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Msfi 504:The Analysis Of Corporate Financial Information Question Paper
Msfi 504:The Analysis Of Corporate Financial Information
Course:Master Of Business Administration
Institution: Kenya Methodist University question papers
Exam Year:2011
KENYA METHODIST UNIVERSITY
SCHOOL OF BUSINESS AND MANAGEMENT
END OF SEMESTER EXAMINATION FOR MASTER IN BUSINESS ADMINISTRATION DECEMBER, 2011
UNIT CODE : MSFI 504
UNIT TITLE : THE ANALYSIS OF CORPORATE FINANCIAL
INFORMATION
TIME: 3 HOURS
INSTRUCTIONS:
Answer Question ONE and any other THREE questions
Question One
The following have been extracted from the recently published accounts of DG. Extracts from the income statements to 30 April
2009 2008
Sales 11,000 9,750
Less cost of sales 8,460 6,825
Net profit before tax 465 320
This is after changing:
Depreciation 360 280
Loan note interest 80 60
Interest on bank overdraft 15 9
Audit fees 12 10
Statement of financial position as at 30 April
2009 2008
Shs, 000 Shs, 000 Sh, 000 Sh, 000
Assets
Non- current assets 1,850 1,430
Inventory 640 490
Receivables 1,230 1080
Cash 80 120
1,950
Total assets 3,800 1,690
Equity and liabilities
Equity 3,120
Ordinary share capital
800
800
Retained earnings 1,310 2110 930
Non current liabilities
Bank overdraft 110 80
Payables 750 690
Taxation 30 890 20
3,800 1730
Total equity liabilities 790
3,120
The following ratios are those calculated for DG, based on published accounts for the previous year, and also the lated industry average ratios
DG industry
30 April Average
Rose (capital employed)
Equity and debentures
16.70% 18.50%
Profits/Sales 3.90% 4.78%
Asset turnover 4.29 3.91
Current ratio 2.00 1.90
Quick ratio 1.42 1.27
Gross profit margin 30.00% 35.23%
Accounts receivable collection
Period 40 days 52 days
Accounts payable payment
Period
37 days49 days
Inventory turnover (times) 13.90 18.30
Gearing 26.37% 32.71%
Required
Calculate comparable ratios (to two decimal places where appropriated) for DG for the year ended 30 April 2009. All calculations must be clearly shown
(15mks)
Write a report to your board to directors analyzing the performance of DG, comparing the results against the previous year and against the industry average
(10mks)
Question Two
The accountant of W LTD Company has prepared the following list of accounts balances as at 31.12.2007
(Sh, 000)
50 ordinary shares (fully paid) 450
10% debentures (secured) 200
Retained earnings 1.1.2007 242
General reserve 1.1.2007 171
Land and buildings 1.1.2007 430
Plant and machinery 1.1.2007 830
Accumulated depreciation
Building 1.1.2007 20
Plant and machinery 1.1.2007 222
Inventory 1.1.2007 190
Sales 2695
Purchases 2152
Ordinary divided 15
Debenture interest 254
Wages and salaries 31
Light and heat 113
Sundry expenses 135
Suspense account 135
Notes
Sundry expenses include sh. 9,000 paid in respect of insurance for the year ending 1st September 2008. Light and heat does not include an invoice of sh.3000 for electricity for the 3 months ending 2.1.2008 which are paid in February 2008. Light and heat also include sh. 20,000 relating to salesmen’s commission.
The suspense account is in respect of the following items
Proceeds from the issues of 100,000 ordinary shares 120
Proceeds form the sale of plant 310
420
Less consideration for the requisition of Mary & Co 285
135
The net asset of Mary and company was purchased on 3.3.2007 assets was valued as follows
Available for sale financial assets 231
Inventory 34
265
The entire inventory acquired was sold during 2007. The available for sale financial assets were still held by W LTD 31.12.2007. Good will has not been impaired in value
The property was acquired some years ago. The buildings element of the cost was estimated at sh. 100,000 and the estimated useful life of the assets was 50 years at the time of purchase. As at 31.12.2007 the property is to be revalued at sh, 800,000.
The plant which was sold had a cost of sh. 350,000 and had a net book value of sh. 274000 as on 1.1.2007 sh. 36,000 depreciation is to be charged on plant and machinery for 2007.
The management wish to provide for
Debenture interest due
A transfer to general reserve of sh. 16,000
Audit fees of sh. 4,000
Inventory as at 31.12.2007 was valued at sh. 220,000 (cost)
Taxation is to be ignored
Required
Prepare a publisheds account of the company for the year ending 31.12.2007
(25mks)
Question Three
Set out below are the financial statements of Emma company. You are the financial controller faced with the task of implementing IAS 7 statement of cash flows
Emma Company
INCOME STATEMENT FOR THE YEAR ENDED 31 DEC 2010
Sh. 000
Revenue 2,553
Cost of sales (1,814)
Gross profit 739
Other income: interest received 25
Distribution cost (125)
Administrative expenses (264)
Finance costs (75)
Profit before tax 300
Income tax expense (140)
Profit for the year 160
Emma Company
STATEMENT OF FINANCIAL POSITION AS AT 31 DEC
2010 2009
Assets 000 000
Non-Current Assets
Property, plant and machinery 380 350
Intangible assets 250 200
Investments - 25
Current assets
Inventories 150 102
Receivables 390 315
Short term investments 50 -
Cash in hand 2 1
Total assets 1,222 948
Equity and liabilities
Equity
Share capitals (sh. Ordinary shares) 200 150
Share premium account 160 150
Revaluation surplus 100 91
Retained earnings 260 180
Non-current liabilities
Long term loan 170 50
Current liabilities
Trade payables 127 119
Bank overdraft 85 98
Taxation 120 110
Total equity and liabilities 1,222 948
The following is available
The proceeds of the sale of non-current asset investments amounted to sh. 30,000
Fixtures and fittings, with an original cost of sh. 85,000 and a net book value of sh. 45,000 were sold for sh. 32,000 during the year
The following information relates to property plant and equipment
31.12.2010 31.12.2009
000 000
Cost 720 595
Accumulated depreciation 340 290
Net book value 380 305
50,000 sh. 1 ordinary shares were issued during the year at a premium of 20c per share
The short term investment close to maturity
Dividends of sh. 80,000 were paid during the year
Required
Prepare the cash flow statement for the company using indirect method according to IAS 7 (25 mks)
Question four
Explain the effects of not holding going concern convention on a set of published accounts
(10mks)
Explain in brief what IASB framework is trying to achieve and why (10mks)
State some to the reasons why the published accounts of companies need to be regulated
(5mks)
Question Five
State the five qualitative characteristics of financial state and explain them in brief (15mks)
Explain the concept of recognition and disclosure of items in financial statements, what are the conditions of recognition of such items (10mks)
Question Six
A business is facing legal proceedings which may result in a potential liability. At the time of producing the financial statements the realistic estimate can be made of the possible amount of any damages. How would the characteristics of relevance and reliability be applied to this situation
(15mks)
With suitable examples explain how the concept of accrual accounting assists in reporting the financial position and performance of the company
(10mks)
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