Professional Documents
Culture Documents
Accounting Project - EMBA Cohort 43 Group33 - FinalSubmission
Accounting Project - EMBA Cohort 43 Group33 - FinalSubmission
E/MBA Class
of May 2023
Group #33
Ronke Aramide Adenle [email protected]
1) Assumptions
The financial statements of Highland Malt have been prepared under the following assumptions
identified by our group (additional to the ones listed in the project prompt):
- Accrual Accounting is applied, Financial Accounting is applied;
- Matching Principle is applied, Absorption Costing is applied;
- Factory Lease and Shipment/Equipment Lease are treated as operating leases;
- Principal of Bank Loan will be paid back in full on 1st January 2020.
3) Recommendations
a) Liquidity and Solvency
Assessing the Current Ratio and Quick Ratio, we conclude that Highland Malt was not liquid in
2018 due to only producing inventory without selling, yet highly liquid in 2019. The company
was able to meet its short-term obligations in 2019. Yet, Highland Malt held a lot of liquid assets
(cash) in 2019 and we suggest that the company should make better use of its cash by investing,
for example into bonds which are easily tradeable if the need arises, hence earning interest.
Debt-to-Equity and Debt-to-Assets in 2018 were both low which indicates that the company was
neither operating nor financed on debts.
APPENDIX
A) Calculation of key entries in balance sheet and financial statements: Highland Malt
1) 2018
Cash = $750,000 + $50,000 - $5,000 - $300,000 - $325,000
Inventory = $300,000 + $325,000
Retained Earnings = $0
Sales Revenues = $0
COGS = $0
Operating Expenses = $0
2) 2019
Cash = $ 2,500,000 - $50,000 - $5,000 - $50,000 - $90,000 - $50,000 - $75,000 - $250,000 -
$1,450,000
Inventory = $ 700,000 + $750,000 -$300,000 - $325,000 - $700,000 - $375,000
Retained Earnings = $2,500,000 - $1,700,000 - $390,000 - $355,000
Sales Revenues = $ 2,400,000 + $100,000
COGS = $300,000 + $325,000 + $700,000 + $375,000
Operating Expenses = $ 90,000 + $50,000 + $250,000
SG&A = $230,000 + $75,000 + $50,000
Current Liabilities
Bank Loan Payable $0 ($50,000)
Long-Term Liabilities
Bank Loan Payable $50,000 $0
Total Liabilities: $50,000 ($50,000)
Equity
Paid-in Capital $750,000 $750,000
Director’s Loan $0 $230,000
Retained Earnings $0 $55,000
Total Equity: $750,000 $1,035,000
Purchase of PP&E $0 $0
Total Investing Cash Flows: $0 $0
E) Calculation of ratios: