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Kindly, provide answer to question in Sheet 2.

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Question 2 The following trial balance relates to Sandown at 30 September 2009 $'000 Revenue Cost of sales Return outwards Return inwards Distribution costs Administrative expenses Loan interest paid Provision for doubtful debts Discounts received Discounts allowed Freehold Land Freehold Building Plant and equipment at cost Brand at cost Accumulated depreciation - 1 October 2008 $'000 380,000 246,800 3,000 1,000 17,400 50,500 1,000 1,300 2,200 2,100 13,000 50,000 42,200 30,000 - building -p Accumulated amortisation - 30 September 2009 - brand Prepaid expenses Accrued expenses Inventory at 30 September 2009 Trade receivables Bank Trade payables Equity shares of 20 cents each Loan notes Retained earnings at 1 October 2008 8,000 19,700 9,000 11,500 5,000 53,000 44,500 8,000 571,000 42,900 50,000 18,440 31,460 571,000 The following notes are relevant: i Sandown's revenue includes $16 million for goods sold to Pending on 30 September 2009. The terms of the sale are that Sandown will incur ongoing service and support costs of $12 million per annum for three years after the sale. Sandown normally makes a gross profit of $0.8M per annum on such servicing and support work. ii Inventory at 30 September 2009 includes an item bought three years ago for $800,000, the said item is now obsolete and can be sold for $330,000. iii Plant and equipment is depreciated at 40% per annum using the reducing balance method. iv Freehold buildings are depreciated on a straight line basis, over a period of 50 years, being the useful life of the building. At 30 September 2009 the buildings were professionally valued at $90 million and the directors wish this valuation to be incorporated into the accounts. (Note: Revaluation needs to be calculated after accounting for currents year's depreciation charge) v Tax of $16 million is to be provided for the year. vi Based on past experience the allowance for receivables is to be increased to 5% of trade receivables. Required: Prepare the following statements, for internal use: (i) the income statement for the year ended 31 May 2010; and (ii) the statement of financial position as at 31 May 2010 (18 marks) (17 marks) Income statement for the year ended Sept 30, 2009 Sales Less: Returns Less: Unearned revenue Discount Allowed Net Sales Less: Cost of Goods Sold: Cost of sales Purchase Returns Inventory write down expense Discount Received Gross Profit Less: Expenses: Distribution costs Administrative expenses Loan interest paid Bad debt expense [(44,700*.05)-1,300] Depreciation Equipment Depreciation Buildings $ 380,000 (1,000) (6,000) (2,100) $ 1 1 1 1 370,900 246,800 (3,000) 470 (2,200) 242,070 128,830 17,400 50,500 1,000 925 9,000 1,000 1 1 1 2 1 1 79,825 49,005 16,000 33,005 Profit before tax Taxation Profit after tax Statement of changes in retained earnings for the year ended Sept 30, 2009 Opening retained earnings 31,460 Profit for the year 33,005 Closing retained earnings 64,465 Balance sheet as at Sept 30, 2009 Assets Non Current Assets Plant and Equipment at cost Freehold land Brand Buildings at value Less: Accumulated Depreciation Equipment Brand Buildings Current Assets Inventory (53,000-800+330) Accounts Receivables Provision for doubtful debts Prepaid expenses Cash at bank/in hand Total Assets Equity and Liabilities Liabilities Non Current Liabilities Bank Loan Current Liabilities Trade payables Tax payable Accrued expenses Unearned revenue $ 1 1 2 1 2 0.5 0.5 $ 42,200 13,000 30,000 90,000 1 1 1 2 175,200 (28,700) (9,000) - 1 1 (37,700) 137,500 52,530 44,500 (2,225) 11,500 8,000 2 1 1 0.5 0.5 pn000696: 1 mark for 53,000 and 1 mark for (800+300) 114,305 251,805 18,440 42,900 16,000 5,000 6,000 0.5 0.5 0.5 0.5 0.5 69,900 Equity Share Capital Revaluation surplus Retained earnings Total equity and liabilities pn000696: Student respective profits should be taken into account and marks awarded accordingly. 50,000 49,000 64,465 0.5 1 163,465 251,805 pn000696: If same as taken in the income statement then marks should be awarded B65: pn000696: D30: pn000696: E50: pn000696: If same as taken in the income statement then marks should be awarded Student respective profits should be taken into account and marks awarded accordingly. 1 mark for 53,000 and 1 mark for (-800+300) Question 4 Mr X owned a highly successful technology business which he sold five years ago for $20 million. He then set up an investment entity that invests, primarily in smaller private businesses in need of short to medium term funding. Mr X sits on the board as a non-executive director of a number of the entities that his business has invested in and is often able to offer valuable business advice to these entities, especially in the area of research and development activities. Mr X has been approached by the managing director of ABC, a small private entity looking for investment. ABC has been trading for more than 10 years manufacturing and selling its own branded perfumes, lotions and candles to the public in its 15 retail stores and to other larger retailing entities. Revenues and profits have been steady over the last 10 years. However 18 months ago, the newly appointed sales director saw an opportunity to sell the products on-line. Using long term funding, he therefore set up an online shop. The online shop has been operating successfully for the last 14 months. The sales director also used his prior contacts to secure a lucrative deal with a boutique hotel chain for ABC to manufacture products for the hotel, carrying the hotel chain name and logo. The managing director of ABC now believes that the business has further opportunities and does not wish to lose the momentum created by the sales director. The bank that currently provides both a longterm loan and an overdraft facility has rejected ABC's request for additional funds on the basis that there are insufficient assets to offer for security (the existing funding is secured on ABC's property, plant and equipment). Extracts from the financial statements for ABC are provided below: Statement of comprehensive income for the year ended 30 June Revenue 2011 $'000 2010 $'000 6,000 3,700 Cost of sales (4,083) (2,590) Gross profit 1,917 1,110 Administrative expenses (870) (413) Distribution costs (464) (356) Finance costs (43) (34) Profit before tax 540 307 (135) (80) 405 227 Income tax expense Profit for the year The revenues and profits of the three business segments for the year ended 30 June 2011 were: Retail operations Online store Hotel contract $'000 $'000 $'000 Revenues 4,004 1096 900 Gross profit 1200 330 387 320 138 82 Profit before tax The online store earned a negligible amount of revenue and profit in the year ended 30 June 2010. Statement of financial position as at 30 June 2011 2010 $'000 $'000 ASSETS Non-current assets Property, plant and equipment 380 400 20 10 400 410 Inventories 1,260 1,180 Receivables 455 310 - 42 Intangible assets - development costs Current assets Cash and cash equivalents 1,715 1,532 2,115 1,942 Share capital ($1 equity shares) 550 550 Retained earnings 722 610 1,272 1,160 412 404 363 378 68 - Total assets EQUITY AND LIABILITIES Equity Total equity Non-current liabilities Long-term borrowings Current liabilities Payables Short-term borrowings (overdraft) 431 Total liabilities Total equity and liabilities 378 843 782 2,115 1,942 As a member of Mr X's investment management team, you have been asked to analyse the financial performance and position of ABC and make a recommendation as to whether this request for investment should be considered further by Mr X. Required: Prepare a report that analyses the financial performance of ABC for the year ended 30 June 2011 and its financial position at that date, and makes a recommendation as to whether the investment should be considered further. (10 marks are available for the calculation of relevant ratios) (25 marks)