Jenkins Ltd reported that for the financial year ended June 30, 2020, depreciation expense was $78,000 and COGS was $847,000. They also reported a Loss on Sale of $25,000 on equipment which had a book value of $60,000.
Additionally their Balance Sheet at June 30, 2019 reported Inventory at $54,000, Plant and Equipment (net) of $627,000 and Accounts Payable of $29,000. The figures for June 30, 2020 were Inventory, $61,000, Plant and Equipment (net) at $710,000 and Accounts Payable $32,000.
1. How much cash was paid for inventory purchases during the year?
2. What was the cost of the new plant acquired?
(State any assumptions you make)
Question 2 (10 Marks)
Sales ($10 per unit) 160,000
Variable Costs 112,000
Contribution Margin 48,000
Fixed Costs (70,000)
Net Loss (22,000)
1. If Jasonco’s advertising increased by $9,000 and they wanted to achieve a Profit of $5,000, how much (in $) would their sales have to increase?
2. What would their Profit (or Loss) be if sales increased by 25% and fixed costs were reduced by 10%?
(Show all workings)
Question 3 (10 Marks)
This question has two unrelated parts
A. The following ratios are reproduced from Morningstar for four Australian companies in the same industry. Comment briefly on their performance from the point of view of a lender and make a ranking of their desirability as clients. (5 Marks)
Company A 30/06/2016 30/06/2017 30/06/2018 30/06/2019 30/06/2020
ROE 15.59 17.95 18.19 18.46 13.66
Inventory Turnover 4.83 5.12 4.71 4.84 5.62
Current Ratio 1.7 1.68 1.38 1.27 1.08
Quick Ratio 0.18 0.19 0.11 0.1 0.41
Gearing 2.14 2.07 2.21 2.18 2.8
ROE 19.83 9.31 11.11 -7.6 4.09
Inventory Turnover 8.12 8.55 7.62 7.16 11.58
Current Ratio 1.49 1.63 1.96 1.71 1.03
Quick Ratio 0.31 0.27 0.36 0.4 0.6
Gearing 1.7 1.62 1.54 1.8 2.95
ROE 13.42 16.31 13.61 13.01 13.98
Inventory Turnover 8.95 9.19 8.09 8.09 8.62
Current Ratio 1.26 1.5 1.59 1.62 1.65
Quick Ratio 1.01 1.07 1.17 1.18 1.15
Gearing 1.65 1.49 1.56 1.5 1.68
B. The following information is for ABC Ltd. for the last financial year
Current Ratio: 5
Quick Ratio: 1.8
Inventory Turnover: 7
Total Current Assets: $340,000
COGS = 80% of Sales
1. What were the total sales for the year? (3 Marks)
2. How many day’s sales were outstanding in Accounts Receivable? (2 Marks)
Question 4 (10 Marks)
Evaluate the project described below and advise the company as to whether or not they should undertake the investment. Show all working.
The initial investment in Plant and Equipment will be $175,000.
The equipment will be depreciated on a straight line basis over 5 years with no expected salvage value. The project will also require an initial investment in net working capital of $30,000 which the company will recover at the end of the 5 year period. Sales are forecast to be $220,000 each year, with cash operating expenses of $90,000. The company tax rate is 30%, and their weighted average cost of capital is 10%
Question 5 (10 Marks)
When the ASX first developed their set of recommended corporate governance guidelines they relied heavily on the input of CPA Australia, one of the two major professional Accounting bodies in Australia, the other being the Chartered Accountants of Australia and New Zealand.
Some events over the last few years have brought serious questions about its (CPA Australia) own governance. The CEO position was not advertised; Alex Malley was appointed in 2009. His initial salary was about $400,000. By the time he was dismissed in 2017 it was $1.8 million. The organization spent heavily promoting a book by Malley, endorsed by Ian McPhee, the previous Federal Auditor General who was appointed by the new CPA board to review the organization after Malley’s dismissal in 2017.The review committee endorsed the severance pay to Malley of $4.9 million without ever seeing a contract. The new board chair, Peter Wilson, has been quoted as saying that “not knowing” is an acceptable justification for poor corporate governance
Other issues: Malley and key board supporters changed the organization’s constitution to extend board term limits, introduced generous board fees to previously unpaid positions, removed the right of members to appoint and remove the board; held the annual meeting in Singapore with no access except a very poor streaming connection to its Australian members; setup a separate company to enter the financial advisory business with a loan from CPA Australia of $20 million; the leadership group then (illegally?) paid themselves second salaries to run this company. Where was ASIC in all this? Nowhere – maybe, just maybe, because the then chair of ASIC Greg Medcraft was at the launch of this advisory group, endorsing it.
Comment on this in the context of “good governance“ principles.
END OF EXAM
Let me get it checked by the expert
Sample – 2
Question 1 (10 Marks)
James Ltd. is planning to purchase a new forklift truck for moving materials within its factory. They are trying to decide between a truck which operates on gas and an electric version. The electric powered version will cost more initially but will be less expensive to operate. The cost of the electric truck will be $22,000, whereas the gas-powered truck will cost $17,500. The expected life of each truck will be 5 years, at which time they would have salvage values of $1,500 for gas and $2,000 for the electric model. The operating expenses for the trucks, including depreciation calculated on a straight line basis, are expected to be $9,290 per year for the gas power and $8,000 per year for the electric powered version.
1. Determine the relevant cash flows for each vehicle. (3 marks)
2. If the company’s weighted average cost of capital is 10%, determine the Net Present Value of each alternative and recommend which one the company should acquire. (7 marks)
Question 2 (10 Marks)
The following information about two retail firms is for the year ended June 30 2019
(a) Using the information provided in the table above, compare the performance of the two companies during the year ended 30 June 2019. (7 marks)
(b) Based on the information in the table, explain what drives the difference in return on equity (ROE) between the two companies? (3 marks)
Question 3 (10 Marks)
The Albo Company manufactures three products – X, Y and Z. Financial information concerning their manufacture and sale is:
X Y Z
Selling price per unit $200 $100 $50
Variable Costs per unit $100 $75 $25
Total fixed costs for rent and depreciation are $50,000 per month.
For the next month, Albo expects to sell the three products in the ratio of 20% Product X, 30% Product Y and 50% Product Z.
1. Determine the breakeven point for Scomo in units. (6 marks)
2. Determine the breakeven point in dollars. (4 marks)
Question 4. (10 marks)
From the information below, determine the Cash Flow from Operations for the year ended June 30 2019 for Smith Ltd.
Income Statement for year ended June 30, 2019
Sales Revenue 12,400
Less operating expenses
Depreciation 1,420 5,540
Net Income (Loss) -1,240
Other information: all sales and inventory purchases are on credit. The company paid cash dividends of $600 during the year.
Question 5 (10 marks)
The ASX recommendations on Corporate Governance emphasise director and board chair independence, generally interpreted to mean that they are neither executives of the firm nor significant shareholders or their representatives. There is another view – that directors with “no skin in the game” will not be as diligent in looking after shareholder’s interests as they would if they had a financial stake in the company’s success.
In 500 words or less, discuss the pros and cons of the ASX recommendation. (The word limit will be strictly enforced)