MASTERS DEGREE PROGRAMME IN BUSINESS ADMINISTRATION

Module: Financial Management and Accounting (MBA51)

Academic Year: 2016-17
1st Written Assignment (WA1)

Subject 1 (25%)
Assume the following information concerning the commercial enterprise ABD as at 31 December
2015 (in ):
Cash
Accounts receivable
Land

5,000
42,000
100,000

Building

200,000

Office equipment

240,000

Merchandise

30,000

Suppliers

35,000

Interest payable

6,000

Long-term loan

210,000

Equity

100,000

Profit carried forward (as at 31/12)

Dividends paid
Sales
Wages
Selling expenses
Other operational expenses
Interest expenses

80,000
19,800
792,000
44,100
123,000
42,100
6,000

In addition, take into consideration the following information:

1. The opening inventory of merchandise was 27,500 and the purchases of merchandise
during 2015 were 475,000.
2. The balance of Accumulated-depreciation Buildings as at 31/12/2014 was 42,000.
3. The balance of Accumulated-depreciation office equipment as at 31/12/2014 was
59,500.
4. An analysis of firms accounts receivable indicates that uncollectible accounts amount to
3,000.
5. The firm applies the straight-line depreciation method. The useful life of the building is 40
years while its salvage value equals to zero. The useful life of the office equipment is 15
years and its residual value is estimated to 15,000.
6. The accrued salaries as at 31/12/2015 totaled the amount of 50,100.
Required:
A. Prepare the balance sheet and the income statement for the year 2015 by taking into account
that the firms tax rate was 40% and the result was carried forward. (15%)

MASTERS DEGREE PROGRAMME IN BUSINESS ADMINISTRATION

B.
1. The credit manager of ABD estimates that an amount of 10,000 owned by customer B is
uncollectible due to customers bankruptcy. How should the claims against customer B be
reported in the financial statements of ABD? Explain your answer. (word limit: 150) (5%)
2. ABD is facing a legal claim for 100,000. The legal advisors of ABD estimate that the firm
will have to pay as compensation the amount of 50,000. How should the legal claim be
reported in the financial statements of ABD? Explain your answer. (word limit: 150) (5%)

Subject 2 (25%)
A. Company ABC on September 2016 had the following transactions on its inventories:
DATE
01/09
04/09
08/09
12/09
19/09
22/09
24/09
27/09
29/09

TRANSACTION
Beginning Inventory
Purchase
Sale
Purchase
Purchase
Sale
Purchase
Sale
Purchase

UNITS

PRICE PER
UNIT ()

60
70
95
65
40
105
80
25
40

15.00
17.50
16.00
19.50
21.50
18.50
17.50
15.00
22.00

On the basis of the above information calculate the value of the Inventory on hand on September
30, 2016 and the cost of Goods Sold during the month assuming that the firm adopts the following
inventory cost flow methods:
i)

First-in, first-out (FIFO) Periodic Inventor System and FIFO Perpetual Inventory
System, (7.5%)

ii)

Last-in, First-out (LIFO) Periodic Inventor System and LIFO Perpetual Inventory
System. (7.5%)

B. Financial Accounting Standards Board (FASB) and International Accounting Standards Board
hold different positions regarding the appropriateness of LIFO as an inventory cost-flow method.
International Financial Reporting Standards do not allow the use of LIFO formula to measure the
cost of inventories. On the other hand, FASB allows the use of LIFO formula. Discuss the main
advantages and shortcomings of the LIFO method and explain the reasons that may prompt a firm
to choose FIFO over LIFO as an inventory cost-flow method. (word limit: 350) (10%)

Subject 3 (25%)
ABC, Co., reported the following intangible assets book values on December 31, 2015, the end of
the annual reporting period:
License
120,000
Product-patent
48,000
Below are presented transactions that took place in 2016 and other information relating to
elements of the financial statements of ABC:
a. ABC purchased the license on July 1, 2012 for 120,000. The license has an initial term of
6 years. However, by paying a nominal fee, ABC can renew the license indefinitely for
2

MASTERS DEGREE PROGRAMME IN BUSINESS ADMINISTRATION

successive 6-years terms. ABC considers that there is no limit on the period of time over
which the license will generate economic benefits for the firm.
b. The product-patent was purchased from company ZXC on January 2, 2010 by paying
120,000. At the date of the acquisition the remaining legal life of the patent was 10 years.
On January 2, 2016 ABC determined that the remaining useful life of the product-patent
was 8 years from the date of its acquisition.
c. During the year ABC spent 30,000 in research and development costs for a new
process-patent. The economic viability of the project was established on October 1. Until
that date ABC had spent 25,000 in research costs. The costs incurred after 1 October
has been considered as development costs. On October 1, ABC estimates that the new
patent will generate economic benefits for the next 5 years, while the legal life of the
patent is 10 years.
d. On May 1, 2016 ABC purchased a trademark from company DEF. At the same date ABC
entered in a non-competition agreement with company DEF, relating with the purchase of
the trademark. In particular, ABC paid DEF 100,000, of which 75% related to the
trademark while 25% reflected DEF agreement not to compete for a period of 6 years in
the line of business covered by the trademark. ABC considered that the trademark will
generate economic benefits for 12 years from the date of the acquisition. The legal life of
the trademark is 10 years. At the end of this period ABC can renew the trademark by
paying an amount that is considered significant.
e. On December 31, 2016, purchased company KM by paying 300,000 in cash. At
December 31, 2016, the balance sheet of KM was as follows:
Land
Buildings (net)
Trademarks
Inventory
Accounts receivables
Cash

100,000
85,000
25,000
78,000
124,000
65,000
477,000

Equity
Long-term liabilities
Accounts payable

200,000
177,000
100,000

477,000

The recorded amounts all approximate fair values, with the following exceptions:
Land, fair value 115,000
Inventory, fair value 82,000
Accounts payable, fair value 103,000
Required
A. Prepare the intangible assets section of the balance sheet for ABC on December 31, 2016.
Provide a detailed presentation of the required calculations and explain your answer. Assume that:
-the fiscal year of ABC, Co., commences on January 1 and ends on December 31 of each year.
- ABC adopts the straight-line method for the amortization of its intangible non-current assets.
(18%)
B. Provide a definition of goodwill and explain the way is treated for financial reporting purposes.
(word limit: 250) (7%)

MASTERS DEGREE PROGRAMME IN BUSINESS ADMINISTRATION

Subject 4 (25%)
Firm ABC reported the following accounts balances on December 2016 31, before adjustment:
Bank deposits
Prepaid insurance

8,000
800

Office equipment

5,000

Accumulated depreciation, office equipment

2,500

Unearned revenues

6,000

Wages expenses

3,000

Notes payable

3,000

Services Revenues

4,000

Accounts receivable

1,200

Equity

The following information is also available:

a. Wages of 300 are accrued at December 31, 2016.
b. Revenues from services provided in December 2016 but not yet billed on December 31
amounted to 3,000
c.

Depreciation for the month of December totaled 400.

d. Insurance that expired during December amounted to 160.

e. The accrued interest on deposits in December amounted 20.
f.

The accrued interest on notes payable in December amounted to 180.

g. Revenues earned in December for services provided that were paid in advance totaled
230.
Required
A.
1. Journalize the adjusting entries on December 31, 2016.
2. Determine the amount of equity of ABC on December 31, 2016 after the adjustment.
Provide a detail presentation of the required calculations. Assume that the fiscal year of ABC, Co.,
commences on January 1 and ends on December 31 of each year, while income tax rate is 20%.
(18%)
B. Going concern is one of the fundamental concepts of Financial Accounting. Explain the goingconcern assumption and discuss its implications for financial reporting. (word limit: 200). (7%)

MASTERS DEGREE PROGRAMME IN BUSINESS ADMINISTRATION

Learning Outcomes (objectives)
(Subject 1)
Students should be able to prepare financial statements. In addition, they should exhibit a through
understanding of fundamental financial accounting principles, such as true and fair view and
conservatism principle.
(Subject 2)
Students should exhibit a thorough understanding of accounting for inventories. In particular, they
should be able to calculate cost of goods sold and closing inventory under various inventory costflow methods. In addition, they should explain the advantages and the limitations of various
inventory cost-flow methods
(Subject 3)
Students should exhibit a thorough understanding of accounting for intangible assets. In particular,
they should be able to identify and measure intangible assets at their initial recognition. In addition
they should be able to measure intangible assets subsequently to their initial recognition.
(Subject 4)
Students should exhibit an understanding of the recording process. In addition, they should exhibit
a thorough understanding of the fundamental financial accounting principle of going concern.

MASTERS DEGREE PROGRAMME IN BUSINESS ADMINISTRATION

Assignment guidelines

It is important that the coursework reflects your knowledge rather than it being simply an
accumulation of information.

The assignment should be well structured and easy to read.

The assignment should clearly present all aspects and perspectives of the subject area, i.e.:
o

efficiently develop all necessary elements

refer to actual case studies or statistics if required

present reasonable argumentation

omit irrelevant material

All questions are compulsory. The assignment, including possible diagrams, tables,
references etc., should not exceed n/a words. For every additional n/a words there will be a
penalty of n/a points.

Each question accounts for a percentage of the total mark. This is clearly marked at the
beginning of each question.

The assignment is due on Tuesday 15/11/2016. Please note that no assignment will be
acceptable after this date as the electronic submission system automatically locks at
23:59 on the last day of submission.
You should submit your assignment via http://study.eap.gr using your username and
password.

You may use any of the following file formats:

o

Rich Text Format (*.rtf)

Microsoft Word 97-2003 (*.doc)

Microsoft Word Open XML (*.docx)

Other document formats or read only file formats such as Portable Document Format (*.pdf)
are not acceptable formats for the submission of your assignment.

Please use the template offered by the MBA Programme and pay attention to the proper
naming of your assignment. The file should be named as follows: Surname-InitialWAnumber-YourClass. For example, if your name is Peter Drucker, you are sending in
your 3rd assignment, and you are in ATH1 Class, then you should name your file as follows:
Drucker-P-WA3-ATH1. Assignments that fail to comply with this requirement will receive a
lower mark in the presentation grade.

Copying is considered cheating and is not acceptable in any form. Copying large parts or
whole paragraphs of text found in any of the sources used for an assignment (printed
books, academic articles, or electronic media of any kind) is totally unacceptable. It is
considered plagiarism and leads to a severe penalty for the student(s) involved.
Students should cite all sources from which they take data, ideas or words, whether quoted
directly or paraphrased.
Good luck!!