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Financial Accounting Summer 2022 Virtual Lab

Case Number 1: Charlie Brown and the Eat-a-Bite Café

 

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Charlie Brown feels very depressed. He has been in business, on his own, for just one month, running the Eat-A-Bite Cafe. His father purchased a piece of land alongside the main road into town for £95,000, on a 19-year lease, and has spent an additional £19,000 on constructing the pop-up cafe. In return, his father wants the satisfaction of knowing that his son is set up in life.

 

Charlie was pleased with his choice when he appointed Boo Boo as chef, and Nala and Saksoora as waitresses. Business has been great from the start, but now he and his father have prepared a set of accounts for the first month’s operations and it looks as though the cafe is operating at a loss. Neither of the men know much about accounting, and they have prepared the statements set out below using an old bookkeeping textbook, which they found online.

 

What is upsetting Charlie even more is that he is hoping to get married at the end of the year, but has agreed with his fiancée that this will not be possible if the business is struggling. He also knows that his father has given up a 10% return on investments he cashed in to provide funds for the business, and this very morning the bank manager has asked him to go to the bank to discuss his overdraft. He has decided to talk things over with his future father-in-law, with a view to possibly taking a job with his company as a truck driver where he knows he can earn

£400 per week, plus overtime.

 

Before this, however, he has come to discuss his problems with you and brought with him the attached financial information.

 

Required:

  1. Prepare a revised set of financial statements in good
  2. With reference to 1 above and any relevant further calculations, prepare a 1500 word report with your recommendations to Charlie.

 

THE ‘EAT-A-BITE’ Cafe

 

Income and Expense Summary for the month ended August 31

 

 

$                     $

Income

Sales                 Food                                                                                                          14,206

Drink                                                                                                           9,020

23,226

Expenses

Purchases         Food                                                                                    15,260

Drink                                                                                   10,000

Cleaning Materials                                                                   445

Kitchen Utensils and Appliances                                          1,200

Linen, cutlery, china and glass ‘tableware’                          1,800

Chef’s salary                                                                                                  1,800

Wait staff wages 1,400  
Social Security, Insurance, etc 320
Stationary, printing and advertising 175
Postage and telephone 100
Electricity 171
Gas 108
Other expenses 32
Cash withdrawn by Charlie 2,600  

35,411

Net Loss   ($12,185)
 

Assets                Cash

   

150

Stock of food   6,080
Stock of drinks   6,500
Cleaning materials   225
Tableware (expected to last 2 years)   1,800
Kitchen utensils (they will also last 2 years)   1,200
Menus and brochures   145
    $16,100
Liabilities          Bank Overdraft   3,500
Food and Drink bills due (included in 25,260 above)   8,835

 

$12,335

 

Case Study Number 2: Infinity Challenge

 

Infinity Challenge was taken over by its present three directors just over a year ago. They met to decide upon their accounting policies but there are various areas over which there is some disagreement. As part of your interview for the role of Chief Financial Officer, you’ve been asked to assess their different proposals below.

 

 

Item Amount

£

Admin Director Marketing Director Technical Director
Advertising 18,000 Expense full amount Defer £8,000 to next year No opinion
Stationery and supplies 6,700 Expense full amount Carry £1,800 of stock to next year No opinion
Research and Development Costs 224,000 Expense full amount Expense over 5 years Carry as asset on Balance

Sheet

Provision/Allowance for Bad and Doubtful Debts to be decided Provision against specific accounts receivable (£30,100) General provision of 10% of total receivables (£96,200) Make no provision
Land and Buildings 570,000

historic cost

Leave at cost Include at market value £2,000,000 Include at market value

£2,000,000 and depreciate over

50 years

Equipment and Machinery 180,000

historic cost

Depreciate over 5 years Depreciate over 10 years Depreciate over 6 years
Company stamp 150 Expense full

amount

Depreciate over

10 years

No opinion

 

 

Required: Prepare a report for the CEO of 1500 words maximum. Your report should include:

 

  1. Assessment of the impact of each of the 3 proposals on both the company’s profit for the year and its Balance Sheet.

 

  1. Comment on the suitability of the proposals, bearing in mind relevant accounting principles and assumptions as well as any other non-financial considerations.

 

  1. Note what, if any additional information you require and any circumstances under which your recommendations might change.