You are provided with the following historical financial information based on 30 June 2021 financial statements...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You are provided with the following historical financial information based on 30 June 2021 financial statements of ABC Company: • Gross profit: $8,000,000 • Gross profit margin: 70% • Operating income margin: 6% • Net income margin (before tax): 3% • Corporate tax rate: 30% • Debtor collection period: 30 days • Creditor payment period: 60 days • Stock turnover days: 90 days ABC Company also provides you with the following budget information for the period 1 July 2021 to 30 June 2022: • Sales: $15,000,000 Opening stock 1 July 2021: $800,000 Closing stock 30 June 2022: $500,000 • • Cost of sales: $4,500,000 • Operational expenses: $ 8,000,000 • Debtor collection: 30 days = 50% and 60 days = 50% • Creditor payment: 30 days = 25%, 60 days = 25%, and 90 days = 50%. a. Complete the income statement of ABC Company. Show your workings. (5 marks) Income Statement for the year ended 30 June 2021 Sales Cost of goods sold Gross profit Operating expense Operating income Interest payment Net income before tax Tax Net income after tax b. Use the information above to complete the table and comment on the realism of the budgeted figures of ABC Company by considering the historical fionres and the fact that the business is operating in a very competitive market. Sales Cost of sales Operational expenses Stock turnover period Debt collection period Historical figure Budgeted figure Comments with reasons Answer the following questions regarding to analysing loan portfolio information, show your workings for the calculation: a. Use the following information to establish how much Bank A's loan portfolio deviates from the national average: (2 marks) C. Consumer loans Overdrafts 25% 15% 20% 40% 100% b. Assume the standard deviation calculated in part a. of this question for Bank A is very large compared to the standard deviation of other banks. Is it necessarily bad for Bank A? (2 marks) Bank A Business loans Mortgage National Ave. 45% 5% 20% 30% 100% A sample of 2,000 customers of similar size and activity have been observed. On average 30 have defaulted on their obligations per year and only 35% of the outstanding debt could be recovered. The average exposure per customer is $55,000. Use the ACRA principle and calculate the total expected loss and the "credit risk premium" per customer. (2 marks) A bank has a basket of five-year loans with a value of $ 5 million that pay annual interest of $200,000 per annum. Interest payments are conducted semi-annually (twice per year) but the total principals of the loans are due at the end of the fifth year. a. The bank is willing to sell these loans without recourse at an interest rate of 3.5 percent. What price should it receive for these loans? (2 marks) Another bank is willing to purchase the loans with recourse at a yield of 3.4 percent per annum. According to the management information system of the selling bank there is a 1.5% probability of default on these loans and 80% of the loans could be recovered upon default due to the security (collateral) that the bank holds. Is it better to sell the loans with or without recourse? (3 marks) b. Question 1 (5 marks) a. Briefly describe each of the following general credit risks pertaining to consumers that banks have to consider and provide examples for each of these risks: i. Guarantees furnished by consumers. (1 mark) 11. The effect of a borrower's age, death or disability on a loan. (1 mark) 111. Future income. (1 mark) b. Briefly describe each of the following specific credit risks pertaining to partnership that banks have to consider and provide examples for each of these risks: i. 11. Financial statements. (1 mark) Continuity. (1 mark) Question 2 (8 marks) You are provided with the following information about a business: a. The sale of the business has increased over the past financial year; b. The gross profit of the business has decreased; c. The payment periods for accounts receivable and accounts payable have increased; d. The amount values of inventory and cash have declined, and at the same time the bank borrowing has increased substantially. Consider the possibility of overtrading. Provide possible reasons for each of the above mentioned changes in the financial figures and conclude your answer by indicating whether each of the above mentioned changes should be regarded as good or bad Question 4 (6 marks) Briefly describe each of the following macro environments and their impacts on the survival of a business that banks have to consider, and provide examples for how each of these environments impact businesses: a Economic environment (2 marks) b. The international environment (2 marks) c. Physical environment (2 marks) Question 5 (6 marks) Briefly explain the different alternative actions that a banker should consider when an account becomes problematic. Provide examples of situations where these actions may be applicable. You are provided with the following historical financial information based on 30 June 2021 financial statements of ABC Company: • Gross profit: $8,000,000 • Gross profit margin: 70% • Operating income margin: 6% • Net income margin (before tax): 3% • Corporate tax rate: 30% • Debtor collection period: 30 days • Creditor payment period: 60 days • Stock turnover days: 90 days ABC Company also provides you with the following budget information for the period 1 July 2021 to 30 June 2022: • Sales: $15,000,000 Opening stock 1 July 2021: $800,000 Closing stock 30 June 2022: $500,000 • • Cost of sales: $4,500,000 • Operational expenses: $ 8,000,000 • Debtor collection: 30 days = 50% and 60 days = 50% • Creditor payment: 30 days = 25%, 60 days = 25%, and 90 days = 50%. a. Complete the income statement of ABC Company. Show your workings. (5 marks) Income Statement for the year ended 30 June 2021 Sales Cost of goods sold Gross profit Operating expense Operating income Interest payment Net income before tax Tax Net income after tax b. Use the information above to complete the table and comment on the realism of the budgeted figures of ABC Company by considering the historical fionres and the fact that the business is operating in a very competitive market. Sales Cost of sales Operational expenses Stock turnover period Debt collection period Historical figure Budgeted figure Comments with reasons Answer the following questions regarding to analysing loan portfolio information, show your workings for the calculation: a. Use the following information to establish how much Bank A's loan portfolio deviates from the national average: (2 marks) C. Consumer loans Overdrafts 25% 15% 20% 40% 100% b. Assume the standard deviation calculated in part a. of this question for Bank A is very large compared to the standard deviation of other banks. Is it necessarily bad for Bank A? (2 marks) Bank A Business loans Mortgage National Ave. 45% 5% 20% 30% 100% A sample of 2,000 customers of similar size and activity have been observed. On average 30 have defaulted on their obligations per year and only 35% of the outstanding debt could be recovered. The average exposure per customer is $55,000. Use the ACRA principle and calculate the total expected loss and the "credit risk premium" per customer. (2 marks) A bank has a basket of five-year loans with a value of $ 5 million that pay annual interest of $200,000 per annum. Interest payments are conducted semi-annually (twice per year) but the total principals of the loans are due at the end of the fifth year. a. The bank is willing to sell these loans without recourse at an interest rate of 3.5 percent. What price should it receive for these loans? (2 marks) Another bank is willing to purchase the loans with recourse at a yield of 3.4 percent per annum. According to the management information system of the selling bank there is a 1.5% probability of default on these loans and 80% of the loans could be recovered upon default due to the security (collateral) that the bank holds. Is it better to sell the loans with or without recourse? (3 marks) b. Question 1 (5 marks) a. Briefly describe each of the following general credit risks pertaining to consumers that banks have to consider and provide examples for each of these risks: i. Guarantees furnished by consumers. (1 mark) 11. The effect of a borrower's age, death or disability on a loan. (1 mark) 111. Future income. (1 mark) b. Briefly describe each of the following specific credit risks pertaining to partnership that banks have to consider and provide examples for each of these risks: i. 11. Financial statements. (1 mark) Continuity. (1 mark) Question 2 (8 marks) You are provided with the following information about a business: a. The sale of the business has increased over the past financial year; b. The gross profit of the business has decreased; c. The payment periods for accounts receivable and accounts payable have increased; d. The amount values of inventory and cash have declined, and at the same time the bank borrowing has increased substantially. Consider the possibility of overtrading. Provide possible reasons for each of the above mentioned changes in the financial figures and conclude your answer by indicating whether each of the above mentioned changes should be regarded as good or bad Question 4 (6 marks) Briefly describe each of the following macro environments and their impacts on the survival of a business that banks have to consider, and provide examples for how each of these environments impact businesses: a Economic environment (2 marks) b. The international environment (2 marks) c. Physical environment (2 marks) Question 5 (6 marks) Briefly explain the different alternative actions that a banker should consider when an account becomes problematic. Provide examples of situations where these actions may be applicable.
Expert Answer:
Answer rating: 100% (QA)
Answer Part 1 of the question a complete income statement Complete income statement b Budgeted figure comparison Item Historical figure Budgeted figure Comments Sales 15000000 15000000 Budgeted sales ... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
The figure shown is a geared countershaft with an overhanging pinion at C. The force on gear A is FA = 600 lbf, and the shaft is to run at a speed of 490 rev/min. Solution of the statics problem...
-
You are provided with the following information from the accounts of FRED Ltd for the year ending 30 June 2019. The accounting profit before income tax is $37,000. Numbers are in Australian Dollars....
-
The Legislative Review Unit tracks bills introduced and passed by the State Legislature. The following table illustrates the percentage of bills passed by the Legislature during the most - recent...
-
Pohle Designs has a department that makes high-quality leather cases for iPads. Consider the following data for a recent month: Budget Formula per Unit Various Levels of Output 10.000 1.000 12000...
-
Revenue RecognitionMembership Fees Midwest Health Club offers one-year memberships. Membership fees are due in full at the beginning of the individual membership period. As an incentive to new...
-
Consider the one-variable regression model \(Y_{i}=\beta_{0}+\beta_{1} X_{i}+u_{i}\), and suppose it satisfies the least squares assumptions in Key Concept 4.3. Suppose \(Y_{i}\) is measured with...
-
PWC Corp. accounting records include the following items, listed in no particular order, at December 31, 2008 : Prepare PWC's income statement for the year ended December 31, 2008. Omit earnings per...
-
Consider atmospheric air at 25C and a velocity of 25 m/s flowing over both surfaces of a 1-m-long flat plate that is maintained at 125e. Determine the rate of heat transfer per unit width from the...
-
For the self - employment tax calculations Social security tax rate 1 2 . 4 % limited to tax base of $ 1 6 0 , 2 0 0 . Medicare tax rate 2 . 9 % no limitation Net earning from self - employment is...
-
Using the techniques you learned, redesign your Critical Thinking Assignments from Module 2 to make them more complex. Be sure to create a new flowchart for both. Discuss the changes you made to the...
-
Financial on (Eco masks) make a chart like the picture below. Include 3-5 years of financial projections Mention key & critical assumptions in your model of expenses, customer conversion, market...
-
you are a judge considering two cases for probation. One is a person charged with possession of drugs, but this defendant is 50 years old and has been arrested for shoplifting things like cigarettes...
-
In a two- to four-page MS Word document submit: IRAC brief Compare and contrast analysis Proper Bluebook citations are required . Assignment Directions Step 1: Use NexisUni to locate the following...
-
Discuss the anatomical and functional organization of the central nervous system, including the cerebral cortex, basal ganglia, limbic system, and brainstem nuclei, and their roles in sensory...
-
Find the interest on the following loan. $8000 at 4% for 9 months The simple interest is $ (Round to the nearest cent as needed.)
-
Explain the anatomical structures and neural pathways involved in pain perception and modulation, including the roles of nociceptors, neurotransmitters, and descending inhibitory pathways, and their...
-
120 psychology students took a standardized test. The scores are summarized in the GFDT below. Scores 180 - 189 190 - 199 200 - 209 210-219 220-229 230 - 239 Frequency 16 12 13 17 18 44 The scores...
-
The following information is available for Partin Company: Sales $598,000 Sales Returns and Allowances 20,000 Cost of Goods Sold 398,000 Selling Expense 69,000 Administrative Expense 25,000 Interest...
-
How are costs associated with the issuance of bonds payable accounted for?
-
What is proportionate consolidation? Under what circumstances are companies likely to use this method?
-
On December 31, Year 1, Airways Corp. issued $1 million in bonds at 5 percent annual interest, due December 31, Year 6 at a discount of $100,000. Airways incurred bank fees of $100,000, legal fees of...
-
Why does a confidence interval contain more information than the result of a single hypothesis test?
-
Let \(Y\) be a Bernoulli random variable with success probability \(\operatorname{Pr}(Y=1)=p\), and let \(Y_{1}, \ldots, Y_{n}\) be i.i.d. draws from this distribution. Let \(\hat{p}\) be the...
-
Sketch a hypothetical scatterplot for a sample of size 10 for two random variables with a population correlation of (a) 1.0; (b) -1.0 ; (c) 0.9; (d) -0.5 ; (e) 0.0.
Study smarter with the SolutionInn App