Financial Analysis of Bespoke Golf Club

This assignment delves into the financial analysis of Bespoke Golf Club. It examines its Income and Expenditure Account for the year ending 2015-16, detailing expenses like printing, leader's costs, and insurance, alongside income sources such as subscriptions and donations. A Balance Sheet provides a snapshot of assets (cash, deposits) and liabilities (capital fund). The assignment further explores investment analysis methods (NPV, payback period) used by organizations like DDC to evaluate project profitability. Finally, it emphasizes the importance of adhering to accounting standards in preparing financial statements for Bespoke Golf Club.

Running Head: ACCOUNTING AND FINANCE
Accounting and finance

Accounting and Finance 1
Contents
Introduction...........................................................................................................................................2
Scenario I..............................................................................................................................................2
Investment Appraisal.........................................................................................................................2
Calculation of Net Present Value...................................................................................................2
Calculation of Pay-Back Period.....................................................................................................4
Analysis of the methods used........................................................................................................5
Budget...............................................................................................................................................5
Calculation of contribution per Kilogram......................................................................................5
Profit maximising Sales Mix.........................................................................................................6
Limiting factor analysis.................................................................................................................7
Scenario II.............................................................................................................................................8
Accounting rules adopted by the treasurer.........................................................................................8
Accounting rules should be adopted by treasurer..............................................................................8
Financial accounts of the club...........................................................................................................9
Conclusion.............................................................................................................................................9
References...........................................................................................................................................10

Accounting and Finance 2
Introduction
Capital budgeting tools and techniques are used to analyse an investment proposal. Various
methods like Net Present Value, Internal Rate of Return, Pay-Back Period are been applied to
check the effectiveness of the proposal. It is considered to be the most challenging task for
the management because it involves the process of decision making about the investment in a
particular plan. This includes allocation of funds to a specific project for a specific period of
time in order to achieve the goals and objectives of the organization. A company can choose
its investment proposal on the basis of capital budgeting methods. Cost- Volume Profit
analysis is a method of determining changes in cost and volume which directly affect
operating profit of an organization. The analysis also helps in calculating contribution per
unit, analysis of limiting factor and to identify the profit maximising sales mix.
Dangerous Dessert Company (DDC) is an enterprise that deals in the production of desserts
and offers a wide range of products like bakery items, fresh fruit products, dairy products and
ice creams. The company has set a division range for one of its product that is vanilla ice
cream. The division range of the ice cream is Single Whammy, Double Whammy and Triple
Whammy. Recently the company has opted for an investment proposal for delivering vanilla
ice cream directly to the general public. It has also prepared a budget for the same product.
Bespoke Golf Club is an organization which is financed by the employees of Bespoke Built
Ltd. Peter Kwok has recently joined the club and want to know about the final accounts of the
club. The report presented by the treasurer in the meeting did not show a clear picture of the
financial position of the club and was not according to the rules of accounting. Peter wanted
the accounts to be reported in a proper format and also according to standard rules and
guidelines.
This report consist of the analysis of the investment proposal chosen by DDC and the
calculation of contribution per unit, sales mix and analysis of limiting factor as per the budget
prepared by DDC. The report also contains the information about the accounting rules which
are required to be adopted by the treasurer of Bespoke along with their explanation.
Preparation of club’s accounts in proper format and as per rules is also done in this report.
Scenario I
Investment Appraisal
DDC is evaluating an investment proposal which is concerned with the direct delivery of ice-
creams to the public. NPV method and Pay-Back Period method is used to evaluate this
project.
Calculation of Net Present Value
Cash Outflows ($ million)
Years 0 1 2 3 4 5
Cost of Vans 60000
Pre-launch advertising 100000
Salary of van drivers 50000 50000 125000 125000 125000
Van running cost 10000 12000 14000 16000 18000
cost of running central services 60000 60000 80000 80000 80000
Advertising Budget cost 50000 50000 50000 50000 50000

Accounting and Finance 3
Total 160000 170000 172000 269000 271000 273000
The above table shows the cash outflow that occurs during the five years. The purchase cost
of two vans is $30000 each which have an expected life of 5 years. Pre-launch advertising
expenses amounted to $100000 and the advertising budget prepared by the marketing
department for 5 years is expected to be $50000 per annum. Van drivers employed will have
a salary of $25000 each per annum. Running costs of van are expected to $10000 in first year
and then it will gradually increase by $2000 for the rest of the years. Cost of central services
like accounting will increased by $60000 in year first and second and then by $80000 in year
third, fourth and fifth. These are the total cash outflow occurred by the company in order to
implement this project.
Cash Inflow ($ million)
Years 0 1 2 3 4 5
Cash Inflow 114000 228000 304000 342000 380000
The cash inflows presented in the above table are nothing but the contribution derived as per
the estimated demand of vanilla ice-creams. The contribution is calculated on the basis of
sales and variable cost. Average selling price is expected to be $5 per litre and the demand for
the year 1 is 30000 litres, for year 2, 60000 litres and for third, fourth and fifth year, the
demand is 80000, 90000 and 100000 litres respectively. Variable cost per unit of all the
ingredients is $1.00 per litre and packaging cost is $.20 per litre. Contribution is calculated by
subtracting total variable cost from total sales for each year. It is considered as the cash
inflows occurred during the five years.
Evaluation of NPV
Year
s Cash outflows Cash Inflows Net Cash Inflow
pvf@10
% Present Value
0 160000 0 -160000 1 -160000
1 170000 114000 -56000 0.909091 -50909.09091
2 172000 228000 56000 0.826446 46280.99174
3 269000 304000 35000 0.751315 26296.01803
4 271000 342000 71000 0.683013 48493.95533
5 273000 380000 107000 0.620921 66438.58157
NPV ₹ -23,399.54
After calculating cash inflows and outflows, the next step is to calculate Net Present Value.
NPV method is used to know about the profitability of a proposal in which investment has to
be made. It uses present values of cash inflows on the basis of which, a proposal or a project
is accepted or rejected. In other words, it is a simple accounting difference between the PV of
cash inflow and PV of cash outflow. It can be positive, negative and zero.
If NPV is positive which means PV of inflows is higher than PV of outflows. As a result, the
project will be accepted.

Accounting and Finance 4
If it is negative, then the proposal is rejected because the PV of cash outflows is more than
the PV of cash inflows.
And if, NPV is equal to zero it means the present values of both inflow and outflow are equal
and the project is accepted (Bierman Jr, & Smidt, 2012).
Advantages and Disadvantages
Merits:
 The method helps in determining that whether the proposed project will increase the
value of firm or not.
 NPV reveals that when the project will produce income and how important that
income will be.
 It is used in calculating time value of money.
 Helps in comparing different projects.
 Evaluation of NPV always provide a correct decision regarding investments.
Demerits:
 NPV is difficult to use.
 When the projects are of unequal life, NPV can provide incorrect decision.
 Appropriate discount rate cannot be calculated.
 The method is based on assumptions
It is a very difficult task to determine the value of a project because there are many method to
measure that. The time value of money factor is considered by the managers and for that they
used NPV method. As this is based on predicted cash flows, the accounting practices like
depreciation and many more does not affect the decision. So it is very important to use this
method for knowing the profitability of a project. In the above table, NPV is evaluated at a
discount rate of 10% and on the basis of the information provided in the scenario. The above
table shows a negative NPV which means that the amount of present values of cash outflow
is more than the cash inflow, so this project should be rejected.
Calculation of Pay-Back Period
Evaluation of Payback period
Years Present Values Cumulative
0 -160000
1 -50909.09091 -210909.0909
2 46280.99174 -164628.0992
3 26296.01803 -138332.0811
4 48493.95533 -89838.12581
5 66438.58157 -23399.54424
Payback
period
Pay-Back period is the time taken by a project to recover the initial investment or outflow. In
other words, it means how long a proposal will take to recoup the money invested in it. By

Accounting and Finance 5
knowing the payback period, investors can decide whether to invest in the desired proposal or
not (Bierman Jr, & Smidt, 2012).
The above table shows that the project is not able to retrieve the amount invested in it during
its life of 5 years. The amount gained from the project during the five years is not enough to
meet the initial cash outlay. So it is suggested not to opt for this project.
Analysis of the methods used
The evaluation of both the methods shows that the proposal opted by DDC is not a desired
one. Investing in it will not provide profits to the company. The NPV table shows that the
project will not earn profits during its life span of five years. As the theory says that the
investor should invest only in those projects that have a positive NPV. On the other hand,
Payback period table represents that the project is not capable enough to recover the cash
outlays incurred on it during its life span of 5 years. On the basis of above analysis, the
proposal of purchasing two vans should not be accepted by DDC as it will result in creating
loss for the company. So it is better for the company to avoid investing in this project.
Budget
DDC has prepared a budget for the production of range of vanilla ice-cream. It shows the
consumption and cost of required ingredients per kilogram. Fixed and variable overheads
along with the selling price per unit and quantity demanded for all three ranges is also
mentioned in the budget. Contribution per unit, sales mix and analysis of limiting factor is
done on the basis of provided budget.
Calculation of contribution per Kilogram
Contribution per kilogram ($)
Single Whammy Double Whammy Triple Whammy
Sales price per unit 2.00 2.50 3.00
less: variable cost per unit
Material cost per unit 0.88 1.13 1.20
Sales commission@2% of
sales 0.04 0.05 0.06
Outside carriers @4% of sales 0.08 0.10 0.12
Total variable cost 1.00 1.28 1.38
Contribution per kilogram 1.00 1.22 1.62
The above table shows contribution per kg calculated on the basis of data mentioned in the
budget. Contribution per unit refers to the portion of total sales which is not consumed by
variable costs and is used for covering fixed costs. It is Sales minus total variable costs. It is
very important for the companies to calculate contribution margin because the amount left
after deducting variable costs is used to cover fixed expenses or to add in the profit. The
variable cost for DDC comprises of the material used in making of vanilla ice-cream, sales
commission and outside carriers cost.
Calculation of Material cost per Kg
Material cost per unit

Accounting and Finance 6
Ingredients
Single
Whammy Cost
Double
Whammy Cost
Triple
Whammy Cost
Cost
per kg
Milk 0.4 0.08 0.3 0.06 0.2 0.04 0.2
Cream 0.4 0.32 0.5 0.4 0.6 0.48 0.8
Castor sugar 0.1 0.1 0.09 0.09 0.08 0.08 1
Eggs 0.09 0.18 0.09 0.18 0.1 0.2 2
Vanilla pods 0.01 0.2 0.02 0.4 0.02 0.4 20
Total cost per Kg 0.88 1.13 1.2
This table shows the total material cost incurred in the production of ice-cream derived by
multiplying cost per Kg with the consumption of each ingredient for each division. Material
cost incurred for producing single whammy is $0.88 per Kg and for double and triple
whammy, it is $1.13 per kg and $1.2 per kg respectively. Sales commission is calculated
above is 2% of sales whereas outside carrier cost is 4% of sales. The total contribution per Kg
for single, double and triple Whammy is $1.00, $1.22 and $1.62 respectively.
Profit maximising Sales Mix
Sales mix refers to the fraction of different products and services that covers the total sales of
a company. In presence of a limiting factor, it is very important for an organization to make
decision regarding an optimal sales mix which will derive higher profits. Companies should
decide what product is to be produced and in what quantity. It should also evaluate that what
quantity of limiting factor should be allocated to which product, so that profits can be
maximised.
In case of DDC, it has a short supply of vanilla pods from Madagascar because of the poor
growing season. Considering it a limiting factor, company have to determine a sale mix
which will maximise its profits. For this, following steps are been taken in order to calculate
it.
Required quantity of vanilla pods
Calculation of quantity required of vanilla pods (limiting factor)
Single whammy Double whammy Triple whammy
Quantity Demanded 2000000 1350000 250000
Consumption of vanilla pods per kg 0.01 0.02 0.02
Total consumption of vanilla pods 20000 27000 5000 52000
The table shows the total consumption of vanilla pods required for the three divisions. It is
calculated according to the quantity demand for each division. The total consumption is equal
to 52000 kilos but the supply is limited to 45000 kilos. According to that, the sales mix will
be obtained.
Contribution of Vanilla Pods
Contribution per unit of limiting factor (vanilla pods)
Single whammy Double whammy Triple whammy
Contribution per kilogram
1.
00 1.22
1.6
2

Accounting and Finance 7
Consumption of vanilla pods per kg 0.01 0.02 0.02
100.
00
61.0
0 81.00
Rank I III II
The next step involves the calculation of contribution per unit of the limiting factor that is
vanilla pods. This is required to be calculated to attain an optimal sales mix. The above table
shows that for producing the units of single whammy, 100% contribution of vanilla pods
units is required as per the demand of the product. For double and triple whammy, it is 61%
and 81%. On the basis of this, ranks are been given to the divisions in order of priority in
production. This means that single whammy will be given first priority in production and
triple whammy and double whammy will stand at second and third.
Quantities to be produced
Calculation of the production quantities
Rank Vanilla units Vanilla units required Unit produced
Single whammy I 20000 20000 2000000
Triple whammy II 5000 5000 250000
Double whammy III 20000 20000 1000000
Total 45000 3250000
After calculating the contribution per Kg, the next thing to do is to calculate how much
quantity of what product is to be produced so that the total units of limiting factor can be used
in a manner that the company can maximise its profits. The table presents that 20000 units of
single whammy, 5000 units of triple whammy and 20000 units of double whammy is
required to be produced with the consumption of vanilla pods. So the profit maximising sales
mix is that single whammy has a weightage of 61.54%, triple whammy has 30.77% and the
lowest weightage is given to double whammy that is 7.69% in a production plan.
Limiting factor analysis
Limiting factor basically means the constraints available in the resources which are used for
production. They stop the business form maximizing its sales. Deficiency of labour,
materials, machine hours and many more are considered as limiting factors in an
organization. It is very important for the companies to perform an analysis of limiting factors,
to increase its profits by making an optimal profit maximising sales mix. For DDC Company,
vanilla pods which are used in production of vanilla ice-creams, are limiting factor. The
option adopted by the company for its analysis is to calculate contribution per unit for
different divisions, on the basis of which quantities of vanilla pods is allocated to the one who
have higher preference as compare to others.
The evaluation done above, shows that the total requirement of vanilla pods was 52000 Kilos
but the company has the supply of 45000 kilos only. In regard to this, products quantity are
calculated. 20000 units of single whammy can be produced using vanilla pods, satisfying the
quantity demanded for that. Triple whammy production is on second priority and 5000 units
are require to be produced. For that, 5000 vanilla pods units are used, meeting the demand of
Sales mix 61.54% 7.69% 30.77%

Accounting and Finance 8
250,000 Kg. For the production of double whammy, only 20000 units of vanilla pods are left
to produce double whammy units. The units made, meet only the demand of 1000000 kilos,
while initial demand for double whammy was 13500000 kilos. As this product has lowest
contribution per unit, that is why it has given less priority and the demand is also reduced
because there was not enough supply of vanilla pods to produce all the required units of
double whammy which satisfies its initial demand.
Scenario II
Accounting rules adopted by the treasurer
Accounting rules are list of rules explain in detail and are required to be followed by
accountants and treasurers in preparing final accounts of companies. Recording of
transactions and creation of journal entries needed some rules that are known as three golden
rules of accounting standards. These rules are classified according to the three different types
of accounts named as Personal Account, Real Account and Nominal Account. The three
golden rules are adopted by the treasures while preparing his report (Rajni, 2016). The three
golden rules are:
Debit the receiver, Credit the giver
This rule is for personal account. It means that when an individual give some amount to the
company, it is treated as an inflow and that individual becomes giver and his account is
credited in the books of company. Similarly, if a person receives something form the
company, then he is called a receiver and stands on the debit side of the books of business.
Debit what comes in, Credit what goes out
This rule is applicable for real account. Real account includes any property or goods which
are either coming into the business or going out of the business. The rule states that if any
property comes into the business, the account of that property will be debited in the books
and similarly if any goods or property goes out of the business, the account of the same will
be credited.
The deposits done by the club for New Year and slide show are been credited in the books of
accounts as per this rule.
Debit all expenses and losses and Credit all incomes and gains
This golden rule is for nominal account. This account generally includes business income,
losses, expenses and gains. According to the rules, the account of expenses and losses
incurred by the business will stand on the debit side of the accounts books. On the other hand,
if business earns income and gains, the account of the same will have a credit balance.
All the profit gained by the golf club from its activities have a credit balance and all the
expenses incurred on the different events by the club are debited in its books of accounts
Accounting rules should be adopted by treasurer
The treasurer should use a proper format in presenting the financial statements of the club.
The information presented by her in the balance sheet of accounts can be bifurcated into two
accounts which are mandatory to be maintained as per accounting rules and standards. These
accounts are Income and Expenditure account and Balance sheet.

Accounting and Finance 9
Income and Expenditure account includes balances of all the profits earned by the club and
all the expenses incurred by it. All the capital expenditures are considered and then a surplus
or a deficit is calculated, which is to be shown in the balance sheet on liabilities side.
The balance sheet is the statement of balances of all the accounts which are maintained by the
club. It represents the financial position give a clear view about the liquidity of the club. All
the assets and liabilities of club are to be shown in this statement. This is also prepared
according to the standards and rules of accounting.
Preparing separate accounts will give a clear view of the financial position of the club.
Financial accounts of the club
Income and Expenditure Account for the year ending 2015-16
Expenditure Amount Income Amount
Printing and Stationery 3300 Subscriptions 19500
Leader's expenses 160 Bus Cancelation fees 4060
Trainers expenses 10720 Private buses 1440
Postage/telephone charges 60 Christmas party 1730
Insurance 880 cheese and Wine 170
Hire of halls 2850 donations 50
General 420
Secretary 1310
Treasurer 360
General Expenses 420
surplus 6470
Total 26950 Total 26950
Balance Sheet
Equity and Liabilities Amount Assets
capital fund ( Mr Smith bequest) 960 Cash 52210
surplus 6470 Deposits 1780
Suspense account 46560
Total 53990 Total 53990
Conclusion
The report concludes that for choosing an investment proposal, NPV and payback period
method can be used as they gives a clear idea about the profitability of the project. DDC use
these method to decide whether to invest in that proposal or not. CVP analysis tools are used
to determine a sale mix which can increase company’s profits. Calculation of contribution per
unit and identification of a sales mix are the elements used to perform an analysis of a
limiting factor. The report shows that how DDC have identified its profit maximising sales
mix with the presence of limiting factors. It also concludes that proper accounting rules
should be adopted in preparation of final accounts of the company. Treasurer must adopted
three golden accounting rules and the standards of accounting while making the financial
statements of Bespoke Golf Club. Using them will help the club to represent a fair and clear
view of its position to the investors, its members and many other users.

Accounting and Finance 10
References
Bierman Jr, H., & Smidt, S. (2012). The capital budgeting decision: economic analysis of
investment projects. Routledge.
Rajni, S. (2016). Basic accounting. [S.l.]: Prentice-Hall Of India.