EMBA J22 Revision & Practice Questions
EMBA J22 Revision & Practice Questions
Q1. Using the following data, prepare an Income Statement and Balance Sheet for the year ending 31/12/2021.
<Balance Sheet at 31/12/2020>
Cash 30 Accounts Payable 50
Accounts Receivable 65 Bank Loan 120
Inventory 40 Share Capital 145
Property, plant, equipment 255 Retained Profit 75
<Transactions and events during 2015>
Paid 50 in cash in full settlement of all accounts payable.
Paid 15 in cash to the bank, of which 10 is a capital repayment and 5 interest
Received 55 inventory on credit.
Received cash payment of 60 from customers in settlement of accounts receivable; the remaining balance of 5 will never be paid.
Acquired 30 of plant and equipment for cash.
Incurred depreciation of 25 on plant and equipment.
Recognised provision of 20 for product warranties.
Revenue of 135 is generated through the sale on credit of inventory with a book value of 40.
Stock options worth 10 are issued as a part of employees salary packages.
Inventory at year-end is valued at 50.
Tax for the year should be calculated at 20% of Profit Before Tax, which was not paid yet.
Dividends of 20 are proposed and paid during the year.
Q2. From the following financial statements, estimate the operating, investing and financing cash flows.
Balance Sheet million million
Year-end 2020 2021
Assets Cash and Bank 400 100
Accounts Receivables 120 80
Inventories 340 650
Total current assets 860 830
Property, plant, equipment 6,200 6,200
Accumulated depreciation 1400 1700
Net property, plant and equipment 4,800 4,500
Total assets 5,660 5,330
Liabilities Accounts Payables 250 200
Short-term debt 100 320
Current liabilities 350 520
Long-term debt 1200 1200
Common stock 3500 3500
Retained profit 610 110
Equity 4110 3610
Total liabilities and equity 5,660 5,330
Income Statement Year 2021
Sales 4,000
Cost of goods sold 2,500
Gross profit 1,500
Operating expenses 1,850
Operating loss 350
Interest expense 150
Loss before taxes 500
Taxes 0
Loss 500
Q3: Oxford Supercomputer Products (OSCP) Ltd. is a manufacturer of supercomputing equipment for everyday household use. The company was founded by a group of Oxford EMBA, engineering and computer science students. Among their products are a desktop supercomputer, a smart watch, and a high processing power tablet. OSCPs three founders have each invested 500k and the company also received a five-year loan of 500k from the universitys start-up accelerator programme with an interest rate of 10%. The entire loan balance is repayable at the end of the five years. Although the company designs its own products and conducts the R&D it has outsourced the manufacturing to third parties. The companys records of transactions and events for the first year are listed below. The company pays 20% tax on any profits in the following fiscal year (You can assume the company uses its financial accounts also for tax purposes)
During its first year of business, the transactions and events for OSCP are as follows:
1 Purchased machinery for product development on credit for 850k
2 Purchased finished product inventory on credit for 400k
3 Raised additional 300k in share capital
4 Paid the supplier in full for the machinery in transaction (1)
5 Paid employees 400k and paid rent for its offices for the next two years for 100k in total
6 Sold 200k worth of the finished product inventory for 1000k in cash
7 Purchased further product inventory on credit for 150k
8 Sold 200k worth of inventory for 1,000k (of which 400k was paid in cash and 600k was sold on credit)
9 Received an invoice of100k for utilities; this remains unpaid at year-end.
10 Received 800k in cash from customers, of which 350k is payment for the previously sold product in (8) and 450k is pre-paid from a customer for the design of a custom-made computer which has not yet been delivered and cost 200k in cash to build.
11 Recorded depreciation of 100k on machinery
12 Borrowed 200k from the bank
13 Paid 150k for maintenance of the machinery in cash
14 Was informed by their legal counsel that a former employee filed a lawsuit for unfair dismissal. Counsel estimated that it was probable that the company had to pay 150k to settle a legal case.
15 One of the co-founders decided to invest 500k of the companys savings into bitcoin derivatives betting that the price of bitcoin will go up.
16 The company acquires a 25% equity stake in one of its suppliers for 100k in cash.
17 The company provides a money back guarantee and warranty on its products. It estimates that on average 5% of the customers will return the product for a replacement or require their money back. This is estimated to cost the company 100k.
18 The company realised that the bitcoin derivatives it had invested in lost 80% of their value. It is still holding the derivatives which expire in 2 years.
Read the transactions carefully and prepare the opening and closing Balance Sheet, Cash Flow Statement & Income Statement for the first year.
What would be the effect on OSCPs net income and its operating cash flow at year-end if the following happened? (You do not need to prepare new accounts, just explain the impact of the following changes)
The company was told by the auditors that some of their inventory had been stolen, and the inventory count suggested that the value of the remaining inventory was 50k instead of 150k.
The company settled the legal complaint with the employee for 100k in cash.
Instead of buying 500k in bitcoin derivatives, the company had bought 500k in bitcoin accounted for as intangible asset and experienced the same value loss at year end as before.
