(ii) An evaluation of the environmental and sustainability implications of the Giant Dam Project; (8 marks)
(ii) An evaluation of the environmental and sustainability implications of the Giant Dam Project; (8 marks)
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3 Clyde Williams is facing a dilemma. He has successfully built up a small family-owned company, Concrete SolutionsLtd, manufacturing a range of concrete based products used in making roads, pavements and walkways. Theproduction technology is very low tech and uses simple wooden moulds into which the concrete is poured. As aconsequence he is able to use low skilled and low cost labour, which would find it difficult to find alternativeemployment in a region with high unemployment levels. The company has employed many of its workforce since itscreation in 1996. The company’s products are heavy, bulky and costly to transport. This means its market is limitedto a 30-mile area around the small rural town where the manufacturing facility is located. Its customers are a mix ofprivate sector building firms and public sector local councils responsible for maintaining roads and pavements. By itsnature much of the demand is seasonal and very price sensitive.A large international civil engineering company has recently approached Clyde with an opportunity to become asupplier of concrete blocks used in a sophisticated system for preventing coast and riverbank erosion. The processinvolves interlocking blocks being placed on a durable textile base. Recent trends in global warming and pressure inmany countries to build in areas liable to flooding have created a growing international market for the patented erosionprevention system. Clyde has the opportunity to become the sole UK supplier of the blocks and to be one of a smallnumber of suppliers able to export the blocks to Europe. To do it he will need to invest a significant amount in CAM(computer aided manufacturing) technology with a linked investment in the workforce skills needed to operate thenew technology. The net result will be a small increase in the size of the labour force but redundancy for a significantnumber of its existing workers either unwilling or unable to adapt to the demands of the new technology. Successfulentry into this new market will reduce his reliance on the seasonal low margin concrete products he currently producesand significantly improve profitability.One further complication exists. Concrete Solutions is located in a quiet residential area of its home town. Clyde isunder constant pressure from the local residents and their council representatives to reduce the amount of noise anddust created in the production process. Any move into making the new blocks will increase the pollution problemsthe residents face. There is a possibility of moving the whole manufacturing process to a site on a new industrial estatebeing built by the council in a rival town. However closure of the existing site would lead to a loss of jobs in the currentlocation. Clyde has asked for your help in resolving his dilemma.Required:(a) Using models where appropriate, advise Clyde on whether he should choose to take advantage of theopportunity offered by the international company. (12 marks)
(b) Explain how the use of SWOT analysis may be of assistance to the management of Diverse Holdings Plc.(3 marks)
3 Assume that today’s date is 10 May 2005.You have recently been approached by Fred Flop. Fred is the managing director and 100% shareholder of FlopLimited, a UK trading company with one wholly owned subsidiary. Both companies have a 31 March year-end.Fred informs you that he is experiencing problems in dealing with aspects of his company tax returns. The companyaccountant has been unable to keep up to date with matters, and Fred also believes that mistakes have been madein the past. Fred needs assistance and tells you the following:Year ended 31 March 2003The corporation tax return for this period was not submitted until 2 November 2004, and corporation tax of ￡123,500was paid at the same time. Profits chargeable to corporation tax were stated as ￡704,300.A formal notice (CT203) requiring the company to file a self-assessment corporation tax return (dated 1 February2004) had been received by the company on 4 February 2004.A detailed examination of the accounts and tax computation has revealed the following.– Computer equipment totalling ￡50,000 had been expensed in the accounts. No adjustment has been made inthe tax computation.– A provision of ￡10,000 was made for repairs, but there is no evidence of supporting information.– Legal and professional fees totalling ￡46,500 were allowed in full without any explanation. Fred hassubsequently produced the following analysis:Analysis of legal professional fees￡Legal fees on a failed attempt to secure a trading loan 15,000Debt collection agency fees 12,800Obtaining planning consent for building extension 15,700Accountant’s fees for preparing accounts 14,000Legal fees relating to a trade dispute 19,000– No enquiry has yet been raised by the Inland Revenue.– Flop Ltd was a large company in terms of the Companies Act definition for the year in question.– Flop Ltd had taxable profits of ￡595,000 in the previous year.Year ended 31 March 2004The corporation tax return has not yet been submitted for this year. The accounts are late and nearing completion,with only one change still to be made. A notice requiring the company to file a self-assessment corporation tax return(CT203) dated 27 July 2004 was received on 1 August 2004. No corporation tax has yet been paid.1 – The computation currently shows profits chargeable to corporation tax of ￡815,000 before accountingadjustments, and any adjustments for prior years.– A company owing Flop Ltd ￡50,000 (excluding VAT) has gone into liquidation, and it is unlikely that any of thismoney will be paid. The money has been outstanding since 3 September 2003, and the bad debt will need tobe included in the accounts.1 Fred also believes there are problems in relation to the company’s VAT administration. The VAT return for the quarterended 31 March 2005 was submitted on 5 May 2005, and VAT of ￡24,000 was paid at the same time. The previousreturn to 31 December 2004 was also submitted late. In addition, no account has been made for the VAT on the baddebt. The VAT return for 30 June 2005 may also be late. Fred estimates the VAT liability for that quarter to be ￡8,250.Required:(a) (i) Calculate the revised corporation tax (CT) payable for the accounting periods ending 31 March 2003and 2004 respectively. Your answer should include an explanation of the adjustments made as a resultof the information which has now come to light. (7 marks)(ii) State, giving reasons, the due payment date of the corporation tax (CT) and the filing date of thecorporation tax return for each period, and identify any interest and penalties which may have arisen todate. (8 marks)
(ii) Following on from your answer to (i), evaluate the two purchase proposals, and advise Bill and Benwhich course of action will result in the highest amount of after tax cash being received by theshareholders if the disposal takes place on 31 March 2006. (4 marks)
6 The explosive growth of investing and raising capital in the global markets has put new emphasis on the developmentof international accounting, auditing and ethical standards. The International Federation of Accountants (IFAC) hasbeen at the forefront of the development of the worldwide accountancy profession through its activities in ethics,auditing and education.Required:Explain the developments in each of the following areas and indicate how they affect Chartered CertifiedAccountants:(a) IFAC’s ‘Code of Ethics for Professional Accountants’; (5 marks)
3 (a) Financial statements often contain material balances recognised at fair value. For auditors, this leads to additionalaudit risk.Required:Discuss this statement. (7 marks)
JJG Co is planning to raise $15 million of new finance for a major expansion of existing business and is considering a rights issue, a placing or an issue of bonds. The corporate objectives of JJG Co, as stated in its Annual Report, are to maximise the wealth of its shareholders and to achieve continuous growth in earnings per share. Recent financial information on JJG Co is as follows:Required:(a) Evaluate the financial performance of JJG Co, and analyse and discuss the extent to which the company has achieved its stated corporate objectives of:(i) maximising the wealth of its shareholders;(ii) achieving continuous growth in earnings per share.Note: up to 7 marks are available for financial analysis.(12 marks)(b) If the new finance is raised via a rights issue at $7·50 per share and the major expansion of business hasnot yet begun, calculate and comment on the effect of the rights issue on:(i) the share price of JJG Co;(ii) the earnings per share of the company; and(iii) the debt/equity ratio. (6 marks)(c) Analyse and discuss the relative merits of a rights issue, a placing and an issue of bonds as ways of raising the finance for the expansion. (7 marks)