Case

Azzahra is a book publisher, publishes and distributes educational and non-educational books and sell them to libraries and bookstores within Saudi Arabia and in the Arabian Gulf Region (AGR).

Azzahra employs a professional editorial team. All printing and binding activities are outsourced. The annual revenue total 250 millions Saudi Riyals which are disbursed as follows:

Cash expenditures are 150 million Saudi Riyals. Non-cash expenditures are 50 million Saudi Riyals. While revenues may be paid in different currencies, all processed out in the main center in Riyadh and using Saudi Riyal.

Requirement

Suppose you are a member of the professional editorial team and your task is to audit the revenue and accounts receivable. You probably would like to perform your audit in the following order:

1- Establish audit objectives

2- Determine the scope of the audit

3- Apply the Seven Habits of Highly Effective People (expected outcomes).

4- Understand the auditee (gather relevant information, analytical procedures, control

analysis, process flow, process risks)

5- Identify and assess risks

6- Identify key controls

7- Evaluate controls

8- Create test plan

9- Develop work program

10- Gather evidences

11- Evaluate evidences and reach conclusion

12- Develop observation and formulate recommendation.

Multiple Product Break-Even and Net Income Planning
Madison Company manufactures and sells the following three products:

Assume that total fixed cost is $324,800.

a. Compute the net income before income tax based on the sales volumes shown above.

Net income before income tax $Answer

b. Compute the break-even point in total dollars of revenue and in specific unit sales volume for each product.
Enter product mix answers in decimal form.

Break-even Answer units

c. Prove your break-even calculations by computing the total contribution margin related to your answer in requirement (b).

Question 1. Starbucks has many fixed assets in its stores. For example, they have various machines to make drinks or cook food. Identify one of those pieces of equipment, conduct internet research to estimate a replacement cost if it were destroyed today, assuming it is January 1st (cost). How many years do you estimate it will be functional and useful to help Starbucks produce revenue (estimated usefule life)? In that time period in the future, how much do you think Starbucks can sell it for (salvage value)? ( If the machine price is 24,550.35)

Once you have the cost of a machine, an estimated useful life and a salvage value, calculate the item’s depreciation expense for its first year. Extrapolate your results over all Starbucks stores and determine the affect on the balance sheet and income statements by comparing if the item were to be depreciated using the straightline verse double-declining balance methods, over the estimated cost, estimated useful life and estimated salvage values you choose. You must show calculations. To answer this question, you may have to conduct research to determine the make/model machines they use. If you can’t figure it out, use a close substitute.

Question 2. From everything you read, analyzed and understand to date about Starbucks, what would you change that would help it increase revenue, control its expenses, or make its assets more efficient? Show how that beneficial change would affect at least one ratio.

You are one of the three partners in RSM, an auditing firm. This year, RSM was engaged to audit year-end accounts and tax returns of a new and fast-growing engineering consulting company, CPEC. The business had started operations with only a few staff but now it has employees of over 100, still remaining below the size of a company which will require a compulsory audit by the government. During the course of the audit, you have discovered a significant increase in revenue this year compared to last year. Accordingly, your team investigated the increase and discovered a practice which your team believes is not in accordance with the financial reporting framework. Your team found out that one of the owners, who is also the managing director of CPEC, was doing consultancy services to some of his close friends. In effect, consultancy fees for these close friends were recorded as income of the company but not collected. They remain as collectibles of the company in the last five years and the company seem not to have any intention of collecting them. The accountant also have not written them off from the list of bad debts. This practice is also known to the other directors of the company. You have suspicions that this is done to increase the amount of revenue reported in the financial statements. Required: Explain your answer to the following questions: 1. Which fundamental ethical principles in ISA 200 will be affected in this scenario? You can explain more than one ethical principle, if applicable. 2. Is the practice dishonest? Explain your opinion. 3. Explain the impact of this scenario to your firm. 4. What could be the possible course of action?

Company 1

Company 2

Please discuss which company operates more efficiently. The discussion may include, but not exhaustive to the inventory management system, capacity utilization, supply chain etc

Question 1

A company is building an amusement park and has the following projected cashflows. Costs consist of building costs and staff salaries:

5 $0 for year 5 and all future years for building costs

Staff salaries

$4,000 for year 1, increasing by a discrete step of $100 at the start of each future year, but paid continuously throughout each year, every year into the future

Revenue consists of ticket sales, merchandise sales, and food and beverage sales: Food and beverages

For all 30 years,

Tickets: $2000 per month for all years. Assume as paid at end of each month.

Merchandise: Equal to 1/3 of ticket sales

Food and beverages: $4250 per year, increasing by $50 per year in each future year. Assume the amount in each year is earned (paid) in the middle of each year.

Investors in the amusement park want to know what the Net Present Value (NPV) of this project is, assuming:

•  a risk discount rate (effective yield) of 14% per annum; and

•  a 30-year time horizon (i.e. all costs and revenues cease after 30 years).

(a) Calculate the present value of costs. Show all workings. [4 marks]

(a) Calculate the present value of revenue. Show all workings. [4 marks]

(b) Hence, calculate the NPV of the overall project. [1 mark]

Brady Construction Company contracted to build an apartment complex for a price of $5,200,000. Construction began in 2021 and was completed in 2023. The following is a series of independent situations, numbered 1 through 6, involving differing costs for the project. All costs are stated in thousands of dollars.

Required:
Complete the following table (Do not round intermediate calculations. Enter answers in dollars. Round your final answers to the nearest whole dollar. Negative amounts should be indicated by a minus sign.)

Rock Solid Bank and Trust (RSB&T) offers only checking accounts. Customers can write checks and use a network of automated teller machines. RSB&T earns revenue by investing the money deposited; currently, it averages 6.90 percent annually on its investments of those deposits. To compete with larger banks, RSB&T pays depositors 0.50 percent on all deposits. A recent study classified the bank’s annual operating costs into four activities.

Data on two representative customers follow.

Required:

a. Compute RSB&T's operating profits. Operating Profit?

b. Compute the profit from Customer A and Customer B, assuming that customer costs are based only on deposits. Interest costs = 0.50 percent of deposits; operating costs are 4 percent (= $40,500,000/$1,012,500,000) of deposits.

c. Compute the profit from Customer A and Customer B, assuming that customer costs are computed using the information in the activity-based costing analysis.

Customer A Customer B

Sales Revenue

Interest on Deposit

Total Operating Cost

Customer Profit/Loss

Magi Chen is the managing director of Sun Construction Pty Ltd, a family owned business that provides construction services. As Magi is interested in purchasing some new construction equipment’s for her business, she has approached her local bank for finance. The bank has asked that Magi provide an audited financial statement to assist them in considering her loan application. Magi has approached your audit firm for this service and you have been allocated the task of auditing Sun Construction for the year ended 30 June 2019. You have undertaken a preliminary review of the business and determined that a substantive testing approach would be suitable and appropriate. You are currently preparing an audit program for the revenue cycle. The following information has been obtained from your review: • Magi usually works 120 hours a fortnight. Part of this time is spent travelling between different clients and is not charged to the clients. The remaining time is charged at $60 per hour, regardless of the task undertaken. • Customers typically pay Magi in cash for the work undertaken, except for a small number of regular small-business customers. Magi allows these customers to pay on account by bank transfer on a monthly basis. • Magi supplies each cash customer with a written receipt, prepared manually from a receipt book purchased at the local news-agency. The book contains pre-numbered blank receipts, which are completed in duplicate. Required: For each of the assertions of occurrence, completeness and accuracy, identify a procedure(s) you could use to audit Sun Construction's revenue.

Information concerning Marigold Corporation’s intangible assets is as follows.

Prepare a schedule showing the intangible assets section of Marigold’s balance sheet at December 31, 2017.