You are employed in a financial consultancy and one of your clients is a relatively new company that is
facing rapid growth. As they began as a small family business, they have not had the level of financial
control that would be expected in a business of their current size. The management team is looking to
employ an accountant. Before taking this step they need to understand the reasons for recording and
reporting financial information, the legal responsibilities they have in this respect and the usefulness of
financial information.

assume the business is incorporated, that is, in Malta as a limited company. Your answer
should be based on Maltese law and regulations.

 

produce a written document for the board of directors that answers their questions
about accounting and financial control and to produce some calculations in respect of figures they have
provided.

 

Task 1
Produce a written document for the board of directors that:
 Explain the purpose and requirements for keeping financial records
 Analyses the techniques for recording financial information
 Analyses the legal and organisational requirements of financial reporting
 Evaluate the usefulness of financial statements to stakeholders
 Explain the difference between management and financial accounting
 Explain the budgetary control process
 Evaluate the use of different costing methods used for pricing purposes

 

 

Task 2
The business carried out some calculations on set up and the following information relating to their
main product was produced:
€ €
Sales Revenue 62
Direct labour 22
Direct materials (1kg) 20
Fixed overheads 6
Standard profit 14
The budgeted output for last month was 1,000 units of this product. Actual output was 1,100 units
which were sold for €69,900. The actual production costs were:
€
Direct labour (1075 hours) 24,420
Direct materials (1175kg) 23,260
Fixed overheads 6,400
There were no inventories at the start or the end of the month.
You are required to calculate the variances for the month from the available information, and use them
to reconcile the budgeted and actual profit figures. You should produce a document that indentifies and
explains the variances and reconciles the actual and budget profit figures. You should indentify further
information required that would help to further explain variances

 

The directors have the opportunity to invest in one of two new projects. Both projects involve the
acquisition of new machinery. The figures for the projects are as follows:
Project 1 Project 2
€ €
Cost (will be incurred immediately) 200,000 120,000
Expected annual profits/losses
Year 1 58,000 36,000
Year 2 2,000 4,000
Year 3 4,000 8,000
Estimated scrap value of machinery 14,000 12,000
The business has an estimated cost of capital of 10%. They use a straight line method of depreciation for
non-current assets to calculate operating profit. The business has sufficient funds to meet the capital
expenditure requirements.
For each project calculate:
A. Accounting rate of return
B. Payback
C. Net present value
D. Internal rate of return

 

 

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