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MGT401 Assignment 1 Solution Spring 2017

Topic: “Inventory Valuation” Question # 01: Part A (5 marks)

From the following information, you are required to show the impact of each event on financial analysis of the Alpha corporation:

Events:

 Inventory valuation method affected the cash flow statement

 Early recognition of the profit on a sale

 Ending inventory understated by Rs. 4,000

 Opening inventory overstated by Rs. 10,000

Note: Provide your answers in the following format:

Type of event Impact on overall company’s performance

Part: B (8 marks) You are required to show the impact (higher/lower) of the following inventory valuation methods (LIFO and FIFIO) on different variables of financial statements of a company in the following format: Type of variable LIFO FIFO Cost of goods sold Income Cash flow Working capital

Topic: “Investment in associates” Question # 02 Following are the facts and figures relating to the net profit after-tax of the IBM: Name of the companies Net profit after-tax IBM Million $ 250,000 NM & P Co. Million $ 80,000 J & J Sons. Million $ 55,000 P & G Co. Million $ 70,000 SA & G Co. Million $ 95,000

 IBM hold 75% of the voting power in NM & P Co. and 30% of the voting powers in J & J Sons.

 NM & P Co. owns 30% of the voting powers in J & J Sons and 25% of the voting powers in SA & G Co.

 J & J Sons owns 40% of the voting powers of P & G Co. You are required to tell:

 Part A: What is the status of each entity in this group? (4 marks)

 Part B: How minority share of each entity in the after-tax profit of the group is calculated? (8 marks)

Solution :

In FIFO:

Cost of good sold = lower

Income = higher

Cash flow= lower

Working capital = Higher

In LIFO:

Cost of good sold = Higher

Income = Lower

Cash flow= Higher

Working capital = Lower

question no 2

Minority interest of IBM is 370,387.5

Minority interest of NM & PCo. is 32,162.5

Minority interest of J & J Sons. is 33,200

Minority interest of P & G Co. is 42,000

Minority interest of SA & G Co. is 71,250

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