Case Study Scenario You have been recently appointed as a Credit Risk Management Consultant for AD Savings and Loans LLC (ADSL) which is a financial institution that has operated for over six (6 years) and offers financial services such as: 1. Offering a wide range of deposits / savings services 2. Offering a wide range of loans / credit facilities 3. Offering mortgage loans to new homeowners 4. Offering start-up loans to new businesses 5. Offering credit and debit cards for various purposes. The management has authorized you to be in charge of the creation of the new credit department and as such, you are required to undertake a thorough research to be considered by management on the following issues: a) The principles of credit management and how it will influence ADSL b) The role of the credit department in ADSL c) The types of credit agreements that can be considered by ADSL To enable you to be successful in your plan to set up the credit department for ADSL, you are required to undertake the following tasks via research. NOTE: PLEASE TYPE / WRITE YOUR ANSWERS IN BLUE COLOUR ONLY Task A State and explain any three (3) reasons why credit is important for ADSL and the economy in general? (E1-1.1: 5 marks x 3 = 15 marks) 1. 2. 3. Task B Study and analyse carefully the ADSL income statement and balance sheet in Table 1 and answer the questions below it (E1-1.5, E2-2.3-2.4 22 marks) ADSL INCOME STATEMENT AND BALANCE SHEET FOR 2020 Income Statement Extract Balance Sheet Extract Dhs (000) ASSETS Sales Revenue 52,000 Cost of Goods Sold Expense (33,800) Cash Accounts Receivable Inventory Prepaid Expenses Property, Plant & Equipment Accumulated Depreciation Intangible Assets Total Assets Dhs (000) 3,265 5,000 8,450 960 16,500 (4,250) 5,575 35,500 Selling and Admin Expenses (12,480) Depreciation Expense (785) Interest Expense (545) Income Tax Expense (1,748) LIABILITIES AND STOCKHOLDERS' EQUITY Accounts Payable 3,320 Accrued Expenses Payable 1515 Income Tax Payable 165 Short-Terms Notes Payable 3.125 Long-Terms Notes Payable 4,250 Capital Stock 8,125 Retained Earnings 15,000 Total Liabilities and Stockholders' 35 500 Equity Net Income 2,642 Table 1: ADSL INCOME STATEMENT AND BALANCE SHEET FOR 2020 B1: How much money is ADSL expecting from customers who purchased on credit in 2020? (PC 1.5) (2 marks) B2: If the customers who purchased on credit refuses to make their payment explain any two (2) impact on ADSL income statement and balance sheet for 2020? (PC 1.5) (2 marks x 2 = 4 marks) B3: If the customers who purchased on credit refuses to pay, what two (2) likely conflicts may arise between the newly created credit department and the sales department? (PC 2.3) (2 marks x 2 = 4 marks) B4: State any two (2) ways the conflict between the credit department and sales department may be resolved in ADSL. (PC 2.3) (3 marks x 2 = 6 marks) B5: Identify any three (3) methods ADSL can finance their credit balance / deficit If the customers who purchased on credit refuses to make payment (PC 2.4) 2 marks x 3 = 6 marks Task C Enumerate any five (5) key outcomes and performances that the new credit department in ADSL will achieve (E2 - 2.5: 2 marks x 5 = 10 marks) 1. 2. 3. 4. 5 5. Task D (E 3: 3.1 & 3.3) (15 marks) D1: Identify the three (3) types of consumer credits (3 marks) 1. IN 3. Discuss one advantage and one disadvantage of each type of consumer credit in task 01 2 marks x 2 - 4 marks 1. A. ADVANTAGE B. DISADVANTAGE 2 marks x 2 = 4 marks 2. A. ADVANTAGE B. DISADVANTAGE 2 marks x 2 = 4 marks 3. A. ADVANTAGE B. DISADVANTAGE TASKE Outline the main features of the following credit agreement (E3-3.2 & 3.3: 4 marks x 5 = 20 marks) A B No. Type of Credit Main Feature (Brief Description, 1 advantage and 1 disadvantage) 1 1 Credit Union 2. Mortgage 3 Credit Card Credit Sale 5 Hire Purchase Task F State and explain any three (3) importance of developing a credit policy for ADSL? (E 4 - 4.3: 3 marks x 3 = 9 marks) 1. 2. 3. Task G List and explain any (three) 3 key elements / features of that must be included in the credit policy for ADSL? (E 4 - 4.4: 3 marks x 3 = 9 marks) 1. 2. 3. Case Study Scenario You have been recently appointed as a Credit Risk Management Consultant for AD Savings and Loans LLC (ADSL) which is a financial institution that has operated for over six (6 years) and offers financial services such as: 1. Offering a wide range of deposits / savings services 2. Offering a wide range of loans / credit facilities 3. Offering mortgage loans to new homeowners 4. Offering start-up loans to new businesses 5. Offering credit and debit cards for various purposes. The management has authorized you to be in charge of the creation of the new credit department and as such, you are required to undertake a thorough research to be considered by management on the following issues: a) The principles of credit management and how it will influence ADSL b) The role of the credit department in ADSL c) The types of credit agreements that can be considered by ADSL To enable you to be successful in your plan to set up the credit department for ADSL, you are required to undertake the following tasks via research. NOTE: PLEASE TYPE / WRITE YOUR ANSWERS IN BLUE COLOUR ONLY Task A State and explain any three (3) reasons why credit is important for ADSL and the economy in general? (E1-1.1: 5 marks x 3 = 15 marks) 1. 2. 3. Task B Study and analyse carefully the ADSL income statement and balance sheet in Table 1 and answer the questions below it (E1-1.5, E2-2.3-2.4 22 marks) ADSL INCOME STATEMENT AND BALANCE SHEET FOR 2020 Income Statement Extract Balance Sheet Extract Dhs (000) ASSETS Sales Revenue 52,000 Cost of Goods Sold Expense (33,800) Cash Accounts Receivable Inventory Prepaid Expenses Property, Plant & Equipment Accumulated Depreciation Intangible Assets Total Assets Dhs (000) 3,265 5,000 8,450 960 16,500 (4,250) 5,575 35,500 Selling and Admin Expenses (12,480) Depreciation Expense (785) Interest Expense (545) Income Tax Expense (1,748) LIABILITIES AND STOCKHOLDERS' EQUITY Accounts Payable 3,320 Accrued Expenses Payable 1515 Income Tax Payable 165 Short-Terms Notes Payable 3.125 Long-Terms Notes Payable 4,250 Capital Stock 8,125 Retained Earnings 15,000 Total Liabilities and Stockholders' 35 500 Equity Net Income 2,642 Table 1: ADSL INCOME STATEMENT AND BALANCE SHEET FOR 2020 B1: How much money is ADSL expecting from customers who purchased on credit in 2020? (PC 1.5) (2 marks) B2: If the customers who purchased on credit refuses to make their payment explain any two (2) impact on ADSL income statement and balance sheet for 2020? (PC 1.5) (2 marks x 2 = 4 marks) B3: If the customers who purchased on credit refuses to pay, what two (2) likely conflicts may arise between the newly created credit department and the sales department? (PC 2.3) (2 marks x 2 = 4 marks) B4: State any two (2) ways the conflict between the credit department and sales department may be resolved in ADSL. (PC 2.3) (3 marks x 2 = 6 marks) B5: Identify any three (3) methods ADSL can finance their credit balance / deficit If the customers who purchased on credit refuses to make payment (PC 2.4) 2 marks x 3 = 6 marks Task C Enumerate any five (5) key outcomes and performances that the new credit department in ADSL will achieve (E2 - 2.5: 2 marks x 5 = 10 marks) 1. 2. 3. 4. 5 5. Task D (E 3: 3.1 & 3.3) (15 marks) D1: Identify the three (3) types of consumer credits (3 marks) 1. IN 3. Discuss one advantage and one disadvantage of each type of consumer credit in task 01 2 marks x 2 - 4 marks 1. A. ADVANTAGE B. DISADVANTAGE 2 marks x 2 = 4 marks 2. A. ADVANTAGE B. DISADVANTAGE 2 marks x 2 = 4 marks 3. A. ADVANTAGE B. DISADVANTAGE TASKE Outline the main features of the following credit agreement (E3-3.2 & 3.3: 4 marks x 5 = 20 marks) A B No. Type of Credit Main Feature (Brief Description, 1 advantage and 1 disadvantage) 1 1 Credit Union 2. Mortgage 3 Credit Card Credit Sale 5 Hire Purchase Task F State and explain any three (3) importance of developing a credit policy for ADSL? (E 4 - 4.3: 3 marks x 3 = 9 marks) 1. 2. 3. Task G List and explain any (three) 3 key elements / features of that must be included in the credit policy for ADSL? (E 4 - 4.4: 3 marks x 3 = 9 marks) 1. 2. 3