Question Tag: Working Capital

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  • 20 Marks

CR – Nov 2018 – L3 – SB – Q4 – Statement of Cash Flows (IAS 7)

Preparation of Happy Plc’s statement of cash flows and analysis of revaluation and financing adjustments.

Happy is a publicly listed company. Its financial statements for the year ended July 31, 2017, including comparatives, are shown below:

Notes:

  1. On November 1, 2016, Happy acquired an additional plant under a finance lease with a fair value of ₦3 million. The property was also revalued upward by ₦4 million, with ₦1.3 million of the revaluation reserve transferred to deferred tax. No disposals occurred during the period.
  2. Depreciation on property, plant, and equipment amounted to ₦1.8 million, and amortization of deferred development expenditure was ₦0.4 million.

Required:

Prepare the statement of cash flows of Happy Plc for the year ended July 31, 2017, in accordance with IAS 7, using the indirect method. (20 Marks)

 

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  • 30 Marks

PM – May 2023 – L2 – SA – Q1 – Working Capital Management

Calculate Vestapricy Ltd's cost of goods sold, analyze the working capital cycle, and apply decision rules for inventory management in Owerri.

Vestapricy and Company Limited is a manufacturing outfit located in Port Harcourt. It produces a tracking device that is attached to motor vehicles. The device is designed to help locate the whereabouts of stolen motor vehicles within the country. The company’s capital (or cash operating cycle) is the length of time between the payment for purchased materials and the receipt of payment from selling the goods made with the materials.

The table below gives information extracted from the annual accounts of Vestapricy and Company Limited for the past three years.

Extracts from Vestapricy and Company Limited annual accounts for 31st December 2020 to December 2022:

2020 2021 2022
Inventory:
Raw materials 108,000 145,800 180,000
Work in progress 75,600 97,200 93,360
Finished goods 86,400 129,600 142,875
Purchases 518,400 702,000 720,000
Sales 864,000 1,080,000 1,188,000
Trade receivables 172,800 259,200 297,000
Trade payables 86,400 105,300 126,000

Other information is as follows:

  1. All purchases and sales are on credit.
  2. Direct wages:
    • 2021: ₦300,000
    • 2022: ₦250,000
  3. Production expenses:
    • 2021: ₦72,600
    • 2022: ₦171,995
  4. The company’s policy is that any data that will be used from the statement of financial position in determining the working capital cycle period will be average based.

Required:

a.
i. Compute the cost of goods sold for 2021 and 2022. (3 Marks)
ii. Calculate the length of the working capital cycle (assuming 365 days in the year) for 2021 and 2022. (7 Marks)
iii. List the actions that the management of the company might take to reduce the length of the working capital cycle. (5 Marks)

b. In 2023, the company (Vestapricy) decided to open a new small apple shop in Owerri to be managed by a shopkeeper. The shopkeeper is deciding on the number of boxes of special apples it hopes to buy each day. A box of apples earns a contribution of ₦400 and costs ₦250.

Demand for apples is uncertain and could vary from 30 boxes to 10 boxes. Any apple that is purchased but not sold will be thrown away at the end of the day.

The shopkeeper has decided that he will buy 10 boxes, 20 boxes or 30 boxes each day, and these are the only three options he wants to consider.

Required:

i. Construct the Pay-off table for this business in Owerri. (7 Marks)
ii. How many boxes should the storekeeper purchase if the decision is based on:

  • The Maximax decision rule.
  • The Maximum decision rule.
  • The Minimax regret decision rule.
    Give reasons for your decisions. (8 Marks)

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  • 20 Marks

FR – Nov 2019 – L2 – Q5 – Financial Instruments (IAS 32, IFRS 9)

Analyze the performance of Sekiri Nigeria Limited and identify areas for further investigation based on financial information.

Sekiri Nigeria Limited is a major competitor to Ijor Ventures Limited. Both companies operate in the same industry over the last 20 years.

The summarised financial information of Sekiri Nigeria Limited for the last 2 years is as follows:

Summarised Profit or Loss for the Year Ended September 30:

Description 2019 (N’m) 2018 (N’m)
Revenue 4,565 4,905
Cost of Sales (2,950) (3,225)
Gross Profit 1,615 1,680
Selling, Distribution & Admin Expenses (1,095) (1,070)
Interest Expense (95) (75)
Net Profit Before Taxation 425 535
Taxation (225) (260)
Profit for the Year 200 275

Statement of Financial Position as at September 30:

Description 2019 (N’m) 2018 (N’m)
Non-Current Assets:
Intangible Assets 240 200
Tangible Assets (Carrying Amount) 1,080 1,030
Total Non-Current Assets 1,320 1,230
Current Assets:
Inventories 1,470 1,515
Trade Receivables 800 705
Bank 260 290
Total Current Assets 3,850 3,740
Total Assets 5,170 4,970

Equity & Liabilities:

Description 2019 (N’m) 2018 (N’m)
Equity
Ordinary Share Capital 500 500
Retained Earnings 1,730 1,650
Total Equity 2,230 2,150
Non-Current Liabilities 690 690
Current Liabilities:
Trade Payables 375 375
Other Payables 555 525
Total Liabilities 3,850 3,740

Sekiri Nigeria Limited declared dividend of N120m each in years 2018 and 2019

Required:

(a) As the Chief Accountant of Ijor Ventures Limited, write a report to your company’s Finance Director analyzing the performance of Sekiri Nigeria Limited.
(10 Marks)

(b) Highlight FIVE areas that will require further investigation, including reference to other pieces of information that would complement your analysis of the performance of Sekiri Nigeria Limited.
(10 Marks)

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  • 21 Marks

SCS – May 2020 – L3 – Q2 – Financial Management

Conduct a financial appraisal of Customer Focused Ltd, including key ratio calculations and commentary.

Customer Focused Ltd has updated its management accounts (Exhibit 1) to produce a
forecast for the year 2020 and these have indicated some significant problems. The business
owners are unsure what to do next.
Required:
You are acting as an advisor to the company and they ask you to:

Prepare a financial appraisal of Customer Focused Ltd to identify the problems faced by the company by calculating and commenting on key ratios that you consider important for the company. You should specifically include in your appraisal an analysis of sales growth, operating margins, working capital (in terms of inventory, receivables, and payable days), and changes in cash balances over the years that the company has been operating.

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  • 1 Marks

MI – May 2018 – L1 – SA – Q12 – Budgeting

Understanding the purpose of cash budgeting.

Which of the following is NOT a purpose of cash budgeting?
A. To ensure availability of working capital throughout the period concerned
B. To determine the timing of cash inflows and outflows in advance
C. To plan on investing surplus cash whenever it arises
D. To plan against likely cash deficits during the budget period
E. To reduce cost of operation

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  • 20 Marks

MI – Nov 2014 – L1 – SB – Q1 – Budgeting

This question focuses on defining working capital, explaining the working capital cycle, and calculating it based on given data.

a. Working capital is generally understood to mean the difference between current assets and current liabilities. Explain the term working capital cycle. (2 Marks)
b. List FIVE factors that determine the working capital requirements of a firm. (5 Marks)
c. GLORY Limited has provided you with the following data regarding next year’s budget that has just been presented to the board by the financial controller of the company:

Budgeted Average Amount Outstanding N
Inventory: Raw materials 480,000
Work-in-Progress 360,000
Finished goods 244,800
Receivables 600,600
Payables (422,400)
Budgeted Average Working Capital 1,263,000

The following are available daily averages:

Daily Averages N
Revenue 9,240
Cost of Sales 7,200
Purchases of raw materials 3,840

You are required to compute the working capital cycle based on the above figures. (13 Marks)

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  • 1 Marks

MI – Nov 2014 – L1 – SA – Q5 – Decision-making techniques

Working Capital, Cash Cycle, Inventory, Receivables, Cash Management

The working capital cycle starts and ends with ONE of the following:

A. Cash and Payables
B. Inventory and Receivables
C. Work in Progress and Inventory
D. Cash and Inventory
E. Cash and Receivables

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  • 3 Marks

MI – May 2017 – L1 – SA – Q12 – Budgeting

Identify the component that is not part of working capital.

Which of the following is NOT part of the component of working capital?
A. Stock of raw material
B. Stock of finished goods
C. Debenture
D. Receivables
E. Payables

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  • 1 Marks

FA – Nov 2019 – L1 – SA – Q10 – Financial Statements Preparation-

Calculate the working capital of the business.

Calculate the working capital of the business.

The extract from the financial statements of Benchmark Ventures for the year ended September 30, 2019, is as follows:

  • Capital: N84,000
  • Net profit: N15,000
  • Drawings: N9,000
  • Cash and cash equivalent: N3,000
  • Accounts payables: N50,000
  • Inventory: N29,000
  • Accounts receivables: N35,000

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  • 1 Marks

MI – May 2015 – L1 – SA – Q2 – Budgeting

Identify which component is NOT part of the working capital cycle.

Which of the following is NOT a component of the working capital cycle?
A. Debtors
B. Finished goods
C. Work-in-progress
D. Raw materials
E. Overdraft

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  • 20 Marks

CR – Nov 2018 – L3 – SB – Q4 – Statement of Cash Flows (IAS 7)

Preparation of Happy Plc’s statement of cash flows and analysis of revaluation and financing adjustments.

Happy is a publicly listed company. Its financial statements for the year ended July 31, 2017, including comparatives, are shown below:

Notes:

  1. On November 1, 2016, Happy acquired an additional plant under a finance lease with a fair value of ₦3 million. The property was also revalued upward by ₦4 million, with ₦1.3 million of the revaluation reserve transferred to deferred tax. No disposals occurred during the period.
  2. Depreciation on property, plant, and equipment amounted to ₦1.8 million, and amortization of deferred development expenditure was ₦0.4 million.

Required:

Prepare the statement of cash flows of Happy Plc for the year ended July 31, 2017, in accordance with IAS 7, using the indirect method. (20 Marks)

 

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  • 30 Marks

PM – May 2023 – L2 – SA – Q1 – Working Capital Management

Calculate Vestapricy Ltd's cost of goods sold, analyze the working capital cycle, and apply decision rules for inventory management in Owerri.

Vestapricy and Company Limited is a manufacturing outfit located in Port Harcourt. It produces a tracking device that is attached to motor vehicles. The device is designed to help locate the whereabouts of stolen motor vehicles within the country. The company’s capital (or cash operating cycle) is the length of time between the payment for purchased materials and the receipt of payment from selling the goods made with the materials.

The table below gives information extracted from the annual accounts of Vestapricy and Company Limited for the past three years.

Extracts from Vestapricy and Company Limited annual accounts for 31st December 2020 to December 2022:

2020 2021 2022
Inventory:
Raw materials 108,000 145,800 180,000
Work in progress 75,600 97,200 93,360
Finished goods 86,400 129,600 142,875
Purchases 518,400 702,000 720,000
Sales 864,000 1,080,000 1,188,000
Trade receivables 172,800 259,200 297,000
Trade payables 86,400 105,300 126,000

Other information is as follows:

  1. All purchases and sales are on credit.
  2. Direct wages:
    • 2021: ₦300,000
    • 2022: ₦250,000
  3. Production expenses:
    • 2021: ₦72,600
    • 2022: ₦171,995
  4. The company’s policy is that any data that will be used from the statement of financial position in determining the working capital cycle period will be average based.

Required:

a.
i. Compute the cost of goods sold for 2021 and 2022. (3 Marks)
ii. Calculate the length of the working capital cycle (assuming 365 days in the year) for 2021 and 2022. (7 Marks)
iii. List the actions that the management of the company might take to reduce the length of the working capital cycle. (5 Marks)

b. In 2023, the company (Vestapricy) decided to open a new small apple shop in Owerri to be managed by a shopkeeper. The shopkeeper is deciding on the number of boxes of special apples it hopes to buy each day. A box of apples earns a contribution of ₦400 and costs ₦250.

Demand for apples is uncertain and could vary from 30 boxes to 10 boxes. Any apple that is purchased but not sold will be thrown away at the end of the day.

The shopkeeper has decided that he will buy 10 boxes, 20 boxes or 30 boxes each day, and these are the only three options he wants to consider.

Required:

i. Construct the Pay-off table for this business in Owerri. (7 Marks)
ii. How many boxes should the storekeeper purchase if the decision is based on:

  • The Maximax decision rule.
  • The Maximum decision rule.
  • The Minimax regret decision rule.
    Give reasons for your decisions. (8 Marks)

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  • 20 Marks

FR – Nov 2019 – L2 – Q5 – Financial Instruments (IAS 32, IFRS 9)

Analyze the performance of Sekiri Nigeria Limited and identify areas for further investigation based on financial information.

Sekiri Nigeria Limited is a major competitor to Ijor Ventures Limited. Both companies operate in the same industry over the last 20 years.

The summarised financial information of Sekiri Nigeria Limited for the last 2 years is as follows:

Summarised Profit or Loss for the Year Ended September 30:

Description 2019 (N’m) 2018 (N’m)
Revenue 4,565 4,905
Cost of Sales (2,950) (3,225)
Gross Profit 1,615 1,680
Selling, Distribution & Admin Expenses (1,095) (1,070)
Interest Expense (95) (75)
Net Profit Before Taxation 425 535
Taxation (225) (260)
Profit for the Year 200 275

Statement of Financial Position as at September 30:

Description 2019 (N’m) 2018 (N’m)
Non-Current Assets:
Intangible Assets 240 200
Tangible Assets (Carrying Amount) 1,080 1,030
Total Non-Current Assets 1,320 1,230
Current Assets:
Inventories 1,470 1,515
Trade Receivables 800 705
Bank 260 290
Total Current Assets 3,850 3,740
Total Assets 5,170 4,970

Equity & Liabilities:

Description 2019 (N’m) 2018 (N’m)
Equity
Ordinary Share Capital 500 500
Retained Earnings 1,730 1,650
Total Equity 2,230 2,150
Non-Current Liabilities 690 690
Current Liabilities:
Trade Payables 375 375
Other Payables 555 525
Total Liabilities 3,850 3,740

Sekiri Nigeria Limited declared dividend of N120m each in years 2018 and 2019

Required:

(a) As the Chief Accountant of Ijor Ventures Limited, write a report to your company’s Finance Director analyzing the performance of Sekiri Nigeria Limited.
(10 Marks)

(b) Highlight FIVE areas that will require further investigation, including reference to other pieces of information that would complement your analysis of the performance of Sekiri Nigeria Limited.
(10 Marks)

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  • 21 Marks

SCS – May 2020 – L3 – Q2 – Financial Management

Conduct a financial appraisal of Customer Focused Ltd, including key ratio calculations and commentary.

Customer Focused Ltd has updated its management accounts (Exhibit 1) to produce a
forecast for the year 2020 and these have indicated some significant problems. The business
owners are unsure what to do next.
Required:
You are acting as an advisor to the company and they ask you to:

Prepare a financial appraisal of Customer Focused Ltd to identify the problems faced by the company by calculating and commenting on key ratios that you consider important for the company. You should specifically include in your appraisal an analysis of sales growth, operating margins, working capital (in terms of inventory, receivables, and payable days), and changes in cash balances over the years that the company has been operating.

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  • 1 Marks

MI – May 2018 – L1 – SA – Q12 – Budgeting

Understanding the purpose of cash budgeting.

Which of the following is NOT a purpose of cash budgeting?
A. To ensure availability of working capital throughout the period concerned
B. To determine the timing of cash inflows and outflows in advance
C. To plan on investing surplus cash whenever it arises
D. To plan against likely cash deficits during the budget period
E. To reduce cost of operation

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  • 20 Marks

MI – Nov 2014 – L1 – SB – Q1 – Budgeting

This question focuses on defining working capital, explaining the working capital cycle, and calculating it based on given data.

a. Working capital is generally understood to mean the difference between current assets and current liabilities. Explain the term working capital cycle. (2 Marks)
b. List FIVE factors that determine the working capital requirements of a firm. (5 Marks)
c. GLORY Limited has provided you with the following data regarding next year’s budget that has just been presented to the board by the financial controller of the company:

Budgeted Average Amount Outstanding N
Inventory: Raw materials 480,000
Work-in-Progress 360,000
Finished goods 244,800
Receivables 600,600
Payables (422,400)
Budgeted Average Working Capital 1,263,000

The following are available daily averages:

Daily Averages N
Revenue 9,240
Cost of Sales 7,200
Purchases of raw materials 3,840

You are required to compute the working capital cycle based on the above figures. (13 Marks)

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  • 1 Marks

MI – Nov 2014 – L1 – SA – Q5 – Decision-making techniques

Working Capital, Cash Cycle, Inventory, Receivables, Cash Management

The working capital cycle starts and ends with ONE of the following:

A. Cash and Payables
B. Inventory and Receivables
C. Work in Progress and Inventory
D. Cash and Inventory
E. Cash and Receivables

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  • 3 Marks

MI – May 2017 – L1 – SA – Q12 – Budgeting

Identify the component that is not part of working capital.

Which of the following is NOT part of the component of working capital?
A. Stock of raw material
B. Stock of finished goods
C. Debenture
D. Receivables
E. Payables

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  • 1 Marks

FA – Nov 2019 – L1 – SA – Q10 – Financial Statements Preparation-

Calculate the working capital of the business.

Calculate the working capital of the business.

The extract from the financial statements of Benchmark Ventures for the year ended September 30, 2019, is as follows:

  • Capital: N84,000
  • Net profit: N15,000
  • Drawings: N9,000
  • Cash and cash equivalent: N3,000
  • Accounts payables: N50,000
  • Inventory: N29,000
  • Accounts receivables: N35,000

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  • 1 Marks

MI – May 2015 – L1 – SA – Q2 – Budgeting

Identify which component is NOT part of the working capital cycle.

Which of the following is NOT a component of the working capital cycle?
A. Debtors
B. Finished goods
C. Work-in-progress
D. Raw materials
E. Overdraft

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