Write a report addressed to the board of directors of elite

Question

Elite PLC

Elite PLC is a luxury goods manufacturer based in Riyadh that started as a family business in 1986 and has grown into a global mega-brand over the last few decades. At the start of 2015 the company expanded its operations in China and India. The success of the business is very dependent on the talent and commitment of its product designers and its marketing staff. To encourage creativity and independence among its employees the company, until recently, had a very casual and independent work environment with no budgetary control systems. However, in October 2014 a new Head of Accounting, Sarah Cass was appointed and she felt that the operational efficiency and profitability of the business could be improved if a budgetary control system was introduced. Consequently, at the end of 2014 all department heads were requested to prepare budgets for the upcoming year and these budgets were used to produce the budgeted financial statements for 2015.

The attached appendix present the statement of profit or loss for the year ended 31 December 2015 together with the budgeted figures for the year and the actual figures for the year ended 31 December 2014. It also includes the actual and budgeted statements of financial position as at 31 December 2015 and the actual statement of financial position for the previous year.

Requirements

A. Write a report, addressed to the board of directors of Elite PLC, commenting on the performance of the company for the year ended 31 December 2015 and give possible explanations for the differences between the business's actual performance and its budget performance. Your report should refer to appropriate ratios to support your analysis.

B. The head of the marketing department, Omar Kahn, has requested a meeting with Sarah, the head of accounting, as he has concerns about how the budgeting system was introduced. As a result of her meeting with Omar, Sarah now believes she may have acted too quickly in introducing a traditional budgeting system. Drawing from the relevant literature, write a short academic essay outlining the weakness associated with a traditional budgeting system and describe how the system could be improved.

Appendix

Statement of Profit or Loss of Elite PLC for the year ended 31 December

	2014 Actual      SAR'000	2015 Budgeted     SAR'000	2015 Actual SAR'000
Revenue	196,800	343,200	395,850
Less Cost of Sales	- 131,700	- 240,300	- 278,250
Gross Profit	65,100	102,900	117,600
Less Expenses
Administration expenses	- 36,000	- 51,000	- 61,350
Distribution costs	- 13,200	- 16,200	- 21,900
Operating Profit	15,900	35,700	34,350
Interest	0	- 3,000	- 3,600
Profit before Tax	15,900	32,700	30,750
Taxation	- 6,240	- 12,750	- 11,850
Profit for the year	9,660	19,950	18,900

Statement of Financial Position of Elite PLC as at 31 December

	2014 Actual     SAR'000	2015 Budgeted    SAR'000	2015 Actual SAR'000
TOTAL ASSETS
Non-Current Assets
Property, plant and equipment	66,900	117,000	122,700
Current Assets
Inventory	17,100	23,100	25,050
Receivables	28,800	54,600	60,000
Bank	11,400	4,650	_______
	57,300	82,350	85,050
TOTAL ASSETS	124,200	199,350	207,750
TOTAL EQUITY & LIABILITIES
Equity
Equity shares SAR1 each	62,400	62,400	62,400
Share Premium	15,600	15,600	15,600
Retained Earnings	26,250	38,100	41,400
	104,250	116,100	119,400
Non-current Liabilities
10% Loan		39,000	39,000
Current Liabilities
Bank overdraft			6,450
Payables	19,950	44,250	42,900
	19,950	44,250	49,350
TOTAL EQUITY & LIABILITIES	124,200	199,350	207,750

Additional Information:

The company paid dividends of SAR6,240,000 in 2014 and SAR3,750,000 in 2015. It had planned to pay dividends of SAR8,100,000 in 2015.

Note Part B - Academic Paper

The following factors will be taken into consideration when grading the written work.

Content: Relevance, focus, understanding of material, comprehensiveness, breadth v depth

Structure: Organisation of material, development of points, sequence and flow, clear rationale for order of paragraphs and sentences

Writing style: Quality of writing, appropriateness of writing style for an academic paper, clarity of meaning and expression, grammar, syntax, punctuation, spelling, tone should be formal, avoid the use of the first person, referencing (see below)

Presentation: Paper must be typewritten on one side only of A4 size paper, one-and-a-half spaced using 12 point font size.

Word limit = 1,500 words

Guidelines to be followed when referencing.

Citations in the text should be by the author's name and year of publication, for example, Black (1997). In the case of citations of books or direct quotations, page numbers should be given, for example, Jones (1996, p.44). Where more than one publication by the same author in a given year is cited, they should be distinguished by lower case letters after the year, for example, Kelly (1994a), Kelly (1994b). Where there are more than two authors, all names should be given in the first citation with et al used subsequently, for example, Tone et al (1997).

References should be listed alphabetically at the end of the manuscript in the following style:

Article
Archibald, T. (1972). "Stock market reaction to the depreciation switch-back", Accounting Review, 1(1), 22-30.

Bartley, J. W. and Boardman, C. M. (1990). "The relevance of inflation adjusted accounting data to the prediction of corporate takeovers", Journal of Business Finance and Accounting, 17(2), 53-72.

Direct Quotations

If you use a direct quote you must:
• copy exactly the wording of the original text,
• if the quotation takes up less than two lines in your typed paper, then include it in the body of the paper and enclose it in quotation marks,

• if the quotation takes up more than two typed lines, then indent the whole quotation and use single spacing. Quotation marks should not be used with this format, for example Heywood (1977, p.1) warned:
... that examinations can have a most harmful effect on learning, particularly if they simply cause the regurgitation of the knowledge to found in the syllabus.