Question 1
Morrisons Plc. is a British grocery and general merchandise retailer. The company’s financial statements for the period 2011-2015 are presented below.
Required:
Prepare a business report for Morrisons’s board of directors analysing the company’s financial performance between the periods 2011-2015. Your report should utilise key ratios, horizontal and vertical analysis and make reference to relevant developments within Morrisons Plc.
Total Marks (50)
|
Morrisons Plc.
|
|
Group Income Statement
|
|
|
2015
|
2014
|
2013
|
2012
|
2011
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Revenue
|
16816
|
17,680
|
18116
|
17,663
|
16,479
|
|
Cost of sales
|
(16,055)
|
(16,606)
|
(16,910)
|
(16,446)
|
(15,331)
|
|
Gross profit
|
761
|
1,074
|
1,206
|
1,217
|
1,128
|
|
Other operating income
|
78
|
81
|
80
|
86
|
80
|
|
Administrative expenses
|
(1,670)
|
(1,259)
|
(336)
|
(329)
|
(323)
|
|
Profit on disposal and sale of businesses
|
135
|
9
|
(1)
|
(1)
|
(1)
|
|
Operating profit/(loss)
|
(696)
|
(95)
|
949
|
973
|
904
|
|
Finance costs
|
(105)
|
(87)
|
(75)
|
(47)
|
(43)
|
|
Finance income
|
7
|
5
|
5
|
21
|
13
|
|
Share of profit of joint venture
|
2
|
1
|
|
|
|
|
Profit/(loss) before taxation
|
(792)
|
(176)
|
879
|
947
|
874
|
|
Taxation
|
31
|
(62)
|
(232)
|
(257)
|
(242)
|
|
Profit/(loss) for the period
|
(761)
|
(238)
|
647
|
690
|
632
|
|
Morrisons Plc
|
|
Balance Sheets
|
|
|
2015
|
2014
|
2013
|
2012
|
2011
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Assets
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
Goodwill and intangible assets
|
520
|
458
|
415
|
303
|
184
|
|
Property, plant and equipment
|
7,252
|
8,625
|
8,616
|
7,943
|
7,557
|
|
Investment property
|
68
|
119
|
123
|
259
|
229
|
|
Net pension asset
|
4
|
0
|
0
|
0
|
38
|
|
Investments
|
31
|
31
|
31
|
31
|
0
|
|
Other financial assets
|
0
|
0
|
0
|
1
|
3
|
|
Investment in joint venture
|
68
|
66
|
0
|
0
|
0
|
|
Total non-current assets
|
7943
|
9299
|
9185
|
8537
|
8011
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Stock
|
658
|
852
|
781
|
759
|
638
|
|
Debtors
|
239
|
316
|
291
|
320
|
268
|
|
Derivative financial assets
|
6
|
1
|
5
|
2
|
4
|
|
Cash and cash equivalents
|
241
|
261
|
265
|
241
|
228
|
|
Non-current assets classified as held-for-sale
|
84
|
0
|
0
|
0
|
0
|
|
Total current assets
|
1228
|
1430
|
1342
|
1322
|
1138
|
|
Total Assets
|
9171
|
10729
|
10527
|
9859
|
9149
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Creditors
|
2,221
|
2,272
|
2,130
|
2,025
|
1,914
|
|
Short term borrowings
|
11
|
553
|
0
|
0
|
0
|
|
Derivative financial liabilities
|
18
|
10
|
55
|
115
|
0
|
|
Current tax liabilities
|
23
|
38
|
149
|
163
|
172
|
|
Total current liabilities
|
2,273
|
2,873
|
2,334
|
2,303
|
2,086
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
Borrowings
|
2,508
|
2,480
|
0
|
0
|
0
|
|
Derivative financial liabilities
|
50
|
36
|
0
|
0
|
0
|
|
Other financial liabilities
|
0
|
0
|
2396
|
1600
|
1052
|
|
Deferred tax liabilities
|
415
|
430
|
471
|
464
|
499
|
|
Net pension liabilities
|
43
|
11
|
20
|
11
|
0
|
|
Provisions
|
288
|
207
|
76
|
84
|
92
|
|
Total non-current liabilities
|
3,304
|
3,164
|
2,963
|
2,159
|
1,643
|
|
Total liabilities
|
5,577
|
6,037
|
5,297
|
4,462
|
3,729
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
Share capital
|
234
|
234
|
235
|
253
|
266
|
|
Share premium
|
127
|
127
|
107
|
107
|
107
|
|
Capital redemption reserve
|
39
|
39
|
37
|
19
|
6
|
|
Merger reserve
|
2,578
|
2,578
|
2,578
|
2,578
|
2,578
|
|
Retained earnings and hedging reserve
|
616
|
1,714
|
2,273
|
2,440
|
2,463
|
|
Total shareholders` equity
|
3,594
|
4,692
|
5,230
|
5,397
|
5,420
|
|
Total shareholders` equity and liabilities
|
9,171
|
10,729
|
10,527
|
9,859
|
9,149
|
|
|
2015
|
2014
|
2013
|
2012
|
2011
|
|
| |
|
Share Price (Morrison)
|
174.5
|
179.9
|
239.9
|
251.0
|
286.0
|
|
|
FTSE100
|
6960.6
|
6598.4
|
6430.1
|
5737.8
|
6069.9
|
|
Question 2
KLC limited makes two products, J678 and J432. The following data is relevant for the year.
Material prices
Material X £3.00 per unit
Material Y £5.00 per unit
Material Z £4.00 per unit
Direct labour cost is at £8.00 per hour.
The manufacturing overhead are estimated to be £350,000 for the period which includes £50,000 for depreciation of machinery, equipment and building. These overhead costs are absorbed into product costs using a direct labour hour absorption rate.
Each unit of finished product requires
Material X 15 units for J678 10 units for J432
Material Y 10 units for J678 12 units for J432
Material Z 5 units for J678 3 units for J432
Direct labour 8 hours for J678 15 hours for J432
The sales director has forecast that sales of J678 and J432 will be 8,000 and 3,000 units respectively during the year. The selling prices will be £250 per unit of J678 and £230 per unit of J432.
She estimates that the stock at 1 January will be 750 units of J678 and 300 units of J432. At the end of the year she requires the stock level to be 450 units of each product.
The production director estimates that the raw material stocks on 1 January will be 3,000 units of Material X, 4,000 units of Material Y and 1000 units of Material Z. At the end of the year the stocks of these raw materials will be 4,000 units of Material X, 2,000 units of Material Y and 1500 units of Material Z.
Required:
- a. Prepare the following budgets:
- Sales budget (in £s and units).
- Quantity production budget (in units).
- Material usage budget (in units).
- Material purchase budget (in units).
- Production cost budget (in £s). (15 Marks)
- b. Prepare a Marginal Costing Income Statement for KLC Limited (assume that the manufacturing overhead costs are all fixed). (10 Marks)
- c. Whether KLC should drop product J432? Explain. (5 Marks)
Total Marks (30)
Question 3
Over the last few decades, businesses across the globe have become more concerned with increasing their power to improve social and environmental conditions. This has also become a priority for policy makers and other stakeholders and is at the core of the corporate social responsibility movement.
Critically discuss how producing CSR enhances corporate accountability, transparency and sustainability and the role of accounting and financial reporting in this process. Construct your answer within an appropriate CSR theoretical framework. Total Marks (20)
