Accounting and Finance for Decision Making - Desklib

This article provides solved questions on Accounting and Finance for Decision Making. It covers topics such as EBITDA, Effective Tax Rate, Cleaned Net Income, and more. The article also includes a discussion on transactions related to a business and their treatment in the profit and loss account and balance sheet. The subject is relevant for students pursuing courses in Accounting and Finance for Decision Making in colleges and universities.

ACCOUNTING AND
FINANCE FOR DECISION
MAKING

TABLE OF CONTENTS
PART A...........................................................................................................................................3
PART B............................................................................................................................................3
Question 6...................................................................................................................................3
Question 7...................................................................................................................................3
Question 8...................................................................................................................................3
PART C............................................................................................................................................4
Question 9...................................................................................................................................4
Question 10.................................................................................................................................5
Question 11.................................................................................................................................6

PART A
1. c
2. d
3. e
4. a
5. b
PART B
Question 6
Gross Profit – Depreciation & amortisation – research and development – SG&A expense
excluding legal claim provision
70890 – 66773 – 2300 – (59890 – 31900) = -30010
Calculation of EBITDA
EBIT + depreciation and amortisation
-30010 + 66773 = 36763
Question 7
Calculation of Effective Tax Rate
Income Tax Expenses/ Earning before taxes
2750.7/ 5116.4 * 100 = 54% (approx.)
Note: Because of the lack of information regarding whether the non-recurring COGS is included
in the P&L or not, it is assumed that this is already included in the COGS mentioned in Income
statement.
Calculation of Normalized ETR
Effective tax rate – Marginal tax rate
54% - 32% = 22%
Question 8
Calculation of Cleaned Net Income for Notsoeasy Ltd.
Particular Amount
Revenue 109054.6

Less Cost of goods sold 70571.4
Gross Profit 38483.1
Less SG&A (Excluding non-recurring gain) 31211.7
Add Non-recurring gain 1300
Operating Profit 8571.4
Less Interest Expenses 2082.9
Profit Before tax 6488.5
Less Tax expenses @ 37% 2400.75
Profit after tax 4087.75
Less Loss from discontinued business 449.5
Net Income 3638.25
PART C
Question 9
i. The company Mobile-a-go-go plc initiated its business on 1 January and was having the
initial capital of £50,000. Hence, there is not any other transaction being done on this
particular date so it can be implied that there will not be any change within the equity of
the company.
ii. On 5th January there is selling of inventory at 6000 which had the value of 3000 of stock.
There will be an increase in the value of equity because the goods are being sold on the
profit. Thus, there will be an increase in the equity by 3000 and the equity of company on
5th January will be 53000 that is 50000 + 3000.
iii. Company sold the goods on credit of 3000 for 6000 dated 5th January. Thus, the debtor of
3000 has been created for the company as the goods were sole on credit. There will be
decrease in the ending balance of the trade receivable by 3000. In comparison to the
opening balance of the trade receivable there will be an increase in the value of the
receivable as on date 12th January 2021 by 3000.

iv. The office furniture was purchased for the value of 500. Hence, in case the company is
going to charge depreciation then there will be a decrease in the total value of the
furniture. On the other hand, in case the company is not going to charge the depreciation
then the furniture will not have any increase or decrease within the books of accounts.
v. For the cash, the money was received in 12th January 3000 and paid 500 for furniture on
15th January. Thus, the balance of cash as on 27th January was 2500 which is 3000 – 500.
Thus, the cash account will increase be 2500 because there was not any opening balance
of cash and the wages were paid by cheque so there will not be any effect over the cash
account.
Question 10
1
Cash Flow
CFO
profit before tax 280
Add/less: change in working
capital
inc. in debtor -20
inc. in stock -20
inc in accounts payable 10
250
Less: tax paid 79
Net cash flow from operating
activity 171
Cash flow from investing
activity
sale of intangible asset 10
Net PP&E 20
Net cash inflow from investing
activity 30
Cash flow from financing
activity
increase in long-term liability 3
Net cash from financing activity 3

Net cash flow from all activities 204
Add: opening cash balance 30
Closing cash balance 234
2
Calculation of OWC = Current Assets – Current Liabilities
31st Dec. XY = 200 – 150 = 50
31st Dec. XZ = 260 – 162 = 98
3
with respect to constructing cash flow the retained earning can be a one of the BASE
computation. This is particularly because of the reason that the retained earnings mean the
company is a reserving some amount of money in order to manage the cash flow for the future
use and for contingency use as well.
Question 11
1
i. The deposit of 40000 into bank is being treated as the deposit of the bank account and
this will increase the bank balance of the business. thus, this will result in increase in
bank balance of the company and will be used for running the business.
ii. The second transaction, deals with the rent of the company which they have to pay for
using the premises. Thus, the rent is being treated as the expense of the company and this
will be charged within the profit and loss account as expense and will be deducted from
the income of the company.
iii. The computer is being purchased for the office use and is being purchased on the credit.
Paul is charging deprecation over computer and this will be 500 per annum. Thus, this
amount of depreciation will be charged in the profit and loss account as the expense of
the company.
iv. Further another transaction relates with the purchasing of the computers on credit and
will be added to the inventory of the company. thus, the treatment of this transaction will
include adding in the purchase account and this will be shown in the trading account
under the head of purchases.

v. The next transaction deals with purchasing computer component for 3000 and this will be
used for the customising according to consumer requirement. Hence this will be treated
as the purchase only in the trading account.
vi. Further the next transaction states that the three computers are being sold for 2000 each
and out if which one is sold in cash and other two on credit. Out of this 2000 will be
recorded in cash account as it is sold for cash. However, on the other side debtors will be
increasing for 4000 as remaining two computers are being sold on credit which will be
recorded on current assets under the assets head of company’s balance sheet.
vii. The last transaction, that is purchase of van will increase the asset of the company which
will be recorded on the balance sheet at assets side. However, the depreciation charged on
the van will be added as an expense in the profit and loss account of the company.
2
Particular Amount
sales 6000
purchase 8000
GP -2000
rent 12000
computer component 3000
depreciation on
computer 125
depreciation on van 500
van running expenses 400
Net profit/ loss -18025
Though Paul was thinking that the business is going well but by looking at the profit and loss of
the company it can be stated that company is not performing well. the reason underlying this fact
is that with help of the profit and loss it is visible that company is suffering loss of 18025 from
the operations of the company.