Accounting and finance for mangers

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Question 1 (15 marks)

Jetwair Airline is an airline which flies to destinations all over the world. Jetwair Airline experienced strong initial growth but in recent periods the company has been criticised for under-investing in its non-current assets. Extracts from Jetwair Airline’s financial statements are provided below.

The balance sheet as at 30 June is presented below:

	2017 $’000	2016 $’000
Current assets
Cash and cash equivalents	9,300	22,100
Trade and other receivable	6,100	6,300
Inventories	580	490
Total current assets	15,980	28,890
Non-current assets
Property, plant and equipment	317,000	174,000
Intangible assets	20,000	16,000
Total non-current assets	337,000	190,000
Total assets	352,980	218,890
Current liabilities
Trade and other receivable	10,480	4,250
6% loan notes	19,440	19,440
Total current liabilities	29,920	23,690
Non-current liabilities
6% loan notes	130,960	150,400
Total liabilities	160,880	174,090
Equity
Equity share	3,000	3,000
Retained earnings	44,100	41,800
Revaluation surplus	145,000	-
Total Equity	192,100	44,800
Total liabilities and equity	352,980	218,890

Other relevant information for Jetwair Airline is presented below:

	2017 $’000	2016 $’000	2015 $’000
Revenue	154,000	159,000
Profit from operations	12,300	18,600
Finance costs	(9,200)	(10,200)
Cash generated from operations	18,480	24,310
Total assets			222,360
Total equity			40,000

Required:

a) Calculate the following ratios for the year ended 30 June 2016 and 2017

i. Asset Turnover

ii. Current Ratio

iii. Debt Ratio

iv. Profit Margin

v. Return on Ordinary Equity

vi. Times Interest Earned (7 marks)

b) Comment on the liquidity, profitability and financial stability of Jetwair Airline for the year ended 30 June 2017. (8 marks)

(7 + 6 = 15 marks)

Question 2 (10 Marks)

Ainsworth Enterprises has provided the following estimates relating to the first quarter of 2018.

The cash balance at 1 January 2018 was $19 800.

Required:

Prepare a cash budget for the quarter ending 31 March 2018

Question 3 (10 marks)

Go Green is a business selling worm farm start-up kits for $12 each. This year, Go Green’s fixed costs total $110,000. The variable cost per kit is $7.

Required:

1. Calculate the contribution margin per kit.

1. Calculate the break-even point in number of kits.

1. Calculate the break-even point in sales dollars.

1. Calculate the number of kits Go Green will need to sell in order to earn a profit of $70,000.

1. If the total fixed cost increases to $160,000 next year:

4. Calculate the new break-even point in number of kits.

4. Determine the profit (loss) Go Green will earn if it sells 30,000 kits.

4. Calculate the number of kits Go Green will need to sell to now earn a profit of $70,000

Question 4 (15 marks)

The financial statements for ATT Mart Limited for the financial years ending 30 June 2016 and 2017 are presented below:

ATT Mart Ltd -Balance Sheet as at 30 June...
Assets	2017	2016
Cash	$ 47,320	$ 60,060
Accounts receivable	50,960	25,480
Inventory	69,160	45,500
Property, plant and equipment	127,400	141,960
Accumulated depreciation	(49,140)	(43,680)
Total assets	$245,700	$229,320
Liabilities and Equity
Accounts payable	56,420	78,260
Tax payable	47,320	36,400
Bonds payable	36,400	18,200
Share capital	45,500	45,500
Retained earnings	60,060	50,960
Total liabilities and equity	245,700	229,320

ATT Mart Ltd
Income Statement
for the year ending 30 June 2017
Sales	520,520
Cost of sales	(353,080)
Gross profit	167,440
Selling expenses	(50,960)
Administrative expenses	(16,380)
Interest expense	(12,740)
Total expenses	(80,080)
Profit before tax	87,360
Tax expense	(12,740)
Net profit after tax	74,620

Additional Information:

· Dividends were paid during the year.

· During the year equipment was sold for $18,200 cash. The equipment cost $27,300 originally and had a book value of $18,200 at the time of sale.

· Additional equipment was purchased for cash.

· All depreciation expense is in the selling expense category.

· All operating expenses, except for depreciation, are paid in cash.

· All sales and purchases are on credit.

Required:

Prepare a Statement of Cash Flows using the direct method for ATT Mart Ltd at 30 June 2017. Reconciliation of profit to cash is NOT required. (15 marks)