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AnswersDiplomainFinancialManagementExamination–ModuleAPaperDA1,Incorporatingsubjectareas:June2009AnswersandInterpretationofFinancialStatementsMarkingSchemePerformanceManagementSectionA1D6C11C16C2D7B12B17C3B8A13B18B4D9C14A19D5C10B15D20DWorkings2Thegainsof$125,000and$12,000areunrealisedgains.Thereforetheymustbecreditedtoarevaluationreserve.Thisispartofshareholders’funds,butisnotincludedinretainedprofits.Ifanassetwhichhaspreviouslybeenrevaluedsuffersanimpairment,thefallinvaluemaybedebitedtotherevaluationreserve,providedthereisacreditbalance–relatingtothatasset–whichexceedstheimpairment.Therefore,therevaluationreservewillhaveincreasedby$137,000($125,000+$12,000)overthefirsttwoyears.Theimpairmentof$30,000inthemostrecentyearwillreducethisto$107,000.3$NecklaceBraceletPendantPurchasecost12,00031,00045,000Restorationcoststodate6,0005,0002,000–––––––––––––––––––––Costat31May200918,00036,00047,000–––––––––––––––––––––Expectedsellingprice25,00038,00053,000Furthercostsbeforesale2,0003,0001,000–––––––––––––––––––––Netrealisablevalueat31May200923,00035,00052,000–––––––––––––––––––––LowerofcostandNRV=value18,00035,00047,000–––––––––––––––––––––Thusinventoryvalue=$100,000Currentassets$172,7938–––––––––––––=Currentliabilities–––––––––=$128,950Currentratio1·34Currenttaxincreaseis$10,399($95,399–$85,000)Thuscurrentliabilitiesisrevisedto$139,349($128,950+$10,399)Thuscurrentratiois1·24($172,793÷139,34911Julysales150,900unitsat$5·50eachx20%=$165,990Augustsales144,800unitsat$5·50eachx70%=$557,480Septembersales164,800unitsat$4·95eachx10%=$81,576–––––––––$805,046–––––––––12Fixedoverheadcostpu=$24x60%=$14·40Totalfixedcosts=$14·40x50,000=$720,000Thusvariableoverheadcostperunit=$9·60ThusContributionpu=$85–($38+$9.60)=$37·40Breakevenvolume=$720,000÷$37·40=19,251units1917Costpool$VolumeofCostperunitcostdriverofcostdriverPurchaseorder450,0006,000$75Setup180,000450$400Machinerunning640,00032,000$20Thusbatchcost:Purchaseorder$75x30=$2,250Setup$400x1=$400Machinerunning$20x750=$15,000$17,650––––––––Thuscostperunit=$17,650÷500=$35·3018Economicvalueofnetassets$17,825,000Costofcapital12%Targetprofit$2,139,000Netoperatingprofitaftertax$3,428,554exceedstargetby$1,289,55420SectionB1(a)(i)Theprimaryconcernoftheownerswillbetoensurethatthecompanygeneratestherequiredlevelofprofitability.Thisisbecausetheydependonthecompanyfortheirlivelihood.Theywillalsobekeentoensurethatthepurchasepricetheyareplanningtopaytotheartisticdirectorisfair.Anyovervaluationwillreducetheirreturn,bothintermsofprofitabilityandcashgeneration.Afurtherconsiderationisthattheywillwishtoarrangerepaymentoftheloanoveraslongaperiodaspossible,tominimisetheimpactontheircashposition.Theseconcernsconflictwiththeissuesthatwillbeofprimaryconcerntothebank.Ofthese,thevalueofthesecurityfortheloanwillbeuppermost.Thebankwillwishtoensurethatintheeventofthebusinessbeingunabletocontinuetotradeforanyreason,thevalueoftheassetswhichthebankcantakecontrolofwillbesufficienttorepaytheloan.Ofalmostequalimportancewillbetheabilityofthebusinesstomakethenecessaryrepaymentsofbothcapitalandinterest.Inthatcontext,thebankwillwishtobalanceitsexposurebysettingarepaymentperiodwhichisasshortaspossible,withoutthisleadingtoexcessiverepayments,whichmaynotbesustainable.Inadditionthereareothermatterswhich,whileofsomeconcerntothedirectors,maybeseenbythebankasmajorissues.Thesearethelikelyoutcomeofthedispute,theongoingpositionofthecustomerexperiencingtradingdifficultiesandreplacingtheartisticdirector.Thedirectorsarelikelytohavemoredetailedknowledgeonthesemattersthanthebank,andthisimbalanceinknowledgewillcontributetothedifferenceinattitudetothematters.Markallocation1markpervalidpoint,forexample:OwnersconcernedwithprofitabilitycashgenerationlivelihoodpurchasepricelongerrepaymentperiodBankconcernedwithsecurityabilitytomeetpaymentsshorterrepaymentperioddisputedbalancepotentialbaddebtreplacingartisticdirectortoamaximumof8(ii)Arisingfromthediscussionabove,itwillbenecessarytoobtainfurtherinformationfromthedirectorsregarding:howtheartisticabilityofthecompanywillbemaintained,followingtheretirement,asthisisakeydriverinthesuccessofthecompany.contingencyarrangementsintheeventofanunsatisfactoryoutcometothedispute.Forexample,willitbepossibletoreclaimanyelementofthesettlementbyareductioninthepurchaseprice?whatisthelikelihoodofobtainingpaymentfromtheothercustomer?whyhasprofitabilitydeclined?Markallocation2marksforeachvaliditem,toamaximumof4(b)Asdiscussedabove,thebankwillbeprimarilyconcernedwithsecurity.Therefore,thekeyissueiswhethertherealisablevalueofthenetassetsexceedstheamountoftheloan.Thepotentialvalueofrealisationoftheassetsandliabilitiesofthecompanyis:$000Non-currentassets1,794(W1)Currentassets:Receivables376(W2)Prepayments31(asgiven)Cash21(asgiven)––––––Totalassets2,222––––––Currentliabilities:Payables497Accruals17––––––514––––––21Netvalue1,708––––––Valueofloan1,500––––––Conclusion:Therealisablevalueofthenetassetsexceedstheamounttobeadvancedby$208,000.Thisimpliesthatthecompanyhassufficientvaluetoprovidesecurityintheeventofdefault.However,s
本文标题:da1-2009-jun-q
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