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1. Evaluate the financial performance of an organisation using financial and narrative information



1. Evaluate the financial performance of an organisation using financial and narrative information

Learning Outcomes:

  1. Evaluate the financial performance of an organisation using financial and narrative information.
  2. Apply appropriate costing and budgeting techniques to assist in making management decisions.
  3. Evaluate investment projects using various appropriate techniques.

Question 1

Morrisons Plc. is a British grocery and general merchandise retailer. The company’s financial statements for the period 2011-2015 are presented below.

Required:

Prepare a business report for Morrisons’s board of directors analysing the company’s financial performance between the periods 2011-2015. Your report should utilise key ratios, horizontal and vertical analysis and make reference to relevant developments within Morrisons Plc.                                                     

                                                                                                            Total Marks (50)

Morrisons Plc.

Group Income Statement

 

2015

2014

2013

2012

2011

 

£m

£m

£m

£m

£m

Revenue

16816

17,680

18116

17,663

16,479

Cost of sales

(16,055)

(16,606)

(16,910)

(16,446)

(15,331)

Gross profit

761

1,074

1,206

1,217

1,128

Other operating income

78

81

80

86

80

Administrative expenses

(1,670)

(1,259)

(336)

(329)

(323)

Profit on disposal and sale of businesses

135

9

(1)

(1)

(1)

Operating profit/(loss)

(696)

(95)

949

973

904

Finance costs

(105)

(87)

(75)

(47)

(43)

Finance income

7

5

5

21

13

Share of profit of joint venture

2

1

   

 

Profit/(loss) before taxation

(792)

(176)

879

947

874

Taxation

31

(62)

(232)

(257)

(242)

Profit/(loss) for the period

(761)

(238)

647

690

632

 

Morrisons Plc

Balance Sheets

 

2015

2014

2013

2012

2011

 

£m

£m

£m

£m

£m

Assets

 

     

 

Non-current assets

 

     

 

Goodwill and intangible assets

520

458

415

303

184

Property, plant and equipment

7,252

8,625

8,616

7,943

7,557

Investment property

68

119

123

259

229

Net pension asset

4

0

0

0

38

Investments

31

31

31

31

0

Other financial assets

0

0

0

1

3

Investment in joint venture

68

66

0

0

0

Total non-current assets

7943

9299

9185

8537

8011

 

 

     

 

Current assets

 

     

 

Stock

658

852

781

759

638

Debtors

239

316

291

320

268

Derivative financial assets

6

1

5

2

4

Cash and cash equivalents

241

261

265

241

228

Non-current assets classified as held-for-sale

84

0

0

0

0

Total current assets

1228

1430

1342

1322

1138

Total Assets

9171

10729

10527

9859

9149

 

 

 

 

 

 

Liabilities

 

     

 

Current liabilities

 

     

 

Creditors

2,221

2,272

2,130

2,025

1,914

Short term borrowings

11

553

0

0

0

Derivative financial liabilities

18

10

55

115

0

Current tax liabilities

23

38

149

163

172

Total current liabilities

2,273

2,873

2,334

2,303

2,086

 

 

     

 

Non-current liabilities

 

     

 

Borrowings

2,508

2,480

0

0

0

Derivative financial liabilities

50

36

0

0

0

Other financial liabilities

0

0

2396

1600

1052

Deferred tax liabilities

415

430

471

464

499

Net pension liabilities

43

11

20

11

0

Provisions

288

207

76

84

92

Total non-current liabilities

3,304

3,164

2,963

2,159

1,643

Total liabilities

5,577

6,037

5,297

4,462

3,729

 

 

     

 

Shareholders’ equity

 

     

 

Share capital

234

234

235

253

266

Share premium

127

127

107

107

107

Capital redemption reserve

39

39

37

19

6

Merger reserve

2,578

2,578

2,578

2,578

2,578

Retained earnings and hedging reserve

616

1,714

2,273

2,440

2,463

Total shareholders` equity 

3,594

4,692

5,230

5,397

5,420

Total shareholders` equity and liabilities

9,171

10,729

10,527

9,859

9,149

 

 

2015

2014

2013

2012

2011

 
 

Share Price (Morrison)

174.5

179.9

239.9

251.0

286.0

 

FTSE100

6960.6

6598.4

6430.1

5737.8

6069.9

 

 

Question 2

KLC limited makes two products, J678 and J432. The following data is relevant for the year.

                        Material prices
                       
Material X                  £3.00 per unit
                        Material Y                  £5.00 per unit

                        Material Z                  £4.00 per unit

Direct labour cost is at £8.00 per hour.

The manufacturing overhead are estimated to be £350,000 for the period which includes £50,000 for depreciation of machinery, equipment and building. These overhead costs are absorbed into product costs using a direct labour hour absorption rate.

                        Each unit of finished product requires
                       
Material X                  15 units for J678                  10 units for J432
                        Material Y                  10 units for J678                  12 units for J432

                        Material Z                  5 units for J678                   3 units for J432
                        Direct labour             8 hours for J678                  15 hours for J432

The sales director has forecast that sales of J678 and J432 will be 8,000 and 3,000 units respectively during the year. The selling prices will be £250 per unit of J678 and £230 per unit of J432.

She estimates that the stock at 1 January will be 750 units of J678 and 300 units of J432. At the end of the year she requires the stock level to be 450 units of each product.

The production director estimates that the raw material stocks on 1 January will be 3,000 units of Material X, 4,000 units of Material Y and 1000 units of Material Z. At the end of the year the stocks of these raw materials will be 4,000 units of Material X, 2,000 units of Material Y and 1500 units of Material Z.

Required:

  1. a.    Prepare the following budgets:
  2. Sales budget (in £s and units).
  3. Quantity production budget (in units).
  4. Material usage budget (in units).
  5. Material purchase budget (in units).
  6. Production cost budget (in £s).                                                     (15 Marks)
  7. b.    Prepare a Marginal Costing Income Statement for KLC Limited (assume that the manufacturing overhead costs are all fixed).       (10 Marks)
  8. c.    Whether KLC should drop product J432? Explain.              (5 Marks)

                                                                                     Total Marks (30)

Question 3

Over the last few decades, businesses across the globe have become more concerned with increasing their power to improve social and environmental conditions. This has also become a priority for policy makers and other stakeholders and is at the core of the corporate social responsibility movement.

Critically discuss how producing CSR enhances corporate accountability, transparency and sustainability and the role of accounting and financial reporting in this process.  Construct your answer within an appropriate CSR theoretical framework.                                                                                             Total Marks  (20)


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  • Title: 1. Evaluate the financial performance of an organisation using financial and narrative information
  • Price: £ 36
  • Post Date: 2018-11-09T12:06:24+00:00
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