Bùi Trần Nhật Minh

10220321

Minh

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Scenario 1.
Task 1:

MT Business
Income Statement
September 30, 2023
REVENUE Service Revenue 255,000

Total Revenue 255,000

Supplies expenses 90,000
Salaries and wages expenses 65,000
EXPENSE Depreciation expenses 9,000
Rent expenses 60,000
Utilities expenses 12,000
Total Expense 236,000
Net Income 19,000

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Task 2:

Trial Balance Adjustments Adjusted Trial

Account Balanced
Debit Credit Debit Credit Debit Credit
Cash 29.000 29.000
Receivables 2.500 2.500
Supplies 12.000 6,000 6.000
Supplies expense 6.000 6.000
Prepaid rent 10.000 10.000
Equipment 75.000 75.000
Accumulated Depreciation— equipment 5.000 750 5.750
Depreciation expense MT Business 750 750
Accounts payableStatement of Financial Position 10.000 10.000
Taylor’s Capital September 30, 2023 104.000 104.000
Unearned service revenue 2.000 2.000 0
ASSETS
Ultility expense 1.000 1.000
Current assets
Utility payable 49,000 1.000 1.000
Cash revenue
Service 18,000
19.000 2.000 21.000
Receivables
Salaries and wages expenses 5.500 3,00050 5.550
Salaries
Supplies and wages payable 12,000 50 50
Rent expense 6.000 6.000
Prepaid rent 16,000
Total 140.000 140.000 9.800 9.800 141.800 141.800
Non-current assets 70,000
Equipment 75,000
MT Business
Accumulated Depreciation — equipment -5,000
Total Assets
Income Statement 119,000
LIABILITY October 31, 2023
REVENUE
Total Liability Service Revenue 15,000 21,000
Accounts payable 10,000
Total Revenue
Overdrafts 5,000 21,000
Supplies expenses
EQUITY 6,000
Total equity Salaries and wages expenses 104,000 5,550
Taylors’
EXPENSECapital Depreciation expenses 85,000 750
Retained Earnings Rent expenses 19,000 6,000
Total liability & equity 119,000
Utilities expenses 1,000
Total Expense 19.300
Net Income 1.700

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Scenario 2.

Task 1: Formulas

 Total assets turnover (times):

12 4,000
Revenue
AVG Total Assets
= 101,000+1 03,000 = 1,22 (times)
2

 Average inventory turnover period (days):

3 0,000+2 2,000
Average Inventories
x 365 = 2 = 115,7 (days)
Cost of Sales x 365
82,000

 Average settlement period for trade receivables(days):

30 , 000+2 2,000
Average Receivables
x 365 = 2 = 97,1 (days)
Revenue x 365
12 4,000

 Average settlement period for trade payables(days):

0+ 5,000
Average payables
x 365 = 2 = 11,13 (days)
Cost of Sales x 365
82,000

 Net Profit Margin (%):

Net Profit 18,600
x 100 = x 100 = 15%
Revenue 12 4,000

 Gross Profit Margin (%):

Gross Profit 4 2,000
x 100 = x 100 = 33,87%
Revenue 12 4,000

 ROA (%):
18,600
Net Profit x 100
x 100 = 101,000+103,000 = 18,23%
Average Total Assets
2

 ROE (%):
26,400
Net Profit x 100
x 100 = 64,000+ 87,600 = 28,62%
Average Total Equity
2

 Current ratio (times):

Current Assets 77 , 000
Current Liabilities
= 7,000
= 11 (times)

 Quick ratio (times):

Total current assets−Inventory−Prepaid expenses 7 7,000−30 , 000−0
Current liabilities
= 7,000
= 6,71 (times)

 Debt-to-equity ratio (times):

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 Long−term liabilities 7000
Total equity
= 64,000
= 0,67 (times)

 Interest cover ratio (times):

Operating profit 25,000
Interest expenses
= 3,000
= 8,33 (times)

Task 2: Comparing the performance of Kimmer Ltd. between 2022 & 2021

Industry
2020 2021 2022
Average
Total assets turnover (times) 1.65 1,36 1,22 2.00
Average inventory turnover period (days) 85 89 115,7 60
Average settlement period for trade receivables (days) 80 83 97.1 65
Average settlement period for trade payables (days) 45 48.6 11.12 45
Net profit margin (%) 20.5% 19.4% 15% 20%
Gross profit margin (%) 36.0% 35,70% 33,87% 35%
ROA (%) 27.0% 26.4% 18.23% 27%
ROE (%) 40.4% 41.2% 28.62% 40%
Current ratio (times) 5.5 5.9 11 2
Quick ratio (times) 4.2 4.1 6.71 1
Debt-to-equity ratio (times) 0.4 0.38 0.47 0.5
Interest cover ratio (times) 30 35 8.33 25

o Total asset turnover: The total assets turnover experienced a decrease from 1.36 times to 1.22
times, signifying a reduction in the efficiency of asset utilization for sales generation.
o Average inventory turnover period: The average inventory turnover period has experienced an
increase from 89 days to 115.7 days from 2021 to 2022, indicating a lengthier duration for selling
inventory and potentially resulting in a greater amount of capital being tied up.
o Average settlement period for trade receivables: The mean duration for settling trade
receivables has risen from 83 days to 97.1 days, signifying a lengthier period required for the
collection of payments from clients.
o Average settlement period for trade payables: In a positive development, the average duration
for settling trade payables has experienced a substantial reduction, declining from 48.6 days to
11.12 days. This indicates enhanced effectiveness in the timely settlement of trade payables.
o Net profit margin: The net profit margin experienced a decline from 19.4% to 15%, signifying a
reduction in the proportion of sales that were converted into net profit.
o Gross profit margin: The gross profit margin experienced a modest decline from 35.7% to
33.87%, indicating a slight decrease in the profitability of the primary business activities.

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o ROA & ROE: The Return on Assets (ROA) as well as the Return on Equity (ROE) both
witnessed decreases. The Return on Assets (ROA) experienced a decline from 26.4% to 18.23%,
while the Return on Equity (ROE) also decreased from 41.2% to 28.62%. These figures suggest a
decrease in efficiency when it comes to generating profits from both assets and equity.
o Current ratio: The current ratio experienced a noteworthy increase from 5.9 in 2021 to 11 in
2022, signifying a considerable enhancement in short-term financing and the capacity to fulfill
current obligations.
o Quick ratio: The quick ratio experienced a rise from 4.1 times to 6.71 times, indicating a
heightened capacity to meet immediate financial obligations without dependence on inventory.
o Debt-to-equity ratio: The debt-to-equity ratio experienced an increase from 0.38 times to 0.47
times, signifying a heightened proportion of debt in relation to equity. Based on the information
provided, there appears to be a rise in financial leverage and a corresponding increase in potential
risk.
o Interest cover ratio: The interest cover ratio experienced a decline from 35 times to 8.33 times,
suggesting a possible challenge in meeting interest expenses with operating profits. Based on the
available data, there appears to be a potential rise in financial risk.

Task 3: Evaluating the performance of Kimmer Ltd. over time considering the industry
average
 Total asset turnover.

The total assets turnover declined from 1.65 in 2020 to 1.36 in 2021, and thereafter down to 1.22 in
2022. Kimmer Ltd.'s total assets turnover falls below the industry average, suggesting possible
inefficiencies in effectively employing assets to create revenue.

 Average inventory turnover period.

The average inventory turnover period experienced an increase from 85 days in 2020 to 89 days in
2021, and further increased significantly to 115.7 days in 2022. The inventory turnover exceeds the
industry average, indicating a comparatively sluggish turnover of inventory and potentially resulting
in a greater allocation of capital towards inventory.

 Average settlement period for trade.

The average settlement period for trade receivables experienced an increase from 80 days in the year
2020 to 83 days in the year 2021, and subsequently rose to 97.1 days in the year 2022. The collection

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period for receivables exceeds the industry average, signifying an extended duration for the retrieval
of payments from customers.

 Net profit margin.

The net profit margin experienced a decline from 20.5% in 2020 to 19.4% in 2021, and subsequently
decreased further to 15% in 2022. The net profit margin falls below the industry average, suggesting
difficulties in effectively converting sales into net profit.

 Gross profit margin.

The gross profit margin exhibited a modest decline, moving from 36.0% in 2020 to 35.7% in 2021,
and subsequently to 33.87% in 2022. Moreover, Kimmer Ltd.'s gross profit margin decreases
marginally below the industry average.

 ROA.

The Return on Assets (ROA) experienced a decline from 27.0% in 2020 to 26.4% in 2021, and
subsequently decreased further to 18.23% in 2022. The Return on Assets (ROA) of the company is
lower than the industry average, suggesting a decrease in the effectiveness of generating profits from
its assets.

 ROE.

The Return on Equity (ROE) experienced a decline from 40.4% in the year 2020 to 41.2% in the year
2021, and subsequently decreased to 28.62% in the year 2022. The Return on Equity (ROE) falls
below the industry average, indicating a comparatively reduced return on shareholders' equity.

 Current ratio.

The current ratio experienced an increase from 5.5 in 2020 to 5.9 in 2021, and subsequently rose
significantly to 11 in 2022. The current ratio exhibits an advantageous position, surpassing the
industry average, signifying an effective capacity to meet immediate obligations.

 Quick ratio.

The fast ratio had a consistent trend, rising from 4.2 (in 2020) to 4.1 (in 2021), and then reaching 6.71
(in 2022). The fast ratio above the industry norm, demonstrating a robust capacity to meet short-term
commitments without depending on inventories.

 Debt-to-equity.

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The debt-to-equity ratio exhibited a modest level of stability, transitioning from 0.4 (in 2020) to 0.38
(in 2021), and then rising to 0.47 (in 2022). The debt-to-equity ratio is somewhat lower than the
industry average, suggesting a modest dependence on debt.

 Interest cover ratio.

The interest cover ratio saw a rise from 30 (in 2020) to 35 (in 2021), but then had a substantial
decline to 8.33 (in 2022). Kimmer Ltd.'s interest cover ratio remains higher than the industry average,
nevertheless, the decline indicates a possible challenge in meeting interest expenditures with
operational earnings.

Scenerio 3.

Task 1:

DEPOT Ltd.
Monthly Cash Budget
Last Quarter of 2023
October November December
Cash receipts 89000 99000 119000
Cash payments 89800 96800 152800
Purchase 60000 80000 85000
Wages 9800 10800 11800
Overheads 5000 6000 6000
Rent 15000 0 0
Dividends 0 0 20000
Capital expenditures 0 0 30000
Total payments 89800 96800 152800
Net cash flows -800 2200 -33800
Opening cash balance -10000 -10800 -8600
Closing cash balance -10800 -8600 -42400

Task 2: The advantage and disadvantage of budgeting of DEPOT Ltd:

Drucker (2015) asserts that corporations, in general, may benefit greatly from the use of budgets.
Budgets have a broad variety of applications, one of which is planning, which includes the use of
forecasts that have been made in the past in order to make decisions for the future. Lucey (2018)
states that budgets have a wide range of applications.

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Budgets make it easier for different departments and functions within the organization to
communicate and coordinate effectively with one another, which in turn makes it possible to reach
predefined goals via engagement and balance. Allows for the existence of an effective accounting
information system that provides users, especially those working inside the business, with a variety of
different sorts of information that they need. Furthermore, according to Drury (2008), the
participation of workers in the process of budgeting helps to cultivate a feeling of trust between the
staff and management.

Unfortunately, the time-consuming nature of budgetary management and planning procedures is the
source of the inherent difficulty associated with these processes. This, in turn, hinders the entity's
ability to capitalize on opportunities, restricts flexibility, and limits the entity's capacity to adapt to
change. Furthermore, they have a tendency to be bureaucratic in character, which has the effect of
stifling innovation. Another disadvantage is that, creating a budget requires a major investment of
both time and money, and it often does not include regular updates. Additionally, budgets frequently
depend heavily on assumptions and intentionally encourage the practice of budgeting games. The
propensity of budgets to encourage organized control, inhibit contact between departments, disrespect
the organizational structure, and engender a feeling of lack of appreciation among staff are further
charges that may be leveled against budgets.

REFERENCES

1. Mazikana, A. T. (2019). The effect of budgetary controls on the performance of an organization.

Available at SSRN 3445247.
2. Lidia, T. G. (2014). Difficulties of the budgeting process and factors leading to the decision to
implement this management tool. Procedia Economics and Finance, 15, 466-473.
3. Drucker, P. (2015). Management: Tasks, Responsibilities, Practices. New York: Harper and Row:
466-467
4. Drury, C. (2012). Cost and Management Accounting. 7th edition. Singapore: Thomson learning
Press
5. Lucey, T. (2015). Management Accounting, Fifth edition: Biddles Limited: Great Britain.

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