Case Scenario1 - Hien

Hien is in business selling high quality glassware to retailers. Her accountant prepares a statement of financial position each year following Hien’s year end of 31 December. It is now 30 June 20X3. Hien, who has no knowledge of accounting, asks you for some assistance:

‘I know you’re studying accountancy and I’ve got a little exercise for you. The situation is this: I seem to be doing really well if the bank account is anything to go by. At over £62,000 the balance is higher than it’s ever been before. I’m wondering if I can actually spend this money. I don’t need it for myself but I’m thinking about buying some shares in the glass company which supplies a lot of the goods I sell. Could you possibly draw up a statement of financial position for me for the end of June and let me know whether the business is really looking as

healthy as I think it is?’

Hien supplies the following list of balances at 30 June, prepared by her book-keeper.

£

Capital 151,068

Trade payables	25,471
Cash at bank	62,479
Inventory	18,961
Trade receivables	14,371
Non-current assets – premises	74,450
Non-current assets – other	12,266
Amounts owed to HMRC	5,988

Questions: (indicative wordcount 150 words)

1. Prepare the statement of financial position at 30 June 20X3.
2. Discuss Hien’s cash position. Is there any other information which might be useful to you in order to give her good advice?

Case Scenario 2-Wazir

A friend, Wazir, has asked you for advice because he understands very little about accounting statements. His accountant has prepared the following summary of the last three years results of Wazir’ shoe business:

20X6 20X5 20X4

£ £ £

Revenue	286,860		256,496		260,241
Cost of sales	193,458		172,188		174,841

Gross profit	93,402		84,308		85,400
Expenses:
Premises costs	(23,298)		(16,277)		(16,141)
Staffing costs	(18,265)		(18,203)		(16,279)
Administration cost	(10,761)		(10,240)		(10,186)

Net profit

41

,

078

39

,

588

42

,

794

Wazir tells you that in the early months of 20X5 a discount shoe operation opened near his shop. His sales suffered at first because of the competition, but after about 8 months the rival went out of business. Wazir decided, however, that he had better extend the range of inventory carried and also increase the floor area of the selling space so as to build up revenue. Since the end of 20X5 he has rented additional showroom and storage space from the business next door.

Wazir would like you to explain to him the impact of these events on his business performance.

Questions: (indicative wordcount 280 words)

1. Calculate his gross and net profit margins and
2. Write a brief report.

Answer rating: 100% (QA)

Gross Profit margin is defined as a financial metric which indicates whether the company is earning enough from its core operationsbreadbutter business after adjusting COGS so as to cover the operatin... View the full answer