3.4 Final accounts Topic Practice

1. Joyce Trucking (JT)
Joyce Trucking (JT) is a small transport company that operates in Kent, United Kingdom (UK). JT currently has ten trucks and operates at high-capacity utilization. The company plans to buy one more truck, at a cost of £ 120000, on 1 January 2024.
J T must decide on which depreciation method to use for the new truck: the straight-line method or the reducing/declining balance method. The new truck has an expected life of four years, and its residual value is expected to be £ 20000.
JT anticipates very high revenue and profitability in 2024 and 2025, because of several major construction projects that are due to take place in Kent. When those projects are completed, JT anticipates a fall in sales revenue and profits.

1. Lusanka Company (LC)
Lusanka Company (LC) manufactures ceiling fans using a mass production process. Selected financial information for L C is shown in Table 1.

Currently, LC manufactures ceiling fans in a building that is financed by long-term debt. LC is considering selling the building to pay off the long-term debt and moving production to a new building, which L C would lease.

1. Call it Magic (CIM)
Call it Magic (CIM) is an online jewellery store that sells silver earrings. It has completed its first year of trading, during which it sold 1000 pairs of earrings. CIM's selling prices are low compared to those of other jewellery stores. The average unit cost per pair of earrings is $5, and overhead costs are already at a minimum level.

Tipin (TI)

Tipin (TI) manufactures shirts using a batch production method.
Table 1 provides selected financial information for TI from:
- its profit and loss account for the year ending 31 May 2022
- its balance sheet at 31 December 2021.

At the end of 2021, Tl's current ratio was 2.1. Its net profit margin declined from 14.8 % in 2021 to 10.0 \% in 2022.

2. Ritev Enterprises (RE)
Ritev Enterprises (RE) is a public limited company that owns a chain of 20 gas (petrol) stations. Next year, R E plans to modernize its gas stations by installing self-service pumps.
Table 2 provides selected financial data for R E from:
- the profit and loss account for year ending 31 May 2021
- the balance sheet as of 31 December 2021.

The finance director is concerned about the trend in consumer preference for electric cars and the potential impact of increased numbers of electric cars on R E.

Construct a fully labelled balance sheet for R E as of 31 December 2021.

SVT organizes each of its water treatment plants as a profit centre. SVTs water treatment plant in a Middle Eastern country extracts water from a local river to supply households in Dalgera, the capital city. In 2019, many people complained about the water's bad taste. A television documentary suggested that SVT was negligent.

SVT investigated and found that employees at its water treatment plant had failed to treat the water properly. This failure resulted in lead* from inside old pipes entering the water that was supplied, exposing the inhabitants of Dalgera to water with high levels of lead.

In 2020, SVT dismissed the regional director of Dalgera and installed automated monitoring equipment (which was already being used in its European water treatment plants) in all of SVT plants across the world. This equipment, which monitors lead levels, costs $ 100 million and depreciates on a declining-balance basis at a rate of 20 % per annum to a residual value of $ 10 million. However, in 2021, a court ordered SVT to pay $ 300 million in damages to the affected people in Dalgera, which was widely publicized across the world, badly damaging SVT's brand image.

By 2022, the global home water filter market was $14 billion, and 90\% of SVTs water filter sales were to Europe and the USA. SVT now wants to increase sales in Asia, a market with significant growth potential. In the same year, SVT closed its European and USA water filter manufacturing factories, partly because of increasing costs of energy and labour. These factories were replaced by a huge new factory in Asia.
* lead: a chemical element that is a soft, heavy, grey metal. In the past, it was widely used to make pipes, cover roofs, and in paint; it is harmful when ingested

In January 2021, a respected guide to universities rated P U top in two categories:
- Sustainability - for reducing its pollution, waste and carbon footprint.
- Teaching excellence - for developing innovative teaching methods resulting in highly positive feedback from students.

Before the accident at the nearby chemical plant in September 2021, PU's student accommodation and teaching facilities were highly rated. However, the university was rated poorly for digital innovation and support services, with support staff not always understanding the needs of students.

In surveys, students generally rated P U highly for the quality of its courses and facilities. The campus was also voted one of the best in the country, but this changed after the accident.

After the accident, P U continued to experience unexpected changes to its culture:
- The level of diversity in classes and university accommodation has fallen, as there are fewer international students.
- The shortage of students has meant a continuing fall in income for P U. This has increased competition between faculties for available finance.
- Less time and effort is spent on student welfare.
- Lecturers have to meet demanding targets to produce online courses and materials.
- There is greater emphasis on contingency planning.

The government grants received by P U for the purchase of IT equipment did not address all equipment shortages. Due to an increase in online teaching, P U purchased 500 laptops for students, at a cost of $ 500 each. Each laptop has a useful life of three years. After three years, each laptop will be sold to local schools for $ 50.