EMBA S22 Accounting Assignment

QUESTION 1

Oxford SuperMaterials (OSM) Ltd. researches, develops, and produces compound materials for industrial use. The company was founded by a group of Oxford EMBA, engineering, and material science students. Among their products are superconducting materials, foldable displays, and powerful new magnets for use in portable fusion reactors. OSM’s three founders have each invested £500k and the company also received a five-year loan of £500k from the university’s 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 company’s 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.)

1. Read the transactions carefully and prepare the opening and closing Balance Sheet, Cash Flow Statement & Income Statement for the first year. [40 marks]
2. What would be the effect on OSM’s net income and its operating cash flow at year-end if the following happened in the first year? (You do not need to prepare new accounts, just explain the impact of the following changes.) [10 marks]
   1. 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.
   2. The company settled the legal complaint with the employee for £100k in cash.

QUESTION 2:

ABC Inc. is a retailer of household goods and furniture. Carefully go through the financial statements of ABC Inc. and the information on ABC’s competitors provided in the spreadsheet and answer the following questions:

1. Using financial and accounting ratios, evaluate the financial position and financial performance of ABC. How well is the company doing in 2022 compared to its peers? Make sure to show calculations of the ratios and to explain in one or two sentences how to interpret the numbers. [35 marks]
2. Estimate the company’s operating cash flows for 2022 using information available from the income statement and balance sheets. [15 marks]

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