Question 2 It is now 30 November 2020, a month before the fiscal year end of Globe Plc. If the company has no other transactions until 31 December, its yearend statement of financial position will look as follows (assume that the company reports using IFRS): Globe Plc, Statement of financial position at 31 December 2020 Assets Liabilities and Equity Plant, Property Equipment (PPE) 120,000 Trade payables 15,000 Accumulated Depreciation (30,000) Wages payable 5,000 Non-Current Asset 90,000 Short term liabillity 20,000 Long term debt 80,000 Inventory Trade receivables Cash Current Asset 50,000 20,000 10,000 80,000 Common stock Retained earnings Profit for the year Equity 50,000 10,000 10,000 70,000 Total Asset 170,000 Total liability +Equity 170,000 Required: The firm is considering taking the following actions between today and 31 December. For each of these possible actions, what would be the adjusted ratio/figure specified in the questions below (each action should be considered independently of all other possible actions). Ignore tax effects. 2.1. Increase the managers' bonus by 1,000. Half the bonus is to be paid in cash by year end. Calculate the adjusted Current Ratio (Current ratio = Current assets/ Current liabilities) (3 Marks) 2.2. Purchase inventory worth 5,000. Selling this inventory in 10 December, the company will generate additional sales of 10,000, of which 60% is expected to be on three months credit. The supplier of this purchase demands 20% down payment and extends six months credit for the remaining 80%. Calculate the adjusted Current Ratio (Current ratio = Current assets / Current liabilities) (3 Marks) 2.3. Invest 3,000 in short-term corporate bonds which will accrue 100 in interest by the end of the year. The purchase is paid as cash. Calculate the adjusted Quick Ratio [Quick Ratio = (Cash & Cash equivalents + Receivables) / Current liabilities] (3 Marks) [QUESTION 2 CONTINUES ON NEXT PAGE] 2.4 Encourage customers to place 5,000 of new orders (to be delivered in 10th January 2021) and to make an advance payment of 1,000. The company recognises revenues at the time of delivery: Calculate the adjusted Quick Ratio [Quick Ratio = (Cash & Cash equivalents + Receivables) / Current liabilities] (3 Marks) 2.5 Assume that cash flow from operations is 11,000 unless any further action is taken. Change the estimate of useful life of a fixed asset, assumed to be five years, to seven years. This will change the annual depreciation expense by 250. What will be the adjusted (i) cash flow from operations, (ii) profit for the year, and (iii) total assets? (3 Marks) 2.6 Assume that cash flow from operations is 11,000 unless any further action is taken. Speed up payment of an outstanding balance of 5,000 trade payables. In doing so, the company will benefit from a cash discount of 100. The discount will reduce cost of sales. What will be the adjusted (i) cash flow from operations, (ii) Equity, and (iii) total assets? (3 Marks) 2.7 Assume that the beginning balance of total assets were 150,000 and that no dividends were paid during the year. Buy fixed asset for 6,000 on loan. Consequently, depreciation expense will increase by 100. Calculate the adjusted Return on Assets (ROA) = Net Income / Average Total Asset (3 Marks) 2.8 Assume that the beginning balance of total assets were 150,000 and no dividends were paid during the year. Issue 7,500 new shares in the firm for 2 each and use half the proceeds to repay a portion of the long-term loan. This will save the company 100 in interest expense. The annual interest on this loan is paid on 31 December. Calculate the adjusted Return on Assets (ROA) = Net Income / Average Total Asset (3 Marks) 2.9 Assume that the beginning balance of Equity was 60,000 and no dividends were paid during the year. Issue 5,000 new shares in the firm for 2 each and use half the proceeds to repay a portion of the long-term loan. This will save the company 75 in interest expense. The annual interest on this loan is paid on 31 December. Calculate the adjusted Return on Equity (ROE) = Net Income / Average Equity (3 Marks) 2.10 Assume that the beginning balance of trade receivables was 17,000, and total sales for year 2020 are 91,000. You have made an additional sale of 12,000, 75% of which is on 3-month credit. Calculate the adjusted Trade Receivables Day (Trade Receivables Day = 365 x (Average Trade Receivables / Sales)) (3 Marks) (Total 30 Marks)