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This coursework carries 40% of the total of 100% for this module. (The final examination carries 60%). This is an individual piece of coursework and not a group assignment. There are three components. You must answer all three components. The word limit is 2500 words (+/-10% excluding references)


You must submit an electronic copy of your coursework to QMplus by 23.59 Monday 06th of January 2014.

For identification purposes you must enter your student identification number (ID) at the front of your electronic coursework submission. Ensure that you enter your student ID on each page of your submitted coursework in the top right hand corner (in the header) on the electronic submission.


Queen Limited operates a computer company. The financial statements for Queen Ltd for the two years ended 30 June 2011 and 2012 are: Income statement for the years ended 30 June
2011 000 Sales revenue Cost of sales Gross profit Wages and salaries Overheads Depreciation Operating profit Interest payable Profit before taxation Taxation Profit for the year 2,600 (1,560) 1,040 (320) (260) (150) 310 (50) 260 (105) 155 2012 000 3,500 (2,350) 1,150 (350) (200) (250) 350 (50) 300 (125) 175

Statement of financial position as at 30 June

ASSETS Non-current assets Property, plant and equipment Current assets Inventories Trade receivables Cash at bank 250 105 380 735 Total assets EQUITY AND LIABILITIES Equity Share capital: 1 shares fully paid 490 490 2,000 400 145 115 660 2,185 1,265 1,525 000


Share premium Retained earnings Non-current liabilities Borrowings 10% loan notes Current liabilities Trade payables Other payables

260 350 1,100 500

260 450 1,200 500

300 100 400

375 110 485 2,185

Total equity and liabilities


Dividends were paid on ordinary shares of 65,000 and 75,000 for 2011 and 2012 respectively. The business wishes to invest in more machinery and equipment in order to cope with an upsurge in demand for its services. An additional operating profit of 127,500 a year is expected if 600,000 is invested in more machinery. The directors are considering an offer from a private equity company to finance the expansion programme. The finance will be made available immediately through either: 1. An issue of 1 ordinary shares at a premium of 3 a share; or 2. An issue of 600.000 loan notes at nominal value 10 per cent The directors wish to maintain the same dividend payout ratio in future years as in 2012 whichever method of finance is chosen.

Prepare a report addressed to the CEO of the company explaining the current situation of the company and analyzing any future decisions. Please include all the calculations in your reports. (The calculations can be presented at the main part of your report or in appendices). Please round your answers to the nearest 2 decimal places for the ratios. In your report, please comment on the following aspects: Part A (30 marks)


Calculate the ratios that would be helpful in assessing the performance of Queen Ltd. Use end-ofyear values and calculate ratios for both 2011 and 2012. The following ratios need to be calculated: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. ROCE ROSF Gross Profit Margin Operating Profit Margin Current Ratio Acid Test Ratio Trade receivables settlement period Trade payables settlement period Inventories turnover period Gearing Ratio

(10 marks) II. Using the ratios calculated in (a) and any other information you consider helpful (i.e. cash flow statement), comment on the businesss performance from the viewpoint of a prospective purchaser of a majority of shares. (10 marks) Identify and discuss any significant factors that are not included in your answer above and which should be taken into account before a final decision is made. (10 marks)


Part B (30 marks) I. For each of the financing schemes: Prepare a projected income statement for next year. Assume the following: The sales and the cost of sales will be increased by 25% and

The expenses (i.e. wages and salaries, overheads and depreciation) will increase by 20% compared to 2012 and Tax expense for the period is calculated as at 40% of the profit before taxation for the year

(10 marks) II. For each of the financing schemes calculate the projected earnings per share for next year (5 marks) For each of the financing schemes calculate the projected level of gearing as at the end of next year (5 marks) Briefly assess both of the financing schemes under consideration from the viewpoint of the existing shareholders. (10 marks)



Part C (40 marks) I. The CEO of the company believes that the company should incorporate fair value accounting from next year while preparing and presenting its financial statements. In contrast, the chief accountant believes that this decision will have a negative effect on the informational value of the statements. The CEO is asking your opinion on this issue. (20 marks) II. At the moment, the company is using the Return On Investment (ROI) as a measure of financial performance. Comment on its efficiency and suggest any alternative performance measurement systems that could help the company assess its future performance. (20 marks)