Fin621 Assignment No. 1 Announced

Semester “Spring 2011”

“Finanacial Statement Analysis (FIN621)”

Assignment No. 01 Marks: 15

“Adjusting entries and its effect”

Question:

Eagle Security Service (PVT) Ltd. provides security solutions to various offices and shopping centers in the city. The books of accounts of the company are closed at the end of the calendar year. The following transactions occurred during the financial year 2009.

1. On August 01, the company received Rs. 40,000 as advance payment from ABC Shopping Mall for security services that are to be performed for the period of four months starting from August 01. The accountant of the Eagle Security Service recorded the same amount by crediting the “services revenue account” on August 01, 2009.

2. XYZ Company Limited filed a lawsuit against the Eagle Security Service (PVT) Ltd. For claims of worth Rs. 30,000 but the suit has not yet been settled.

3. On December 01, 2009, the company received Rs. 36,000 from the “Stylish Jewelers” located on the Main Boulevard for security services to be performed for the period of six months starting from December 01,2009. The entire amount was credited to the “unearned services revenue account”

4. The company uses a rental building as head office for which rent is accrued of Rs. 80,000 for twelve months up to the end of December but the company usually records rent expense when the rent is actually paid. Rent is normally paid in the first month of next year.

5. Entries are recorded for salaries expenses when employees are actually paid. Salaries are still to be paid amounting to Rs. 50,000 of one month till December 31, 2009.

6. On December 01, 2009 the company borrowed Rs. 300,000 from National Bank of Pakistan by issuing a 15% note payable due after six months. No entry is passed by the accountant yet.

7. On October 31, 2009 the company made a payment of worth Rs. 18,000 for insurance policy of one year starting from the beginning of November 01 2009. The whole amount was recorded as “prepaid insurance account”.

8. No depreciation expense for year has been recognized of the fixed asset having the cost of Rs. 80,000 and the book value of Rs. 51,200. Previously assets were depreciated (written down value method) @ 20% per annum.

Instructions:

1. For each above transaction pass the adjusting entry, if required; at December 31,2009. (Simply state “NO” with one line reason where adjusting entry is not required).

2. Explain the effect after adjustments on the “Expenses, Assets and Owners’ equity”of the company. Use the below format where “I” = increase , “D” = Decrease and “NE” = No Effect

Sr. No

Expense

Asset

Owners’ equity

1

2

3

4

5

6

7

8

Important Tips

1. This Assignment can be best attempted from the knowledge acquired after watching video lecture no. 1 to lecture no 13 and reading handouts as well as recommended text book).

Schedule

Opening Date and Time

April 22, 2011 At 12:01 A.M. (Mid-Night)

Due Date and Time

April 27 , 2011 At 11:59 P.M. (Mid-Night)

Note: Only in the case of Assignment, 24 Hrs extra / grace periodafter the above mentioned due date is usually available to overcome uploading difficulties which may be faced by the students on last date. This extra time should only be used to meet the emergencies and above mentioned due dates should always be treated as final to avoid any inconvenience.

Important Instructions:

Please read the following instructions carefully before attempting the assignment solution.

Deadline:

• Make sure that you upload the solution file before the due date. Noassignment will be accepted through e-mail after the due date.

Formatting guidelines:

• Use the font style “Times New Roman” and font size “12”.

• It is advised to compose your document in MS-Word 2003.

• Use black and blue font colors only.

Solution guidelines:

• Every student will work individually and has to write in the form of ananalytical assignment.

• Give the answer according to question, there will be negative marking

for irrelevant material.

• For acquiring the relevant knowledge don’t rely only on handouts butwatch the video lectures and use other reference books also.

Rules for Marking

Please note that your assignment will not be graded or graded as Zero (0) if:

• It has been submitted after due date.

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Fin622 GDB No. 1 Announcement

Semester “Spring 2011”

“Corporate Finance (Fin622)”

This is to inform that Graded Discussion Board (GDB) will be opened according to the following schedule

Schedule

Opening Date and Time

April 19 , 2011 At 12:01 A.M. (Mid-Night)

Closing Date and Time

April 22 , 2011 At 11:59 P.M. (Mid-Night)

Topic/Area for Discussion

“ Capital budgeting”

Note: The discussion question will be from the area/topic mentioned above. So start learning about the topic now.

Discussion Question
Usually NPV and IRR techniques of project evaluation leads to the same ranking for given projects and make the decision to undertake project relatively simple. But sometimes it does happen that a ranking conflict arises by using both techniques i.e. both techniques provide contradictory ranking of given projects.

You are required to discuss the circumstances when NPV and IRR lead to a ranking conflict for two projects?

Your answer should be relevant and should not exceed 4 to 5 lines.
:::::::::::::::::::::::::
Solution:

NPV and IRR Conflict
Conflicts between NPV and IRR can arise in numerous circumstances: different lives, different sizes, different risk factors, or different timing of cash flows. The underlying cause of the conflict resides in the assumption of cash flow reinvestment. The process of discounting and time value of money is predicated on interest compounding and discounting is predicated on what discount rate is chosen. In IRR calculation, the implied interest rate of reinvestment of cash flows is IRR itself. In NPV calculation, it is the discount rate. Which of the two methods is correct depends on the choice of what is a more realistic rate of reinvestment of cash flows: IRR or discount rate. Most often the reinvestment opportunities that a company has are those that can earn its weighted average cost of capital, because it is what its projects earn on average. Relying on an assumption of weight average cost of capital as the reinvestment opportunity is also more conservative. Thus, NPV is most often the safest basis for decision.
But that may not be always the case. For instance, choosing projects that have positive NPV implies that they earn a higher return than risk adjusted cost of capital. This implies that we expect opportunities for reinvestment of cash flows at higher rates. Higher rates of return can also be required when future inflation is anticipated. To investigate the impact of cash flow reinvestment opportunity, advanced textbooks in financial management recommend calculating an adjusted NPV and an adjusted IRR. These are obtained by first calculating a terminal value which is the future value of cash flows compounded at the opportunity rate of reinvestment calculation of future value). Then the terminal value is discounted to the present using the weighted average cost of capital. Thus the adjusted NPV is given by
(Ct(1+k0)t ) * ((1 + kc )n – 1) / kcSAdjusted NPV = - I0 +
where I0 = initial outlay
Ct = cash flows
k0 = opportunity rate of reinvestment
kc = weighted average cost of capital
t = time period
n = length of project
Likewise, the adjusted IRR is given by
(Ct(1+k0)t ) * ((1 + x )n – 1) / xSAdjusted IRR = x where I0 =
By using the same rate of reinvestment of cash flows for NPV and IRR removes the conflict between NPV and IRR. The additional steps required in the calculation of adjusted NPV and IRR are not intuitively appealing. The complexity of the procedure makes it rather unpopular, and as long as conservative rates of reinvestment are used the results merely confirm the conclusion reached with the unadjusted NPV. This gives even more reason to rely on ordinary NPV. Also keep in mind the rough estimates often used in cash flow projections: the theoretical complexity seems somewhat remote from reality.
:::::::::::::::::::::::::::::::::::
Assuming these projects are mutually exclusive, the circumstances that lead to conflict include this: project a generating less cash flow in the first couple of years and then generating most of total cash flow in the last years of the project. project b is the opposite; it is generating most of its cash flow in the first couple of years and then generating the least in the last years of the project.

When everything is summed up for the two projects, project a has generated more cash flow than project b. However, the IRR is greater for project b. how is this so? remember that we are discounting the cash flows. So, project a having most of its cash flow in the last years meant it had to be discounted back more years, resulting in less present value. project b having most of its cash flow in the first years led to a greater return when NPV is zero.

What you see is that when the discount rate is zero, the NPV is greater for project a since it generated more total cash flow. As you increase the required return, you then see that at some point, there will be a crossover, and the NPV of project b will be greater than project a. This is how NPV and IRR leads to ranking conflict.

To sum up, if you have two projects in which project x has greater cash flows and most of those cash flows happen at the end of the project's cycle, it is more attractive if the discount rate is lower since the NPV will be higher than project y. for project y which has lower cash flows and most of those cash flows happen at the start of the project, it is more attractive if the discount rate is high since the NPV will be higher than project x.

Thus, in a situation where you could only choose one project and not both, you first would calculate the crossover point, the point in which both projects have the same NPV and required return. You would then check where the investors' expectations are concerning their required rate of return. If it is lower than the crossover discount rate, then project x is a better choice than project y.

Mgt402 Assignment solution

Solution:

Question # 1
Over/under applied FOH Rs.2,760 Under Applied
Adjustment on entire production:
Work in process cost 42,631
Finished goods cost 31,598
Cost of goods sold 821,031
Question # 2
Economic order quantity 10,000
Effect of cost reduction on EOQ 9,997 (No Effect)

Working:

Over/under applied FOH:

Applied FOH = Rs.290,000 x 30% of Direct Labor
= Rs.87,000
Actual FOH = Indirect Labor + Depreciation + Light & Power + Repair to Machinery + Misc. FOH
= 46,000 + 4,700 + 4,260 + 5,800 + 29,000
= Rs.89,760

Over/under applied FOH = 87,000 - 89,760
= Rs.2,760 Under Applied


Cost of Goods Sold Statement

Direct Material Consumed 440,000
Add: Direct Labor 290,000
Add: FOH Cost (290,000* 30%) 87,000
Total Factory Cost 817,000
Add: Opening W.I.P 41,200
Less: Ending W.I.P (42,500)
Add: Opening Finished Goods 34,300
Less: Closing Finished Goods (31,500)
Cost of Goods Sold (At Normal) 818,500


Adjustment on entire production:

Work in process cost (42500 + 131) 42,631

Finished goods cost (31,500 + 98) 31,598

Cost of goods sold (818,500 + 2,531) 821,031


2- EOQ = √2 x RU x OC / UC x CC%

= √2 x 120,000 x 1,500 / 60 x 6%
= 10,000

Effect of cost reduction By 2% on EOQ

EOQ = √2 x RU x OC / UC x CC%

= √2 x 120,000 x 1,470 / 60 x 5.88%
= 9,997

MKT 501 quiz 2

Question # 1 of 15 ( Start time: 03:59:52 PM)

Total Marks: 1

Decisions regarding covering area of a product are included in which of the following marketing strategy of a market plan?

Select correct option:

Distribution

Promotion

Pricing

Product

Question # 2 of 15 ( Start time: 04:02:10 PM)

Total Marks: 1

A firm is developing a new product and has placed the advertisement of the product. The firm is at which stage of the new product development process?

Select correct option:

Commercialization

Concept development

Beta testing

Business Analysis

Question # 3 of 15 ( Start time: 04:03:10 PM)

Total Marks: 1

Tight cost control is associated with which of the following strategy?

Select correct option:

Market segmentation strategy

Market dominance strategy

Differentiation strategy

Cost leadership strategy

Question # 4 of 15 ( Start time: 04:03:51 PM)

Total Marks: 1

Which of the following 4Ps of marketing mix involves decisions regarding channels coverage, assortments, locations, inventories or transports?

Select correct option:

Product

Price

Place

Promotion

Question # 5 of 15 ( Start time: 04:05:18 PM)

Total Marks: 1

Which of the following are called value maximizers?

Select correct option:

Sellers

Customers

Marketers

Manufacturers

Quiz Start Time: 03:59 PM

Question # 6 of 15 ( Start time: 04:06:24 PM)

Total Marks: 1

Sales decline in the decline stage of the PLC because of technological advances, increased competition, and ___.

Select correct option:

Shifts in unemployment

Shifts in the economy

Shifts in consumer tastes and preferences

Foreign imports

Question # 7 of 15 ( Start time: 04:07:05 PM)

Total Marks: 1

Which of the following are products and services bought by final consumers for personal consumption? These include convenience products, shopping products, specialty products, and unsought products.

Select correct option:

Material and parts

Consumer products

Industrial products

Capital items

Question # 8 of 15 ( Start time: 04:07:36 PM)

Which of the following is NOT a technique of measuring customer satisfaction and monitoring customer’s complaint?

Select correct option:

Customer complaints database

Exit interviews

Web and telephone information hotlines

Business Analysis

Question # 9 of 15 ( Start time: 04:08:07 PM)

Total Marks: 1

During which stage of new product development does the firm consider profitability?

Select correct option:

Idea generation

Business analysis

Market testing

Product development

Question # 10 of 15 ( Start time: 04:08:42 PM) Total Marks: 1

Which of the following markets involve buying and selling of goods for their utility and enabling them to make or re-sell a product to others?

Select correct option:

Consumer markets

Business markets

Global markets

Government markets

Quiz Start Time: 03:59 PM

Question # 11 of 15 ( Start time: 04:09:43 PM)

Total Marks: 1

Which of the following is TRUE about marketing concept?

Select correct option:

The customer is always right

Business is about making money

Sell, sell, and sell

Keep prices low

Quiz Start Time: 03:59 PM

Question # 12 of 15 ( Start time: 04:11:11 PM)

Total Marks: 1

Which of the following BEST describes the consumer’s preference for products that are widely available to them?

Select correct option:

Production concept

Marketing concept

Selling concept

Product concept

Quiz Start Time: 03:59 PM

Question # 13 of 15 ( Start time: 04:11:54 PM)

Total Marks: 1

Which of the following emphasizes on profit margins rather than revenue?

Select correct option:

Market leader

Market challenger

Market nicher

Market follower

Quiz Start Time: 03:59 PM

Question # 14 of 15 ( Start time: 04:12:44 PM)

Total Marks: 1

Among the various elements, the brand name, belongs to which of the following?

Select correct option:

Core product

Actual product

Augmented product

Specialty product

Quiz Start Time: 03:59 PM

Question # 15 of 15 ( Start time: 04:13:18 PM)

Total Marks: 1

Market –oriented firms focus on:

Select correct option:

Retailers

Distributors

Customers

Wholesalers

Mgt111 GDB solution

According to Laswell, politics is “who gets what, how, when and where.” Suppose you are Secretary of XYZ Ministry. You want to set up a new department of security in your organization to protect employees. This cover’s ‘what’ portion of Laswell’s definition of politics. Please explain ‘how’ organizational politics can be used in this case? Why politics is essential to setup a new department?

::::::::::::::::::

Solution:

Harold Lasswell defined values as desired goals and power as the ability to participate in decisions, and he conceived political power as the ability to produce intended effects on other people. In our particular scenario the secretary of XYZ Ministry wants a new department for the employees of the Ministry. To achieve this goal the Secretary must establish the fact that this new department is a need for the employees. Lasswell also maintained that power is held by the elite so the decision and work to establish the department must come through the secretary and after its completion the employees should be informed of it.