Background :
You are Sarah, CFO at PT Kembang Gula, a FMCG company which manufactures and sells products necessities of the day which consist of:
1. Foods like: Chili sauce, soy sauce, tea etc.
2. Personal Care such as: shampoo, soap, moisturizer, toothpaste, etc.
3. Home Care such as: detergent, fabric softener, washing kitchen soap, floor cleaners, etc.
Putri is the CEO of PT Kembang Gula.

Task :
One day Sarah received an email from Putri, and asked for a reply to the email.
Email content:
Dear Sarah,
Seeing more and more not sure the business situation, national and global economy, and also still the length of travel Pandemi COVID19, then please give reviews and recommendations on the subject matter as follows:

1. With many variables that continue to change rapidly and significantly, how do we regulate the profitability and fundamental financial conditions of the company (the balance of loss/profit, balance sheet, cash flow) so that we remain healthy in the company and at the same time can still take any opportunities that arise in the market?

2. Please provide what is the example of business action that can be done by each section: Consumer & Market Insight, Marketing, Sales, Supply Chain and R&D, which is a unity with the corporate action above?

Later this issue will be discussed in the management meeting next week, but I want both of us to be able to discuss this first so that it can get the prefix proposals to be brought to the wider forum in the management meeting.

Case Analysis 1: You work for a small, local telecommunications company. In five years, the company plans to undertake a major upgrade to its servers and other IT infrastructure. Management estimates that it will need up to $450,000 to cover all related costs; however, as a fairly young company, the goal is to pay for the upgrade with cash and not to take out loans. Right now, you have $300,000 in a bank account established for Capital Investments. This account pays 4% interest, compounded annually. A member of the finance department has approached you with an investment opportunity for the $300,000 that covers a five-year period and has the following projected after-tax cash flows:

Year Projected Cash Flow

1 $90,000

2 $115,000

3 $135,000

4 $110,000

5 $90,000

Based on this information, in an MS Word document, answer the following questions:

1) How much money will be in the bank account if you leave the $300,000 alone (earning 4% compounded interest) until you need it in five years?

2) If you undertake the investment opportunity, what is the Nominal Payback Period?

3) Using the Present Value factors for 7% (which can be found on any PV Factor table), what is the discounted Payback Period of the investment opportunity?

4) What is the Net Present Value at 7% of the investment opportunity?

5) Which option (make the investment or leave the money in a savings account) would you recommend to your CEO? Why? What additional factors/information might make you change your point of view?

Problem 1:

Dodge Industries incurs the following costs during the 2019:

The company sells one product for $10. During 2019, total sales revenue was $800,000. Dodge determined that only the direct production costs and factory supplies are to be classified as variable costs; all other costs are classified as fixed costs.

Required:  

Using Excel, prepare a spreadsheet that addresses the following:

1. Determine the unit contribution margin.

2. Determine the contribution margin ratio.

3. The company is considering an expansion that will increase sales volume by 20%. The following changes would occur of the plan is implemented:

• An additional machine would add $5,000 of annual depreciation.  

• Rent and insurance would each increase by 25%, as additional factory space would be needed.

• Due to bulk purchasing and economies of scale, the per unit cost of direct materials would decline by 20%.

Nothing else would change.

Prepare a contribution margin income statement, with two columns that compare the current situation without expansion and the situation if the expansion plan is implemented.  

4. The CEO is hoping this plan will increase pretax income by 20% so she can increase her own salary.

Clearly state at the end of it whether the CEO’s expectations will be achieved if the company expands. Will pretax income increase by 20%? Show the calculation.

Dewin Auer Best (DAB) CPAs has an audit and tax client named Meyers, Inc. Meyers is a closely held C corporation whose majority shareholder, Alicia Meyers, is also its CEO. Alicia also is a tax client of DAB. During the latest year, Meyers, Inc. allowed Alicia to use a company credit card to make numerous personal purchases, but she did not reimburse the company for any of these expenditures. She also has a company car that she uses for all her transportation needs, business and personal. You are a first-year professional and have been asked by your partner, Sarah Best, to prepare Form 1120 for Meyers, Inc. and Form 1040 for Alicia Meyers. When you start to prepare the Form 1120, you notice that Meyers, Inc. has reported these charges and the total amount of operating costs for the automobile as deductible items. When reviewing Alicia’s personal tax information, you note that on her W-2, box 1, the amount listed as salary is exactly the contracted amount reported in the board of directors minutes and does not include any additional amounts for the unreimbursed expenses or automobile usage. In addition, box 14 is blank and does not contain any reported fringe benefits. Consult Circular 230, the SSTSs, and the AICPA Code of Professional Conduct. What issues must be resolved before you can recommend that Sarah Best should sign this tax return? Ignore the standards that a return preparer must satisfy under the Internal Revenue Code.

QUESTION 1

Ernest and his partner Mary run a second-hand bookshop. The business is incorporated under the name of Ketchum Ltd, and they are the only shareholders.

As the business is small they do not employ a full-time accountant, but pay a local firm to prepare their accounts after the end of the accounting period from information they supply. You are on a summer work placement with this firm and have been asked to prepare             a first draft of the accounts for Ketchum Ltd for the year ending 31^st December 2019.

A list of closing balances reported in Ketchum Ltd’s statement of financial position as at 31^st December 2018 is set out below:

Further information:

1. The shop premises were acquired under a 50-year lease on 1^st January 2016 and are being depreciated to a zero residual value.
2. The fixtures and fittings were also bought on 1^st January 2016 and are being depreciated over 10 years to a zero residual value.
3. Depreciation is provided on a straight line basis for both the shop premises and the fixtures and fittings.
4. The business pays its insurance premium annually on 1^st July to cover the following twelve month period. This is the only prepayment as at 31^st December 2018.
5. The accrued expenses relate to the accountant’s fees for preparing last year’s accountants, paid in March 2019. This is the only accrual as at 31^st December 2018.
6. All profits earned are subject to a 20% corporate income tax paid on 31^st December of the year in which they are earned.

During the year to 31^st December 2019, the following transactions and events took place:

1. The business made cash sales of £107,375. It also made credit sales to internet retailers of £76,787.50.
2. Inventory costing £94,725 was bought during the year. All items were bought on credit. Suppliers were paid £96,437.50 over the course of the year.
3. The inventory of books as at 31^st December 2019 cost £34,375.
4. During the year some fixtures that had cost £2,500 when purchased were sold for £1,375. New fixtures were acquired for cash at a cost of £3,750 and are also being depreciated over 10 years to a zero residual value. No depreciation is charged in the year of disposal but a full year’s depreciation is charged in the year of acquisition.
5. The part-time shop assistant was paid wages of £13,625 over the year.
6. Receipts from credit customers totalled £68,162.50.
7. Electricity bills totalling £2,287.50 were paid during the year. The company has recently changed its electricity supplier and is now being billed quarterly in arrears. At the end of December 2019 the bill for the quarter ended on 31^st January 2020 had not yet been received, but was estimated to be £862.50.
8. You have been told that the fees charged for preparing the accounts will be the same as last year. The bill will be sent out in March 2020.
9. The insurance premium of £1,125 for the year to 30^th June 2020 was paid during July 2019.
10. In December 2019 £10,000 was paid off the bank loan, and interest of £1,000 was paid on 31^st December 2019. Overdraft interest of £118.75 was charged and paid.
11. Administrative expenses of £1,581.25 were paid as they arose.
12. Ernest and Mary received directors’ wages of £1,250 per month each.

Required:

1. Using the information provided by Ernest and Mary, and Ketchum Ltd’s statement of financial position as at 31^st December 2018, prepare the following:
   1. A table summarising the effects of all transactions and events listed above on assets, liabilities, equity, revenue, and expenses of Ketchum Ltd.

2. A statement of profit or loss for 2019.

3. A statement of cash flows for 2019.

4. A statement of financial position as at 31^st December 2019.

Show your workings.

2. Ernest and Mary meet you to discuss the draft accounts. They say they had hoped to be able to pay a dividend of around 15 pence per share, but they fear that they might not have enough cash to do this. They query whether this is the case, since they are making reasonable profits.
   1. Calculate the amount of the proposed dividend payment.

(1 mark)

2. Advise Ernest and Mary if their company can pay out such dividend based on the figures reported in the financial statements you prepared.

(1 mark)

3. Provide a brief explanation of the difference between cash flow and profit.

3. The owners of the business also want to find out more about the financial health of their firm and are particularly interested in its liquidity and long-term solvency.
   1. They would like you to calculate the current ratio, quick (acid test) ratio, gearing ratio and working capital figures for 2018 using the figures reported in previous year’s statement of financial position, and for 2019 using the statement of financial position you prepared. Show your workings.

2. Comment on whether the position of the business improved over the last year.

3. Briefly outline the key limitations of ratio analysis.

Ernest and his partner Mary run a second-hand bookshop. The business is incorporated under the name of Ketchum Ltd, and they are the only shareholders.

As the business is small they do not employ a full-time accountant, but pay a local firm to prepare their accounts after the end of the accounting period from information they supply. You are on a summer work placement with this firm and have been asked to prepare             a first draft of the accounts for Ketchum Ltd for the year ending 31^st December 2019.

A list of closing balances reported in Ketchum Ltd’s statement of financial position as at 31^st December 2018 is set out below:

Further information:

1. The shop premises were acquired under a 50-year lease on 1^st January 2016 and are being depreciated to a zero residual value.
2. The fixtures and fittings were also bought on 1^st January 2016 and are being depreciated over 10 years to a zero residual value.
3. Depreciation is provided on a straight line basis for both the shop premises and the fixtures and fittings.
4. The business pays its insurance premium annually on 1^st July to cover the following twelve month period. This is the only prepayment as at 31^st December 2018.
5. The accrued expenses relate to the accountant’s fees for preparing last year’s accountants, paid in March 2019. This is the only accrual as at 31^st December 2018.
6. All profits earned are subject to a 20% corporate income tax paid on 31^st December of the year in which they are earned.

During the year to 31^st December 2019, the following transactions and events took place:

1. The business made cash sales of £107,375. It also made credit sales to internet retailers of £76,787.50.
2. Inventory costing £94,725 was bought during the year. All items were bought on credit. Suppliers were paid £96,437.50 over the course of the year.
3. The inventory of books as at 31^st December 2019 cost £34,375.
4. During the year some fixtures that had cost £2,500 when purchased were sold for £1,375. New fixtures were acquired for cash at a cost of £3,750 and are also being depreciated over 10 years to a zero residual value. No depreciation is charged in the year of disposal but a full year’s depreciation is charged in the year of acquisition.
5. The part-time shop assistant was paid wages of £13,625 over the year.
6. Receipts from credit customers totalled £68,162.50.
7. Electricity bills totalling £2,287.50 were paid during the year. The company has recently changed its electricity supplier and is now being billed quarterly in arrears. At the end of December 2019 the bill for the quarter ended on 31^st January 2020 had not yet been received, but was estimated to be £862.50.
8. You have been told that the fees charged for preparing the accounts will be the same as last year. The bill will be sent out in March 2020.
9. The insurance premium of £1,125 for the year to 30^th June 2020 was paid during July 2019.
10. In December 2019 £10,000 was paid off the bank loan, and interest of £1,000 was paid on 31^st December 2019. Overdraft interest of £118.75 was charged and paid.
11. Administrative expenses of £1,581.25 were paid as they arose.
12. Ernest and Mary received directors’ wages of £1,250 per month each.

Required:

1. Using the information provided by Ernest and Mary, and Ketchum Ltd’s statement of financial position as at 31^st December 2018, prepare the following:
   1. A table summarising the effects of all transactions and events listed above on assets, liabilities, equity, revenue, and expenses of Ketchum Ltd.

2. A statement of profit or loss for 2019.

3. A statement of cash flows for 2019.

4. A statement of financial position as at 31^st December 2019.

Show your workings.

2. Ernest and Mary meet you to discuss the draft accounts. They say they had hoped to be able to pay a dividend of around 15 pence per share, but they fear that they might not have enough cash to do this. They query whether this is the case, since they are making reasonable profits.
   1. Calculate the amount of the proposed dividend payment.

(1 mark)

2. Advise Ernest and Mary if their company can pay out such dividend based on the figures reported in the financial statements you prepared.

(1 mark)

3. Provide a brief explanation of the difference between cash flow and profit.

3. The owners of the business also want to find out more about the financial health of their firm and are particularly interested in its liquidity and long-term solvency.
   1. They would like you to calculate the current ratio, quick (acid test) ratio, gearing ratio and working capital figures for 2018 using the figures reported in previous year’s statement of financial position, and for 2019 using the statement of financial position you prepared. Show your workings.

2. Comment on whether the position of the business improved over the last year.

3. Briefly outline the key limitations of ratio analysis.

Koninklijke Philips NV

Established in 1891 in Eindhoven, the Netherlands, Koninklijke Philips NV is one of the world’s oldest multinational companies. The company began making lighting products and over time diversified into a range of businesses that included domestic appliances, consumer electronics, and health care products. From the beginning, the small Dutch domestic market created pressures for Philips to look to foreign markets for growth. Some argue that this is the case for most European companies and, thus, the many companies from Europe that are globally competitive.

By the start of World War II, Philips already had a global presence. During the war, the Netherlands was occupied by Germany. By necessity, the company’s national organizations in countries such as Australia, Brazil, Canada, United Kingdom, and the United States gained considerable autonomy during this period. After the war, a structure based on strong national organizations remained in place. Each national organization was in essence a self-contained entity that was responsible for much of its own manufacturing, marketing, and sales. Most R&D activities, however, were centralized at Philips’ headquarters in Eindhoven. Reflecting this, several product divisions were created. Based in Eindhoven, the product divisions developed technologies and products, which were then made and sold by the different national organizations. During this period, the career track of most senior managers at Philips involved significant postings in various national organizations around the world (a career development practice often seen still in multinational corporations).

For several decades this organizational arrangement worked well. It allowed Philips to customize its product offerings, sales, and marketing efforts to the conditions that existed in different national markets. By the 1970s, however, flaws were appearing in the approach. The structure involved significant duplication of activities around the world, particularly in manufacturing, which created an intrinsically high-cost structure. When trade barriers were high, this did not matter so much, but the significance of its effect became important when trade barriers were starting to fall and competitors came in to the marketplace. These competitors included Sony and Matsushita from Japan, General Electric from the United States, and Samsung from South Korea. Each of these competitors gained market share by serving increasingly global markets from centralized production facilities where they could achieve greater scale economies and hence lower costs.

Philips’ response was to try to tilt the balance of power in its structure away from national organizations and toward product divisions. International production centers were established under the direction of the product divisions. The national organizations, however, remained responsible for local marketing and sales, and they often maintained control over some local production facilities. One problem Philips faced in trying to change its structure at this time was that most senior managers had come up through the national organizations. Consequently, they were loyal to them and tended to protect their autonomy.

Despite several reorganization efforts, the national organizations remained a strong influence at Philips until the 1990s. In the mid-1990s Cor Boonstra became CEO. Page 428He famously described the company’s organizational structure as a “plate of spaghetti” and asked how Philips could compete when the company had 350 subsidiaries around the world and significant duplication of manufacturing and marketing efforts across nations. Boonstra instituted a radical reorganization. He replaced the company’s 21 product divisions with just 7 global business divisions, making them responsible for global product development, production, and marketing. The heads of the divisions reported directly to him, while the national organizations reported to the divisions. The national organizations remained responsible for local sales and local marketing efforts, but after this reorganization they finally lost their historic sway on the company.

Philips, however, continued to underperform its global rivals. By 2008, Gerard Kleisterlee, who succeeded Boonstra as CEO in 2001, decided Philips was still not sufficiently focused on global markets. He reorganized yet again, this time around just three global divisions, health care, lighting, and consumer lifestyle (which included the company’s electronics businesses). These are also the three divisions that are in place under the most recent CEO, Frans van Houten, who became the CEO of Philips in 2011.

The slogan for the health care division is "creating the future of healthcare." Philips is a global leader in the health care domain. It is guided by the understanding that there is a patient in the center of everything it does in the field of health care, and its focus is on creating the ideal experience for all patients around the world, young and old. Philips Lighting is about "enhancing lives with light" by delivering innovative and energy-efficient solutions. The Consumer Lifestyle division is dedicated to "helping people achieve a healthier and better life."

The three divisions are responsible for product strategy, global marketing, and shifting of production to low-cost locations (or outsourcing production). The divisions also took over some sales responsibilities, particularly dealing with global retail chains such as Walmart, Tesco, and Carrefour. To accommodate national differences, however, some sales and marketing activities remained located at the national organizations.

Case Discussion Questions

Why did Philips’ organizational structure make sense early on in its existence? Why did this structure start to create problems for the company later on?

What was Philips trying to achieve by tilting the balance of power in its structure away from national organizations and toward the product divisions? Why was this hard to achieve?

What was the point of the organizational changes made by Cor Boonstra? What was he trying to achieve? Do you agree with Frans van Houten's decision to keep the same three divisions when he became CEO in 2011?

In 2008 Philips reorganized yet again, now down from 21 divisions to 9 divisions and subsequently just 3 divisions. Why do you think it did this? What is it trying to achieve?

1. Based on MFRS 140, discuss the recognition of investment property should the company provides ancillary services to the occupants of a property.

(4 marks) **In Malaysia**

2. On 1 January 2019, Wisteria Bhd purchased a factory for investment purposes. The cost of factory was RM 300 million and is expected to have useful life of 50 years with no salvage value. As at 31 Dec 2019, the market value of building was RM330 million, but as at 31 Dec 2020, it dropped to only RM 290 million.

Based on Fair Value Model, prepare the journal entries to record:

1. the initial recognition of the factory
2. fair value gain for the year
3. fair value loss for the year

At the beginning of 2018, Quentin and Kopps (Q&K) adopted the dollar-value LIFO (DVL) inventory method. On that date the value of its one inventory pool was $81,000. The company uses an internally generated cost index to convert ending inventory to base year.

Required:
Determine the missing amounts in the inventory data for 2018 through 2021.