B293 - Financial Accounting In Context Assignment - The Open University

Assignment Task

Question

1. Below is the trial balance for Bassett Ltd as at 28 February 2018.

The following information is relevant and not shown in the trial balance above.

• Closing inventory at 28 February 2018 is £55,000
• Irrecoverable receivables to be written off amount to £700.
• The allowance for receivables is to be set at 5 percent of receivables at the financial year end.
• Bassett Ltd’s depreciation policy is as
  • Office equipment is to be depreciated at 20% on a straight line
  • Motor vehicles are to be depreciated at 25% on a reducing balance
• Bassett Ltd has paid £4,000 of rent (included in administration expenses) for the quarter ended 31 March 2018.
• The 3?bentures are repayable in six years’ time. Interest is paid once per
• The corporation tax charge for the year ended 28 February 2018 is estimated to be 22% of
• The audit fee relating to the year ended 28 February 2018 is estimated to be £2,100.
• Irrecoverable receivables, depreciation on office equipment, audit fee and marketing expenses to be allocated to administrative expenses. Depreciation on vehicles to be allocated to distribution costs.

Required

• Prepare a statement of financial performance for Bassett Limited, for the year ended 28 February
• Prepare a statement of financial position for Bassett Limited, as at 28 February

2. Below are extracts of information from Kenning Flooring Ltd’s financial statements

The following information is also available in respect of the year ended 31 July 2019:

1. The income statement included a loss of £38,000 on the disposal of plant and
2. The plant and machinery had cost £650,000 and the accumulated depreciation at the date of disposal was £543,000.
3. An interim dividend of £19,000 was paid in January

Required

Prepare the reconciliation of profit before tax to net cash generated from (or used in) operating activities.

Explain three ways in which the cash flow statement provides information that would not be directly available from the statement of financial position and the statement of financial performance.

 Question 3

At 31 August 2019, Kenning Flooring Ltd intends to apply for a £100,000 loan from a bank. The following questions require you to use the data in the financial statements of Kenning Flooring Ltd from Question 2 above.

• Three solvency ratios that could be usefully calculated by a bank as part of a credit appraisal for a long-term loan to Kenning Flooring Ltd are debt ratio, gearing ratio and interest Give the formulas for calculating these three ratios.
  • debt ratio
  • gearing ratio (also explain any component of the ratio if the component is, in itself, not a singular financial statement element)
  • interest cover (also give an alternative way of calculating interest cover and explain in which case this may be used)

• Calculate the debt ratio and gearing ratio for Kenning Flooring Ltd for 2018 and 2019. Calculate interest cover for 2019. Remember to show your
• Comment on these ratios in respect of Kenning Flooring Ltd’s application for a loan from the perspective of a bank manager. Include one argument for and one argument against providing the loan to Kenning Flooring Ltd on the basis of these three ratios alone.

Question 4

• Contract law
  • Give a legal definition of the term ‘contract’.
  • Explain the difference between a Valid and a Void contract. Your answer should include an example of a void
• Employment law

Natalie Byrne is a skilled audio visual technician and works in the television industry.

Give three reasons why the distinction between the status of being employed or self-employed is important for Natalie, and give an example for each reason of how it might affect her rights.

Question 5

• Explain external audit in terms of:
  • Purpose of the audit report
  • Purpose of the audit in relation to corporate governance
• Financial statements in the EU must present a ‘true and fair view’. Explain what is meant by:
  • True
  • Fair

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