Question One:
Below is a link to Marks and Spencer Plc's annual reports of the year ending 2014.
https://corporate.marksandspencer.com/investors/b73df1d3e4f54f429210f115ab11e2f6
With reference to appropriate ratios and contextual analysis, including comparative performance of other UK retailers, please assess the company's performance in a formal report, intended for existing stockholders in the company.
Your analysis should include consideration of:
- Profitability
- Liquidity
- Efficiency
- Capital structure
- The investors' specific perspective
Question Two:
Cratchit plc has an authorised and issued share capital of £300,000,000 consisting of 600,000,000 ordinary shares of 50p each.
The following trial balance has been extracted from the books at 30 April 2015
| |
£000 |
£000 |
| Freehold land and building at cost |
292,500 |
|
| Factory plant and machinery at cost |
136,625 |
|
| Research and development expenditure |
42,500 |
|
| Fixtures and fittings at cost |
39,500 |
|
| Motor vehicles at cost |
46,250 |
|
| Accumulated depreciation at 1 May 2014: |
|
|
| Freehold buildings |
|
4,240 |
| Plant and machinery |
|
51,375 |
| Fixtures and fittings |
|
10,813 |
| Motor vehicles |
|
19,750 |
| Trade debtors |
130,200 |
|
| Stock of raw materials at cost 1 May 2014 |
85,800 |
|
| Purchases of raw materials |
543,430 |
|
| Overdraft interest |
7,812 |
|
| Stock of work in progress at 1 May 2014 |
24,500 |
|
| Administrative expenses |
125,575 |
|
| Selling and distribution costs |
92,600 |
|
| Provision for doubtful debts at 30 April 2015 |
|
4,020 |
| Stock of finished goods at 1 May 2014 |
137,200 |
|
| Manufacturing wages |
167,300 |
|
| Manufacturing overheads |
97,350 |
|
| 10% Debentures (2020-2021) |
|
80,000 |
| Creditors |
|
72,265 |
| Bank overdraft |
|
36,438 |
| Rents received |
|
13,000 |
| Sales |
|
1,082,843 |
| Share capital |
|
300,000 |
| Share premium account |
|
60,000 |
| Retained profits at 1 May 2005 |
|
234,398 |
|
|
|
|
1,969,142 |
1,969,142 |
Notes:
1. Freehold land and buildings at cost:
|
£000 |
| Land |
186,500 |
| Buildings |
106,000 |
|
292,500 |
2. The buildings were purchased on 1 May 2012. On 1 May 2014 the buildings were valued on an open market basis by Messrs Marley and Scrooge, Chartered surveyors, at a figure of £121,000,000. The directors wish to incorporate this figure into the accounts. The buildings are depreciated over 50 years on a straight-line basis. 25% of the buildings are used as administrative offices.
3. Research and development costs relate to market research studied in an effort to identify new areas of business which might prove attractive.
4. Corporation tax on the profits for the year is estimated at £15,000,000 and is due for payment on 1 February 2016.
5. Stocks at 30 April 2015 at the lower of cost or net realisable value were as follows:
£000
Raw materials 71,000
Finished goods 205,000
Work in progress 25,000
6. Manufacturing overheads include two instalments in respect of plant and machinery acquired on 1 November 2014 under a finance lease. The terms of the lease require sixteen quarterly instalments of £1,800,000 payable in arrears. The fair value of the machinery on 1 November 2014 was £22,000,000. The company wishes to use the sum of digits method to account for the lease.
7. Fixtures with a cost of £275,000 and accumulated depreciation of £165,000 were sold during the year for £115,000. The proceeds of sale have been credited to sales, but no further adjustments have been made.
8. Depreciation is charged on fixed assets at the following rates:
| Plant and machinery |
10% straight-line |
| Fixtures and fittings |
20% straight-line |
| Motor vehicles |
25% straight-line |
A full year's depreciation is charged in the year of acquisition, and none in the year of disposal.
9. The directors recommend paying an ordinary dividend of 1p per share.
Required:
Prepare, in a form suitable for presentation to the shareholders of Cratchit plc the Income Statement and Statement of Financial Position for the year ending 30th April 2015.
Plant and machinery 10% straight-line
Fixtures and fittings 20% straight-line
Motor vehicles 25% straight-line
Question Three
The following information is available for Dickens plc:
At 1st January 2014 the company had an issued share capital of £2m made up of £1 ordinary shares. The company has share options in existence of 500,000 shares exercisable in 2014 at £2.50 per share. The company has a convertible bond of £1,000,000 at a coupon rate of 10% which is to be converted in 2014 for 500,000 ordinary shares. It also has convertible 5% preference shares of £1 each totalling £500,000 which is convertible in 2014 at a rate of ten preference shares for one ordinary share.
At 1st April 2014 the company made a rights issue of one share for each three held, at a price of £3 per new share.
The fair value of shares in Dickens plc for the year was stable at £4. Earnings for 2013 were £15,000,000, and for 2014 they were £20,000,000. The company has a marginal tax rate of 30%
a) Produce a report with detailed calculations advising the Board of the effects of the above on the company's earnings per share according to the disclosure requirements of IAS 33
As a part of the report:
b) Provide a consideration of the importance of the EPS calculation to investors and also comment upon the potential limitations of the same calculation.
Question Four
‘If financial information is to be useful, it must be relevant and faithfully represent what it purports to represent. The usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable' (IASB Conceptual Framework for Financial Reporting 2010).
Required:
Critically discuss the above statement. In preparing your response, you should consider:
- The fundamental and enhancing characteristics of financial information, as defined by the IASB
- The advantages and disadvantages of the use of a conceptual framework as a frame of reference for the regulation of financial reporting
To assist with your task you may wish to commence your research by accessing the following sources:
https://www.iasb.org/Home.htm (IFRS Foundation and IASB)
https://www.iasplus.com/en/standards/standard4 (Deloitte)
Please note that materials from the IFRS Foundation on the web link have a closely defined application. The materials have been made available by courtesy of the IFRS Foundation with whom copyright vests.