14 Aug Introduction to Accounting Assessment 2
Introduction to Accounting Assessment 2
Information:
· The total marks available for this assignment is 100. The assessment is 70% of your overall module grade.
· The total word count for this assignment (not including figures, appendices and calculations) is 1500 (+ or- 10%). A breakdown of the count for each part of the report is given below as guidance.
· The deadline for submitting your assignment is Friday 7thDecember 2018 at 1155pm. Please upload to Study Direct
· Assignments received after that time will be subject to the rules for late submission
Submission Format Instructions
· Please ensure that all submissions includes the assignment title – in this case: Introduction to Accounting 2: Zhetong General Retailers
· All work should be word processed and typed in Arial font, 11 point with one and a half line spacing with a minimum of 2.5cm margin down both sides of the page.
· You are expected to show evidence of reading by including both in text reference and a reference list after end of the report.
Following these instructions is important as marks are awarded for presentation
Please note:5 marks are available for presentation and 5 for English
Assignment Brief:
Information about ….
Zhetong General Retailers has been operating as a sole trader in Brighton selling food and other household items the past 5 years. A local rival retailer, Ahan is has been operating successfully but due the retirement of the owner, the business is being sold.
Zhetong approaches you with the financial statements of Ahan. He wants you to advise him on whether he should buy the business based on its performance and financial position (Appendix 1). He also provides you with a set of information about Ahan forecasted cash flow for 2019 (Appendix 2).
In addition, there two other investment opportunities for Zhetong, that are given in appendix 3 that are available.
You are required to write a report to Zhetong advising him on the three options available to him as follows:
1. Assess Zhetong’s financial performance for the year ended 31stOctober 2018. To what extent should Zhetong rely on other information other than accounting ratios to assess the performance of Ahan business?
(800words)
2. Zhetong would like you to prepare Ahan’s cash flow forecast for 2019 using the information in appendix 2and explain to him the extent to which the ash flow forecast assist Zhetong to assess the decision to purchase Ahan’s business.
(350 words)
3. Perform an investment appraisal, using the payback period, accounting rat of return and net present value, of the two other options available to Zhetong and advise him of the best option he could take. Justify your advice.
(350 words)
Remember
All workings must be submitted as appendices and referenced in the report.
Additional information on the business provided in appendices below consists of:
1. Financial statements for year ending 31stOctober 2018
2. Planned cash movements for year ending 31stOctober 2019
3. Two potential expansion projects (Options)
Appendix 1: Financial statements for the end of the financial year (31stOctober 2018)
Statement of Comprehensive Income of Ahan as at 31stOctober 2018
Sales
519,740
Less Returns Inwards
11248
508,492
Less Cost of Sales
Opening Stock
31,308
Purchases
271,360
Less Returns Outwards
26,814
Carriage inwards
23,660
Less Closing Stock
35,500
264,014
Gross Profit
244,478
Discounts Received
3,500
247,978
Less Expenses
Salaries and wages
77,042
Rent, rates and insurances
38,836
Heating and lighting
24,740
Carriage out
9,124
Advertising
11,960
Postage, stationery and telephone
4,820
Bad debts
4,016
Allowance for doubtful debts
446
Discounts allowed
4,612
Depreciation
24,148
199,744
Net profit
48,234
Statement of Financial Position of Ahan at 31stOctober 2018
Non-current assets
Fixtures and fittings at cost
241,480
LessDepreciation to date
126,040
115,440
Current assets
Inventory
35,500
Accounts receivable
49,000
Less Allowance for doubtful debts
1470
47,530
Prepaid expenses
13,110
Bank
8,880
Cash
1068
106,088
221,528
Less Current Liabilities
Accounts payable
39,680
Expenses accrued
2,720
42,400
Net assets
179,128
Financed by:
Capital
167,774
Net Profit
48,234
Less Drawings
-36880
179,128
Appendix 2: Cash Flow Forecast information
· There is an opening balance on 31, October 2018 of £2000.
· Sales: Half of the sales are for cash, the other half are on one month’s credit.
October 2018: £14,000;
Sales in 2018/2019 are expected to be as follows November£14,500; December £15,000; January £16,000; February £17000; March £20,500; April £21,500; May £23,500; June £22,500; July £23,870; August £23,500; September £24,000; October £24,000.
· Returns were credited back to Ahan in December 2018 totalling £5624.
· In November 2018, Ahan will take a loan £5,000 from the bank to buy a new computer system. They intent to repay the loan over 5 months, starting in February 2019.
· Purchase are paid for in the month they are bought and are as follows: November £8,000; December £9,000; January £9,500; February £10,000; March £11,000; April £11,500; May £12,500; June £13,000; July £11,000; August £12,000; September £13,000; October £15,180
· Rent, rates and insurances £19,418 split evenly between 12 months.
· Delivery costs: November £750; December £800; January £950; February £950; March £1100; April £1200; May £1350; June £1450; July £1362; August £1500; September £2080; October £2900.
· Heating and Lighting: £12,370 split and payable during January, April, July and October.
· Advertising: November £220, December £300; January £420; February £350; March £350; April £400; May £450; June £500; July £600; August £700; September £800; October £890
· Postage, Stationery and telephone: November £100; December £120; January £150; February £160; March £180; April £200, May £220, June £220; July £220; August £280, September £280; October £280
· Ahan employs 2 part-time staff for 20 hours each per week; they are both will be paid the new living wage of £9 per hour.
· The owner of Ahan draws £1,000 per month for himself.
· Depreciation: £12,074 split equally between 12 months.
Appendix 3: Expansion Options
Zhetong has two possible investment opportunities that may help him expand his business other than buying Ahan:
Project A:Zhetong can open another shop in Croydon which is in South London, to establish its own brand name as a retailer. Start-up costs are likely to be around £500,000.
Project B:Develop a website and start to trade online. This would cost Zhetong an initial outlay of £120,000. If this becomes popular, further investment would be required to manage inventory, packing and delivery. This will result in no job losses and possible new jobs in the future.
The projects (investments) will have a projected life of 5 years (after initial set up).
Year
A
B
£
£
Investment
-500,000
-120,000
Return 1
150,000
120,000
2
270,000
90,000
3
350,000
80,000
4
450,000
60,000
5
500,000
50,000
Year
1
2
3
4
5
10% Discount Rate
0.9091
0.8264
0.7513
0.6830
0.6209
Total 100 marks
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