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EFIM10030

Accounting and Finance for Managers

Question 1

Figure 2 shows that as at 31.12.21 the total assets of Markham were £11,947k and the total equity plus liabilities were exactly the same. Clearly this is not a co-incidence. Explain why this is so.

(4 marks)

Question 2

a) Calculate the following ratios for both 2019 and 2021:

i) Gross Profit Margin for owned and non–owned sales (separately)

ii) Net Profit Margin (operating profit margin) for owned and non–owned sales (separately)

    (4 marks)

b) Briefly comment on your results obtained in answer to question 2a.     (4 marks)

Question 3

a) Calculate, for both 2019 and 2021: 

i) Current ratio

ii) Debt collection period (assume all sales are on credit)

iii) Creditor payment period

iv) Capital gearing

v) Interest cover (10 marks)                                

b) Comment on your results obtained in answer to Question 3a.

(8 marks)                                     

Question 4

In figure two, the value of the Brewkat brand appears as an intangible non-current asset, yet despite having three well-established real ales, the Markham brand itself does not appear. Explain why this might be so. (4 marks) 

Question 5

The Managing Director frequently refers to the two Master Brewers as ‘our greatest asset’ owing to their specialist knowledge, the various awards won, and their length of service with the company. Comment on this claim, from a financial accounting viewpoint. (4 marks)

Question 6

a) With regard to the “tunnel pasteuriser” mentioned in the notes to Figure 2, calculate the depreciation charge that will have been expensed to each of the Income Statements for 2019, 2020 and 2021 using:

i) The straight-line method

ii) The reducing balance method at a rate of 25% (calculate to the nearest £0.1k)

 Markham’s policy is to charge for a whole year of depreciation in the year of purchase.

(6 marks)

b) International Accounting Standard number 16 (‘IAS16’) states that an item of Property, Plant and Equipment “should be depreciated……over its useful life”. Explain two overall benefits of Accounting Standards such as IAS 16. (4 marks)   and depreciated so that its depreciable amount is allocated on a systematic basis over its useful life.

Question 7

Discuss and decide whether or not Markham should recognise a liability in its Statement of Financial Position as at 31^st December 2021, with regard to:

i) The legal fees of £10k charged by Willstones in preparing for the lawsuit

ii) The £50k compensation that may be due the customer who claims he was poisoned in the Green Dragon.

(8 marks)

Question 8

a) On the assumption that Markham has a cost of capital of 16%, calculate the Net Present Value (NPV) of each of the two shirt sponsorship proposals. (8 marks)

b) Calculate the forecasted accounting rate of return (on initial investment) of each shirt sponsorship deal. (2 Marks)

c) Comment on whether Markham should focus on either of the two shirt sponsorship proposals. What other information would help them to make a decision? (6 marks)

   Question 9

a) Produce a revised ‘flexed’ budget for the Grey Heron, and calculate the variances. All calculations should be to the nearest £k. (6 marks)

b) Suggest possible reasons for the variances. (4 marks)

Question 10

The case mentions that the Board considered closure and disposal of one (or even more) pubs.

Write advisory notes for the Board, indicating:

i) What is ‘break-even’ and why should it matter to a business?

ii) Under what circumstances should a pub (or any business unit) be closed and disposed of?

(4 marks each = 8 marks )

Question 11

Figure 2 shows that Markham has managed to maintain a cash balance of £42k despite all the problems created by the Pandemic during 2021.

a) Explain the difference between the ‘Baumol’ and the ‘Miller and Orr’ approaches to cash management (4 marks)

b) Discuss whether Markham should adopt the ‘Baumol’ model or the ‘Miller and Orr’ model in its approach to cash management:

i) In normal (i.e. non-pandemic) times (3 marks)

ii) In times when business is affected by a Pandemic  (3 marks)