MBA504 Accounting & Financial Management Exam

MBA504 Accounting & Financial Management
NUMBER OF QUESTIONS: Six (6) Questions (attempt five (5))
VALUE: 50%
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QUESTION 1
What is the maturity-matching approach that should be adopted by firms sourcing funding for their
asset portfolio? Define this approach and explain how it works in practical terms. What are the risks
of not following this approach? (10 Marks)
QUESTION 2
The level of voluntary Environmental, Social and Governance (ESG) reporting by large corporations
is increasingly exponentially. Discuss your opinion of the increasing expectation that large car
distributors in Australia, like Toyota, disclose information on their environmental and social
performance. Where might you expect this information to be disclosed? Provide examples of social
performance information that the customers of Toyota might be most interested in. (10 Marks)
Ans
Initiatives in the areas of environmental, social, and governance (ESG) are fueling the upcoming
retail revolution. Retailers must successfully, profitably, and efficiently integrate ESG into their
larger sourcing and supply chain strategies as customers, regulatory bodies, and governments put
more pressure on companies to show their commitment to sustainability and ethical labour
standards.
The importance of ESG has increased as businesses from all industries adopt the triple bottom line
philosophy, which holds that social and environmental concerns should be given equal weight to
financial concerns. Environmental, social, and governance factors are all being examined more
closely.
Concerns about the environment are speeding the drive for sustainable finance, a concept that is
permeating corporate culture and prompting companies across all industries to reassess both their
internal procedures and their investment choices. Similar to this, businesses understand the need to
create sustainable supply chains that address social and environmental hazards.
Businesses' social concerns range from modern slavery to issues like employee diversity, where
performance is increasingly in the spotlight. The advantages of inclusive and diverse enterprises can
be seen throughout the organisation and in leadership.
QUESTION 3
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Financial Statement analysis provides important insights relating to the position and performance of
an organisation. Provided below are some key financial ratios for Car Manufacturer 1 (CM1) and
Car Manufacturer 2 (CM2). Both organisations manufacture and sell car and car parts
internationally.
Electrical Goods Retailer 1 (R1) Electrical Goods Retailer 2 (R2)
Ratio 2021 2020 2019 2021 2020 2019
Current Ratio 1.02 1.03 1.13 1.04 0.98 0.94
Quick/Acid Test
Ratio
0.83 0.85 0.86 0.67 0.63 0.58
Total Debt/Equity 1.06 1.12 1.12 1.46 1.69 1.69
Inventory Turnover 9.69 10.22 times 10.77 6.42 6.59 6.68
Return on Assets 5.01% 3.79% 4.85% 4.51% 3.81% 3.90%
Discuss what the data in the above table reveals about the firms’ short terms liquidity, long term
solvency and efficiency. Give advice as to which firm you would invest in and justify your choice.
(10 marks)
Ans.
On the basis of the above data, the following data has been revealing information about the
company’s short-term liquidity, long-term solvency, and efficiency performance:
Short-term Liquidity: The current ratio and acid test ratio are the two significant financial ratios
that reveal the liquidity performance of the company in a short period. Based on the above table, it
has been identified that the current ratio in the year 2021 of car retailer 1 is 1.02 while car retailer 2
is 1.04. This indicates that car manufacturer 2 has more capability to pay off its liabilities on time
by converting current assets to cash. Further, on the other hand, it has been also identified from the
above data that the acid test ratio of both car manufacturers in the year 2021 is 0.83 and 0.67 for car
manufacturers 1 and 2 respectively. This means car manufacturer 1 short-term liquidity
performance is better as compared to car manufacturer 2. Hence, it would be advisable for investors
that they should invest in Electrical goods retailers 1.
Long-term Solvency: On the basis of above table, it is identified that the retailer 2 is better as
compared to retailer 1.
Long-term efficiency: On the basis of above table, it has been identified that efficiency performance
of retailer 1 is better. Hence, the investors should invest its money in retailer 2 company.
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QUESTION 4
Whilst conventional accounting claims objectivity in the preparation of corporate accounts the way
in which a firm values its assets in the balance sheet may be subjectively selected. The traditional
approach to valuation was the use of historical cost under which assets were valued in the accounts
at the price at which they were purchased. Under Fair-value Accounting (FVA) assets may be
valued at the price for which they would be exchanged between knowledgeable and willing parties.
Critically evaluate the advantages and disadvantages of each approach to valuing assets in corporate
balance sheet from the point of view of a prospective investor. (10 Marks)
Ans.
The two approaches of valuing assets are as follows:
Historical cost: The purchase price or the item's initial monetary worth are referred to as the
historical cost of an asset in accounting. According to the historical cost concept, a business usually
records its transactions at their historical costs. The cost principle, which emphasises that assets,
equity investments, and liabilities should be documented at their respective purchase costs, goes
hand in hand with the notion.
Advantage:
 It is straightforward to produce.
 Accounts do not record gains until they are realized
 It is still used in most accounting systems.
Disadvantage:
 No indication of current value of assets.
Fair value: The assets and liabilities that are presented on the company's financial statements are
measured using fair value accounting. The Financial Accounting Standards Board (FASB) adopted
the valuation concept to standardise the calculation of financial instruments by taking into account
their historical cost.
Advantage:
 Accurate valuation
 True income
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