Managerial Finance Question

Conrad11

Conrad11

Conrad11

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Girlfriend is having trouble with this question for her managerial finance degree and was wondering if anyone could help her out a little.

Circled bullet point in the questions. The Income statement.

She thinks the "Net profit should be -£26,000" (her words).

Data:




Question (the one circled):


Thank you for anyone that can help.
 
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I got a net loss of £14,000. Remembering timing of payments makes no difference to recognising the expense.

20100223-psraejqfrxpiejpw3drwxhk1h5.jpg


Cost of sales is simply 0.6 x Sales.
Salaries = £30,000 x 6
Sales expenses = £20,000 x 6
Loan interest = 0.08 x 100,000 x 0.5 (half a year)

Don't think I've missed anything. What's the answer from the book just out of interest?

I should be shot if I get this wrong haha.
 
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I would also say it was -26k. As per the above but less the 12k bonus that was not accrued for in the previous financial period. Also on the assumption the 70k advertising is being recognised in the period it relates to (Dec) and that the 18k of overhead accruals is not released in the period.
 
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Civhb said:
I would also say it was -26k. As per the above but less the 12k bonus that was not accrued for in the previous financial period. Also on the assumption the 70k advertising is being recognised in the period it relates to (Dec).
Click to expand...

The bonus is the difficult bit. Just because it relates to the prior period I left it out of this one. They should revise prior year accounts. That's what companies do for tax returns which change after submission.
 
Something I just noticed. In the following question it says that the overdraft is exceeded which would lead you to assume that it is > 100k as that is there overdraft. So is it -126k taking into account the 30k they have in the bank and the 70k advertising because it does say that its paid in november so surely it would appear on that statement.

She says that the opening balance for June is 30k (from previous question) and the closing balance in november is -207k.
 
Kemik said:
The bonus is the difficult bit. Just because it relates to the prior period I left it out of this one. They should revise prior year accounts. That's what companies do for tax returns which change after submission.
Click to expand...

Agreed, but without any instructions otherwise at this level it's usually best to take the prudent approach. Just noticed that I missed the overhead accruals of 18k on the balance sheet which would also need to be adjusted for if released in the period.
 
Civhb said:
Agreed, but without any instructions otherwise at this level it's usually best to take the prudent approach. Just noticed that I missed the overhead accruals of 18k on the balance sheet which would also need to be adjusted for if released in the period.
Click to expand...

Isn't that from the sales overheads which are paid in the month after (£20,000 less £2,000 dep'n)?

Events that happen in later questions shouldn't affect your answer in the earlier.
 
Kemik said:
Isn't that from the sales overheads which are paid in the month after (£20,000 less £2,000 dep'n)?

Events that happen in later questions shouldn't affect your answer in the earlier.
Click to expand...

Yep you're right, didn't pay attention to the connection.

In summary I would have closing cash position of -207k (OB 30k less movement of -237k) and net loss of -26k
 
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