Reference no: EM132681510

Students will be required to complete a set of questions based upon core content from modules taught this year. This will enable us to be confident that students have met learning outcomes for each of these modules and will be helpful when you restart your final year of studies in October.
• Corporate Financial Management
• Audit
• Info systems
• Management Accounting
• Business Law
• Taxation
• Financial Reporting

You will also be required to complete a reflective piece of work based on these assignments that you should expect to discuss with your personal tutor when you return to the university.

Assignment questions
Section 1: Corporate Financial Management
Question 1

(a) (i) The risk-free rate is 6.0%, and the expected return on the market is 12.0%. A firm has traditionally employed its expected return for the overall firm for investment decision purposes. However, its two divisions - publishing and entertainment - have different degrees of systematic risk. The betas for the publishing and entertainment divisions are 1.0 and 2.0, respectively, whereas the beta for the overall firm is 1.3. The firm is considering the following independent projects:

Proposed Projects
Division	Project	Internal Rate of Return (IRR)
	P1	13.0%
Publishing (P)	P2	12.1%
	P3	9.0%
	E1	16.0%
Entertainment (E)	E2	17.0%
	E3	14.0%

Which proposed project(s) would the firm accept were it to use the expected return for the overall firm? Which proposed project(s) would the firm accept were it to instead use the expected returns for its two divisions? Show all workings, and explain what you would conclude from this analysis in a maximum of half a page with single line spacing.

(ii) A portfolio has 50% of its funds invested in Security 1 and 50% of its funds invested in Security 2. Security 1 has a standard deviation of 6%, and Security 2 has a standard deviation of 12%. The two securities have a correlation coefficient of 0.5. What is this portfolio's variance? Show all workings, and explain the theory behind your calculation in a maximum of half a page with single line spacing.

(iii) Your portfolio is comprised of 30% of Stock X, 50% of Stock Y, and 20% of Stock Z. Stock X has a beta of 0.64, Stock Y has a beta of 1.48, and Stock Z has a beta of 1.04. What is the beta of your portfolio? Show all workings, and explain the theory behind your calculation in a maximum of half a page with single line spacing.

Question (continued)

(b) (i) A firm is currently all-equity financed with 80,000 shares in issue at a market price of $42 a share. The firm is considering adding $1 million of debt with an interest rate of 8% to its capital structure and using the entire proceeds to reduce its equity. Assuming a Modigliani & Miller environment with a corporate tax rate of 34%, what would be the levered value of this firm's remaining equity were the proposed

change of capital structure to go ahead? Show all workings, and explain the theory behind your calculation in a maximum of half a page with single line spacing.

(ii) A firm currently has zero debt in its capital structure and an overall cost of capital of 9%. The firm is considering a new capital structure with 40% debt-to-total assets. The interest rate on the debt would be 4%, and the entire proceeds from the debt issue would be used to reduce the firm's equity. Assuming a Modigliani & Miller environment with a corporate tax rate of 34%, what would this firm's (I) cost of equity capital and (II) overall cost of capital be under the proposed new capital structure? Show all workings, and explain the theory behind your calculations in a maximum of half a page each with single line spacing.

Section 2: Audit
Complete all fields of the MCQ sheet. Use the appendix where needed.
Question 2
2.1 What was Prem Sikka's main point in his academic journal article "Financial crisis and the silence of the auditors"?
a) The financial crisis was brought about by the auditors.
b) The auditors colluded with the banks to hide the financial issues.
c) The independence of the auditors was hampered by the levels of non-audit services provided.
d) The auditors all had self-review threats to their independence due to other work provided.

2.2 What type of threat to independence occurs when an FD threatens to have an assistant taken off the audit for asking "the wrong type of questions"?
a) Management threat
b) Intimidation threat
c) Self-interest threat
d) Advocacy threat

2.3 If a control test sample had one failure during testing, what would you do?
a) Increase substantive testing in this area: the control has failed and you are not allowed to extend your sample.
b) Retest the same control using an entire new set of samples: a one-off control failure may be permissible if the rest of the sample is correct.
c) Identify a mitigating control to test in this area: the control has failed and you are not allowed to extend your sample, but another control may suffice.
d) Report the control to management and do the remainder of your tests. This control will be rectified in the forthcoming year.

2.4 Company X performs reconciliations of the tangible fixed asset register at 5pm daily. The reconciliation is performed by competent staff with suitable training in the prescribed format. The control is not an IT control. Using the controls guidance in Appendix 1, how many controls would you test?
a) 1
b) 15
c) 25
d) 40

2.5 When should an auditor perform analytical procedures?
a) At planning only
b) At completion only
c) Only when there are no tests of detail being performed
d) At planning, substantive and completion phases

2.6 The monthly TFA reconciliation should be tested how many times by the auditors if high risk?
a) 1
b) 2
c) 3
d) 5

2.7 Which change is most likely to occur in the near future to the audit industry?
a) Remote auditing only
b) Fees set by Parliament
c) Cessation of non-audit services (NAS) to listed clients
d) Mandatory rotation on an annual basis

2.8 The Completeness assertion could be a significant assertion over which balances assuming the business is trying to understate liabilities?
a) Accruals and Debtors
b) Stock and Creditors
c) Sales and Provisions
d) Payroll and accruals

2.9 Can an auditor ignore audit differences found?
a) Yes, if each difference is greater than materiality
b) Yes, if each difference is less than materiality
c) No
d) Yes, if each difference is lower than a pre-agreed ‘de minimis' level

2.10 What is the Kingman Review?
a) A review of the Big 4's position of oligopoly
b) A review of the audit industry
c) A review of the auditor's UK regulator, the FRC
d) A review of the company's financial statements

2.11 Which of these statements constitutes a form of limited assurance?
a) We have audited the Accounts Receivable balance and we can certify there are no material misstatements.
b) We have examined the Accounts Receivable balance and we have not found any material misstatements.
c) We have examined the Accounts Receivable balance and the balance is as we expected.
d) There are no material misstatements in the Accounts Receivable balance.

2.12 Using the materiality information in Appendix 1, calculate materiality for the Company, choosing the most relevant % to reflect the risk and nature of the business:
Trump's Rumps in Peaches Ltd is a meat and fruit processing company with poor controls working in an environment where meat consumption is dwindling: Sales £100,000 erroneously includes the sale of a warehouse. Profit before tax £50,000. Gross Assets
£500,000 (see Appendix 1 for materiality percentages)
a) £2,500
b) £5,000
c) £2,000
d) £500

2.13 The Valuation assertion could apply to which of the following?
a) Cash and Accounts Receivable
b) Stock and Accounts Payable
c) Sales and Accounts Payable
d) Accounts Receivable and Stock

2.14 Where is the work performed at the completion stage of an audit?
a) Mostly in the client's office, but with some time spent at the Audit firm
b) Exclusively in the client's office
c) Exclusively at the Audit firm
d) Mostly in the Audit firm, but with some time spent at the client's office

2.15 Debtor days represents what?
a) The average number of days credit the company's debtors are given
b) The average number of days debtors typically take to pay the company
c) The average number of days it takes for a sales order to translate into a debtor balance
d) The exact number of days before all debtor balances are collected

2.16 The 2019 Competition and Markets Authority (CMA) review of the Audit industry considered what issue?
a) The role of the FRC as an oversight body
b) The quality of the audit of Carillion's December 2018 accounts
c) The independence issue regarding audit firms also providing non-audit services
d) The nature, extent and timing (NET) of standard audit procedures

2.17 If your business understanding work led you to believe that a financial controller was holding back profits in the current year because she had already achieved her maximum bonus for the year, what assertion out of the following would be most important?
a) V of Prepayments
b) E of Prepayments
c) C of Prepayments
d) P of Prepayments

Section 3: Info systems

Complete all fields of the MCQ sheet. Use the appendix where needed.
Question 3
3.1 Which of the following statements about Light et al (2003) is correct?
a) Light believes that reliance on one vendor increases risk
b) Light believes that Best of Breed is superior to package ERP, and there is no strong counter argument to undermine his assertion.
c) Light believes that Best of Breed is superior to package ERP, and supports this with strong arguments throughout.
d) Light believes that Best of Breed is superior to package ERP, and requires less IT support
3.2 What is required for Missing Trader fraud to occur?
a) The creation of genuine, international transactions and significant output vat repayable
b) The creation of non-existent, international transactions and significant input vat repayable
c) Collusion between several companies
d) More than three companies, selling the same assets to each other
3.3 What implementation approach would be best for an old legacy system used in several subsidiaries with catastrophic failure of a small number of key modules?
e) Big Bang
f) Parallel
g) Phase in
h) Pilot
3.4 Which of these is a valid legal reason used in arriving at the post-appeal VAT position on Jaffa Cakes?
a) Jaffa Cakes are cakes because they are baked
b) Jaffa Cakes are biscuits because when they go stale they go soft
c) Jaffa Cakes are cakes because when they go stale they go hard
d) Jaffa Cakes are biscuits because they are the same shape as biscuits, sold as biscuits and eaten in the same manner.
3.5 In order, what are the four stages of the revenue cycle?
a) order received, delivery, invoicing, cash payment
b) order made, goods out, invoice approval, cash receipt
c) order made, delivery, invoice approval, cash receipt
d) order received, goods out, invoicing, cash receipt

3.6 Why do you not recognise a profit when you purchase inventory?
a) Because inventory is always sold at cost
b) Because the inventory is maintained on the balance sheet until it is sold
c) Because revenue is equal to cost of sales at point of purchase
d) Because non-direct costs reduce profit on sale to nil.

3.7 What are the key differences between making a purchase as a consumer and making one as a large business?
a) VAT and credit terms given
b) VAT and profit recognition
c) Credit terms given and profit recognition
d) Credit terms given and revenue recognition

3.8 What is the main reason we do not use purchase orders and sales orders in Saasu?
a) Orders are no longer used in businesses - invoices drive transactions
b) There is no facility in Saasu for orders
c) The nature of the transaction are ones that do not require orders, so we go straight to invoice
d) Orders are used in businesses but for simplicity we just assume these have happened and purchases and sales have arrived immediately.

3.9 What is the purpose of CEDAR adjustments?
a) To present the trial balance in more detail
b) To incorporate other subsidiaries in consolidated accounts
c) To restate the trial balance ready for XBRL coding
d) To restate the trial balance for any adjustments / errors

3.10 In relational databases what is the purpose a foreign key?
a) It acts as a cross-reference between tables because it refers to the primary key of another table
b) It acts as additional information for the primary key for ease of analysis
c) It acts as a way of making databases more efficient by allowing flat files to be built
d) It prevents the relational database ‘setting like concrete' and becoming inflexible

3.11 What is blockchain?
a) A cryptocurrency similar to bitcoin
b) Technology used only for cryptocurrencies to prevent unauthorised transactions
c) Technology used in digital transactions to remove the need for a trusted third party
d) The technology used the internet of things to create meaningful data

3.12 What main effect does XBRL coding have on the Regulator's work?
a) It creates the opportunity for low-balling
b) It is an opportunity to increase fees
c) it identifies indicators of fraud for further investigation
d) it is an added burden as legally it has to happen for virtually all companies

3.13 What is the internet of things?
a) It is another term for crowdsourcing and crowdfunding
b) It is the vast digital information flow created by smartphones and computers
c) It is the online communication of small ‘dumb' objects via technological means
d) It is the source of all big data

3.14 Give an example of when a virtual close would occur
a) In preparing the year end accounts
b) Following every month of the year
c) On a daily or as needed basis
d) In preparing half year accounts

3.15 Cedar adjustments are performed when?
a) Before generating a trial balance
b) On a daily ongoing basis
c) Before generating an extended trial balance
d) As part of an extended trial balance

3.16 How do Moore's and Metcalfe's laws fit into information systems?
a) The laws establish the basis of double entry which is still used to this in accounting systems
b) The laws support the observations that technology is getting cheaper and the usefulness of the internet is increasing in line with the number of users
c) The laws support the observations that a business will look to outsource certain operations ahead of performing in house if the cost of performing in house is more expensive
d) The laws establish the logic and underlying digital structure of relational databases
3.17 Jones and Xiao (2004) make what main observation about online reporting?
a) That all successful companies need an online reporting presence
b) That online reporting is only successful when the company supports the reporting online with the underlying data
c) That the sophistication of online reporting was poor for those companies surveyed
d) That the effectiveness of online reporting has increased greatly in recent years.

Section 4: Management Accounting

Question 4

Signforme Ltd manufactures electronic attendance monitoring systems that are used in a wide range of businesses, educational establishments and public sector organisations. The current cost of their products, calculated using an absorption costing system based on machine hours, and selling prices are shown below.

£ per unit	WK250	UNI100	GOV300
Direct material	52	58	65
Direct labour (2, 1, 2 hours x £17/hour)	34	17	34
Production overhead (2, 5, 3 hours x £22/hour)	44	110	66
Full production cost	130	185	165
Profit	39	14	24
Selling price	169	199	189

The market that Signforme operates in is highly competitive and the company's Chief Executive has suggested that they introduce an activity-based costing (ABC) system in order to increase profit. However the Finance Director highlighted that, although there were problems with their current costing system that ABC could address, introducing an ABC system would not automatically increase profit and many organisations had chosen not to implement ABC.

Required

a) Explain the problem with traditional absorption costing that activity-based costing attempts to address, using information from the scenario to illustrate your answer.

b) Outline the main benefits of an ABC system.

"The point is that management must take some action to capture the benefits from the signals ABC analysis sends" (Cooper and Kaplan, 1991, p135)

c) Explain why action needs to be taken as a result of the information provided by an ABC system in order to increase total profit. Identify and explain THREE types of action that Cooper and Kaplan (1991) suggest managers need to take as a result of ABC analysis in order to increase profits.

d) Discuss the possible reasons that ABC is not adopted by some companies despite its benefits.

Your answer must not exceed 750 words in total.

Section 5: Business Law

Questions 5

a) The concept of separate legal personality underpins the whole of company law. Explain the meaning and effect of this principle by reference to what has been called the ‘veil of incorporation', setting out what that means and discussing whether it is an immutable principle or whether there may be occasions when it does not apply. If there are such occasions, in what circumstances would they arise? Apply case law wherever you can.
Your answer must not exceed 500 words in total.

b) Given that minority shareholders can always be outvoted in General Meetings by the holders of the most shares, how does the law guard the interests of minority shareholders and protect them from abuse?
(Explain what protection is in place for minority shareholders and what types of action or claim they might be able to take, how and in what circumstances. Set out what types of order a court may make in particular situations.)
Your answer must not exceed 750 words in total.

Section 6: Taxation

Question 6
Hannah and Ollie Ormond are a married couple. Hannah is currently employed by a toy factory as a director, Dreamy Unicorn Ltd, and Ollie is retired. The couple loves animals, and they like to help animal charities when they can. They want to make a donation of £3,000 to The Donkey Sanctuary, but they are not sure about the most tax efficient way to do this. The financial information for each spouse is provided below:

Hannah Ormond:
1. Hannah is employed as a managing director by Dreamy Unicorn Ltd, a toy factory. Her gross annual salary for 2019/20 is £80,400, from which PAYE of £51,008.00 was deducted during the year. Additionally, in January she received a bonus of £10,000.
2. Hannah has the use of a company car for private purposes and used it throughout the entire tax year. The car is diesel powered and had a list price of £45,000. Its CO2 emissions is 127 grams per kilometre travelled. Dreamy Unicorn Ltd paid for all of the running costs of the car, and £1,600 for diesel for private mileage driven by Hannah. Hannah paid £100 per month towards the use of the car, and £40 towards her private fuel cost.
4. Hannah was provided with a car parking space near the Dreamy Unicorn Ltd's main building - the space cost the company £300 per annum.
5. Throughout the tax year 2019/20, the Dreamy Unicorn Ltd provided Hannah with living accommodation. The property had been bought by the Dreamy Unicorn Ltd 11 years ago for £54,000, and the market value of the property as of 06 April 2019 was £132,000. The annual value of the accommodation is £25,300. On 6 April 2019, Fabulous Wedding Designs Plc purchased furniture for the property at a cost of £11,000. The company pays for the running costs relating to the property, and for the tax year 2019/20 these amounted to £5,600.
6. On 6 July 2019, Dreamy Unicorn Ltd gave Hannah an interest free loan of £50,000 which she used towards buying a holiday home. Hannah repaid £5,000 of the loan on 31 December 2019.
7. During 2019/20 Hannah received bank interest of £850 and dividends from a UK company of £2,500.

Ollie Ormond:
1. Ollie is retired and receives a pension of £11,500.
2. He also received dividends from his investments in UK companies totalling £8,000 in the 2019/20 tax year.

Required
(a) Calculate income tax liability in 2019/20 for Kate and for Ollie.

(b) Assuming that all other figures calculated in part (a) are the same, advise which spouse should make a donation of £3,000 to The Donkey Sanctuary to make it tax efficient? Recalculate the income tax liability for the person you think should make the donation. Show how much savings on tax the person could make through this donation.

Section 7: Financial Reporting

Question 7
On 1 January 2019, Tim Ltd decided that a building was to be revalued to £3,500,000. The current valuation in the statement of financial position was £2,000,000. Tim Ltd's year end is 31 December 2019.
a) Describe how you would record the increase in value for the building and explain why this is not considered to be profit. Using the information for Tim Ltd you can prepare extracts from the relevant financial statements to illustrate your point.

Your answer must not exceed 500 words.

b) With respect to the definition of an asset in accordance the IASB's Conceptual Framework for Financial Reporting, discuss whether human capital can be considered an asset.

Your answer should not exceed 500 words.

Section 8: Reflective Exercise

Having completed the questions above please reflect on your learning from this assignment.

Question: what do you feel you have learnt about yourself while working on this assignment?

In answering this question, try to consider what subjects or question styles you found straightforward and what you found difficult. This might include the technical content, your ability to focus on the task given your home environment, time management, prior knowledge and any other relevant factors that you feel might have impacted on your studies.

Question: what do you feel you have learnt about yourself throughout your year at University?

Think about what you learnt throughout the year at University and the different teaching styles you've experienced. Why were some subjects more difficult than others? And are there changes in your approach in year 3 that are likely to help you to achieve even better results next year?