000
Cost 500,000
Accumulated Depreciation (400,000)
Current Assets
Cash & Bank 325,000
Accounts Receivable 50,000
Inventory 35,000
Prepayments                   3,000  
413,000
TOTAL ASSETS               633,000  
EQUITY & LIABILITIES
Equity
Share Capital 100,000
Retained Profit                 33,000  
133,000
Non-Current Liabilities
Bank Loan 400,000
Current Liabilities
Trade Payables 60,000
Accruals                 40,000  
100,000
TOTAL EQUITY & LIABILITIES               633,000  

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During the year ended 31st December 2017, the following transactions occurred within Soze Limited’s business:

  • Unpaid wages that were outstanding and accrued at the end of the prior year of €40,000 were paid on the 3rd January 2017.
  • Equipment was purchased for €200,000.
  • The business generated sales revenue of €80,000. Of these sales, €60,000 were cash sales and €20,000 were credit sales. The inventory sold cost Soze Limited €20,000.
  • A debtor, X Ltd, who owed the company €5,000, went into liquidation. The company was informed that it will not receive the outstanding
  • Cash was received from debtors as payment against their accounts of €10,000.
  • €30,000 worth of inventory was purchased on credit from a
  • Soze Limited approved and paid a dividend of €10,000.
  • A prepayment of €3,000 was recognized at the end of the previous financial year about electricity. The company paid bills totaling €8,000 during the 2017 financial year. In addition, a €2,000 electricity bill was outstanding at the end of the.
  • The company depreciates all property, plant, and equipment at the end of the year at a depreciation rate of 5% on cost, using the straight-line method. It is the company’s policy to charge a full year of depreciation on any property, plant, and equipment acquired during the.

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Question Two

 You have recently been appointed the sales manager at Amazing Smoothie Ltd, a company which manufactures natural fruit smoothies. Amazing Smoothie Limited has a major customer, Dublin Fruit Stores Limited, which accounts for approximately 30% of Amazing Smoothie’s total sales revenue each year. Historically, Dublin Fruit Stores has paid for its purchases from Amazing Smoothie Ltd with cash. However, the company has requested a 60-day credit facility for all future purchases. You are provided with financial information for Dublin Fruit Stores Limited for the last three financial years below:

Dublin Fruit Stores Limited
Income Statement
For the year ended 31st December… 2017 2016 2015
€ ‘000 € ‘000 € ‘000
Sales Revenue 925 850 820
Cost of Sales -444 -480 -410
Gross Profit 481 370 410
Operating Expenses -210 -180 -200
Operating Profit 271 190 210
Interest Expense -126 -84 -40
Profit Before Tax 145 106 170
Taxation Expense -14 -12 -22
Profit After Tax 131 94 148

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Dublin Fruit Stores Limited
Statement of Financial Position
As of 31st December… 2017 2016 2015
ASSETS € ‘000 € ‘000 € ‘000
Non-Current Assets
Land & Buildings 840 680 500
Intangible Assets 646 593 600
Property, Plant & Equipment 1,200 1,200 1,000
2,686 2,473 2,100
Current Assets
Cash & Bank 20 80 120
Accounts Receivable 350 240 130
Inventory 150 100 80
Prepayments 2 5 3
522 425 333
TOTAL ASSETS 3,208 2,898 2,433

 

EQUITY & LIABILITIES 2017 2016 2015
Equity € ‘000 € ‘000 € ‘000
Share Capital 1,000 1,000 1,000
Retained Profit 603 572 568
1,603 1,572 1,568
Non-Current Liabilities
Bank Loan 1,400 1200 800
Current Liabilities
Trade Payables 200 120 60
Accruals 5 6 5
205 126 65
TOTAL EQUITY & LIABILITIES 3,208 2,898 2,433

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Dublin Fruit Stores Limited – additional information:
2017 2016 2015
Number of shares in issue 1,000,000 1,000,000 1,000,000
Market price per share € 3.50 € 3.75 € 4.50
Dividends approved & paid € 100,000 € 90,000 € 80,000

Question Three Part I

A management accountant at X Ltd has provided you with a forecast profit statement for the 2019 financial year for a proposed new division of the company:

Sales revenue 900,000
Less: variable costs
Manufacturing -200,000
Selling -50,000
Less: fixed costs
Manufacturing -500,000
Selling -20,000
Administration -100,000
Operating profit       30,000  

The above forecast is based on estimated sales of 100,000 units.

  • Explain the difference between a variable and a fixed
  • Calculate the new division’s estimated break-even point in
  • Calculate the number of units that must be sold by the new division to achieve an operating profit target of €50,000.

Part II

Using Watts and Zimmerman’s (1978)’s Positive Accounting Theory, explain why managers may engage in earnings management practices.

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Question Four

 You are a team manager at BizzMedia Ltd. BizzMedia operates a social media website. The company was formed two years ago and has experienced significant and rapid growth. The website currently has over 20 million active users.

The company employs 30 people. Most of the employees are programmers who work in small teams of three. The teams of programmers are responsible for developing new applications which will potentially monetize the BizzMedia site. Half of the programmers have worked for BizzMedia since the company was created.

A new financial controller has recently been appointed at BizzMedia. The financial controller previously worked as an accountant for a large and successful manufacturing company. The controller has expressed concerns about the company’s lack of financial controls and is insisting the company implements a budget to help control costs and motivate its staff.

  • Drawing on your understanding of budgeting, what behavioral effects may arise from the implementation of budgetary control at BizzMedia?
  • Drawing on your understanding of budgeting, discuss the appropriateness of budgeting.

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