PRIFYSGOL CYMRU: UNIVERSITY OF WALES DEGREE EXAMINATIONS 2009 ARHOLIADAU GRADD 2009 University of Wales, Newport Prifysgol Cymru,

Casnewydd MMS BUSINESS ADMINISTRATION FINANCIAL ANALYSIS Paper Code Date Time Time Allowed : G106653 : Thursday 21 May, 2009 : 2.00pm - 4.30pm : 2 HOURS

Instructions to Candidate:

Both questions must be answered.

Turn over

Question 1 Eco Limited is a leading supplier of office furniture across Wales. The company is also listed on the UKs Alternative investment market. The Company has a board of directors which is made up of three executive directors and four non-executive directors. It also has two sub-committees, which are the audit committee and nomination committee. The Audit committee is made up of three non-executive directors whilst the nomination committee is made up the two executive directors and one non-executive director. Currently, Dr Indigo, who is both the chairman and chief executive officer, is responsible for setting up the remuneration packages for all the directors. The directors are planning to bid for a contract amounting to 4million for the provision of furniture in hospitals across Wales for next five years. However the directors are worried about the liquidity position of the company as this might affect the success of getting a contract. You are the management trainee at the company and the directors have asked you to assist them in putting together the bid proposal. The directors have provided you with the following financial information:
INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2009 '000 Revenue 8,000 Cost of Sales (4,500) Gross Profit 3,500 Adminstration expenses (700) Selling and distribution expense (300) Operating profit 2,500 Interest expense (14) Profit before taxation 2,486 Tax expense (800) Retained profit for the year 1,686

Question 1 continued
STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 MARCH 2009 2009 '000 8,100 2008 '000 6,800

Non-current Assets Current Assets Inventories Receivables Bank Total Assets Current liabilities Trade payables Dividend payable Taxation

800 670 80 1,550 9,650

600 620 300 1,520 8,320

(420) (400) (635) (1,455)

(340) (360) (595) (1,295)

Non-current liabilities Loan Total liabilities Net Assets Equity Share capital Share premium Retained earnings

(1,200) (1,200) (2,655) 6,995

(1,400) (1,400) (2,695) 5,625

1,100 509 5,386 6,995

1,000 225 4,400 5,625

Additional notes: 1. Administration expenses include 290,000 which is depreciation of non current assets during the year. 2. The company sold an asset which had a net book value of 310,000 for 80,000. 3. During the year the entity acquired non-current assets costing 1,900,000. 4. A dividend of 700,000 was declared during the year.

Question 1 continued Required Preparation of report addressed to the board of directors which includes the following: (a) Statement of Cashflows and its evaluation; (30%) (b) A critical assessment of the companys working capital management and; (10%) (c) An evaluation of the companys compliance with the combined code of corporate governance. (10%) Total 50%

Question 2 Glow Limited is a company that manufactures watches and wall clocks in Swansea. The company has been in operation for six months. Currently the company does not have a proper budgetary system in place. The owners of the company, George and David have asked you to help them in setting up and implementing a robust budgetary system for the company. You have also been provided with the following information:
Sales(in units) Production(in units) Fixed overhead Selling price per unit Cost per unit: Direct materal Direct labour Variable overhead Apr 1,100 1,200 10.00 3.00 2.00 0.70 May 1,400 1,500 June July Aug 1,300 1,000 900 1,450 800 700 4,000 4,000 4,100 Sept 1,500 1,600 4,300

Additional information: 1. Ninety per cent of the monthly sales for cash. the remainder will be sold on credit, the receivables settling one month after sales 2. Wages are paid sixty percent during the month in which they are earned, forty per cent in the month following. 3. Variable overhead is paid in the month in which it is incurred. 4. Material costs are paid two months after the material is used in production 5. The company will purchase a new pick up truck for 14,000 in August. The present truck will be sold in the same month for 4,500. 6. The company intends to pay the insurance premium amounting to 5,000 in two equal instalments in the month of June and August 7. The depreciation charge of 1,000 a month is included in the Fixed overhead. 8. The cash balance on 1 June 2009 is expected to be 3,000 in hand.

Question 2 continued 5

Required Write a report to the owners of the Glow Limited which includes a discussion of the following: (a) The process of setting up a budgetary system and its importance to the company; (16%) (b) A cash budget for each of the four months commencing 1 June 2009. (24%) An assessment of how to evaluate which customers should receive credit and how of much should be offered. (10%) Total 50% -End of Examination paper-

(c)