Question 2.

Ali and Khan have recently won a design award for their wooden box storage and have established a company, AK Wooden box Ltd, to commence production of the storage box. The wooden box storage have an innovative design. Abdullah has just read a newspaper article about the importance of cash budgets in highlighting the finances required for business operations. Consequently, he has asked for your assistance in preparing a cash budget for the first-year operations, from July 2020 to June 2021. The following information has been obtained from a planning meeting with the Khalid:

Consider the following sales figures for a newly formed company that makes wooden boxes:

Above figures are based on orders that customers have already placed with the company after considerable hard work by the sales team. In order to secure the orders, the sales team had to negotiate payment terms with the customers. Only 15% of customers agreed to pay immediately for the wooden boxes. Of the remaining customers, 50% agreed to pay after one month and 50% after two months. Within the wooden box industry it is known that 3% of credit customers never pay (because they go out of business or dispute the invoices) the AK Wooden box Ltd has made the decision to reduce the budgeted cash inflow from the credit customers who should pay after two months to reflect this fact (making the percentage who pay after two month 47%).

If the AK Wooden box Ltd has a labour cost equal to 15% of the sales value a material cost equal to 35% of the sales value and an overhead cost equal to 30% of the sales value

Consider that labour is paid one month in arrears.

The material supplier will not allow the AK Wooden box Ltd any credit as because it is a newly formed company, it has no track record of paying its debts. The supplier of materials is also aware that new companies often fail and go out of business thus creating irrecoverable debt. Therefore, the supplier is insisting on cash at time of delivery for all materials purchased. However, the AK

Wooden box Ltd must buy the materials before they can be made into boxes. The materials required for production must be purchased and paid for in the month prior to sale.

Now let us consider the overhead. Overhead is paid for in the month in which it is incurred. Included in the overhead figures above is an OMR15,000 monthly charge for depreciation.

Income tax of OMR. 8,500 is due to be paid on 20 January,2021.

Company issues 30,000 shares @ OMR 2.500bz in the month of September,2020

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The company is to pay bonus to worker of OMR 135,000 respectively in the month of Decenber,2020.

Plant has been ordered and is expected to be received in month of September and paid in March,2021. It will be cost OMR 100,000.

The cash balance at the beginning of is estimated to be OMR129,400.

Formatting guideline:

Worksheet font:-

Type = Times of Roman / Category=Number; Decimal places=0 and Use 1,000 separator

Border the Statement is using I cone "All borders" Using the formula for calculation / All the cells for amounts

Column Width: -

A=38 / B,D,F,H,J,L,N,P,R,T,V,X = 11 / (C,E,G,I,K,M,O,Q,S,U,W = 0.5 Theme colors White, Background1, Darker 20%)

Headings: -

Main Heading Bold, Font Size 12, / Sub Heading Bold Font Size 11,/ Theme colors White, Background1, Darker 30% /

Formula: - Using the formula for calculation

Required: -Prepare a cash budget for the month of July 2020 to and June 2021 using MS Excel. (10 Marks).

Case Study 3 Gopal is the Senior Account in Best Wood Manufacturing Company in the Sultanate of Oman. He is involved in the preparation of financial statements according to the relevant IFRS guidelines. As BestWood has different branches across Oman, Gopal has to consolidate the financial statements of different branches into the parent company's financial statement. Since Gopal has done his duties diligently, the management recommended a promotion and later promoted him as the Chief Financial Officer of the company. As CEO the duties and responsibilities of Gopal also increased. He attended the meeting of the Board of Directors, in which the directors have emphasized five key performance indicators (KP) of the company. Two of these indicates were To expand the business activities to more locations and thereby increase sales by 20%. . To minimize the operating pormes by 5% A performance-based allowance is also offered. As per the agreement, Gopal will receive 0.5% of net profit after tax, as an incentive if the company achieves the set KPls Ullast year, the organization achieved the KPls. The current year, was of course, difficult for the company. The financial performance of the company is affected adversely by the oil price crisis. A reduction in oil price followed a drop in the purchase by many government departments. In addition, the consumer sales also showed decline during the year Realizing the difficulties. Gopal changed certain accounting practices that helped him to project a comparatively better financial results of the business, For instance, the advances received from customers against purchase orders were considered as sales though the products were not sold by the company. In addition, certain expenses were not recognized, for instance interest on loan. Another major change was on valuing inventory. Similarly, the method of depreciation is also changed report a higher profitability During the intemal at the wors reported certain discrepancy in financial reporting to the Board of Directors. The Bed took a decision for detailed audit in view of possible discrepancies. The detailed audit department carthed the various frauds in accounting various expenses assets and liabilities in the financial statements. They also found that the profit is overstated because of these adjustments. The company has severe liquidity issues and must repay the loans for which the company has no optional present. The value of assets is inflated and the lilities were quite high Based on this case study answer the following questions Write down cach bypothesis in the positive accounting theory and explain whether the accounting practices in the company is influenced by the derlying assumptions in the Do you think that the company violated any accounting concepts and conventions! Justify your answer Critically evaluate the criticisms against positive accounting theory, based on the relevant facts from the case Case Study 3 Gopal is the Senior Account in Best Wood Manufacturing Company in the Sultanate of Oman. He is involved in the preparation of financial statements according to the relevant IFRS guidelines. As BestWood has different branches across Oman, Gopal has to consolidate the financial statements of different branches into the parent company's financial statement. Since Gopal has done his duties diligently, the management recommended a promotion and later promoted him as the Chief Financial Officer of the company. As CEO the duties and responsibilities of Gopal also increased. He attended the meeting of the Board of Directors, in which the directors have emphasized five key performance indicators (KP) of the company. Two of these indicates were To expand the business activities to more locations and thereby increase sales by 20%. . To minimize the operating pormes by 5% A performance-based allowance is also offered. As per the agreement, Gopal will receive 0.5% of net profit after tax, as an incentive if the company achieves the set KPls Ullast year, the organization achieved the KPls. The current year, was of course, difficult for the company. The financial performance of the company is affected adversely by the oil price crisis. A reduction in oil price followed a drop in the purchase by many government departments. In addition, the consumer sales also showed decline during the year Realizing the difficulties. Gopal changed certain accounting practices that helped him to project a comparatively better financial results of the business, For instance, the advances received from customers against purchase orders were considered as sales though the products were not sold by the company. In addition, certain expenses were not recognized, for instance interest on loan. Another major change was on valuing inventory. Similarly, the method of depreciation is also changed report a higher profitability During the intemal at the wors reported certain discrepancy in financial reporting to the Board of Directors. The Bed took a decision for detailed audit in view of possible discrepancies. The detailed audit department carthed the various frauds in accounting various expenses assets and liabilities in the financial statements. They also found that the profit is overstated because of these adjustments. The company has severe liquidity issues and must repay the loans for which the company has no optional present. The value of assets is inflated and the lilities were quite high Based on this case study answer the following questions Write down cach bypothesis in the positive accounting theory and explain whether the accounting practices in the company is influenced by the derlying assumptions in the Do you think that the company violated any accounting concepts and conventions! Justify your answer Critically evaluate the criticisms against positive accounting theory, based on the relevant facts from the case