Question 2

Stanford company is a private and its management accountant department is planning to analyze its financial performance of its investment centre. They collected some information on the financial statement and decided to calculate the residual income of the company to get a better picture of the profit being generated by the company. Information for analysis is provided in the table below:

ROI using the two component method

[DuPont Analysis]

$

Current Assets

:

Cash

16,500

A/C Receivable

12,500

Inventory

30,000

Current Liabilities

34,200

Long Term Li

abilities

124,300

Equity

212,000

Equipment

120,000

Property

110.000

Plant

?

Accumulated Depreciation Plant

28,500

Tax rate

30%

COGS

59,500

Operating Expenses

Last Year Operating Assets

Sales

Interest on debt

Government Bond rate

Market index @Jan 2018

Market index @Dec 31, 2018

Beta

34,200

285,000

116,200

7.5%

4%

27680

28960

1.7

Hint : Long term assets are always sated at Net Book Value

All long term liabilities are debt

Important :All working

s

should be shown.

REQUIRED

1. Calculate Total Assets of the company using the accounting formula [A=L+E]

2. Calculate gross original cost of the plant and calculate the net book value of plant.

3. Calculate operating assets.

4. Calculate EBIT, interest expense, tax.

5. Calculate return on equity ( re )

6. Calculate Residual Income.

7. How does the residual income differ from Accounting income

[EBIT]?

8. Why do we use Residual income instead of Net Income? [Hint: why

we disregard tax and interest rate in this mea

Question 2 Stanford company is a private and its management accountant department is planning to analyre a fiancial performance est centre. They collected some information on the financial statement and decided to calculate the residual income of the company to get a better picture of the profit bring gerated by the comformation for analysis is provided in the table here 5 Current Assets Cash AC Receivable Inventory Current Liabilities Long Ten Equity Equipment Property Pa Accumulated Depreciation Plant 16500 12.500 30.000 30 1240 212.000 20.00 110 000 SOO Tax rate COXIS 500 Operating Expenses 1300 Last Year Operating Assets 285.000 Sales 116290 Interest on debe 739 Gement Bond rale Market index Jan 2018 2260 Marketinden Dec 31, 2018 2960 Beta Hit Longlome New Value All long termes de REQUIRED 1. Calculate Total Assets of the casing the accounting formula JA-LE] 2. Calculate gros original cost of the plant and calculate the netbook 3. Calculate operating at 4. Calculate IT, Interest expect 5. Calculate ruum on equity 6. Calculane Residual income 7. How does the residual income differ from Accounting income LEBIT & Why do we use Residual income indica of Not Income Hint: why we disregard tax and interest rate this mese Question Stanford company is a private and its agement account department planning to analyzes financial performance of its investment centre. They collected some information on the financial statement and decided to calculate the residence of the company to get a better picture of the profit being generated by the company Information for analysis is provided in the table below Current Cash AC Recrie Inventory Current List Long Tema Equity Foment perty Plant Accumulated Depreciation - Plan 16.500 122.500 2000 1300 124 100 210 120000 110000 Taxe COGS som S. Operating pas 200 25000 116 200 199 Last Year Operating Art Sales Interestedet Caneca Bond rate Market Index Jan 2018 Marketinden D11.2015 Lange 2760 17 Adele REQUIRED Calculate Total Aucts of the companying the counting formula 2 Calculate prestiginal cost of the plans and calculate the netbook 1. Calculate operating and 4 Calowate BIT Calculateur en equity) 6. Calculate Residual income 7. How does the residual income differ from Accounting income LEBIT Why do we w Residence of Net Income Hints we did tax and interest rate this mesure