Intangible Assets in the BCCL - Assignment Example

Question 1 1. debit dividends payable account and credit cash account( being the payment of dividends) 2. interest on notes = 4/100* 100,000 = 4,000/8 = 500 each year 3. for this case, 2,000 is prepaid expense hence debit prepaid insurance a/c and credit expenses account with 2,000 4. 18,000-1,000/ 4= 4,250. (post a deprecation of 4,250 being the amount for each year) 5. 1,200*350= $420,000( being revenues from selling of stock on credit) 6. 1,300 units * 200= 260,000 7. Credit cash and debit accounts payables with $10,000 8. Debit cash account and credit accounts receivables-extend it to revenues with similar amount of $54,000 9. Debit drawings account and credit cash account with same amount of 3,000 10. Sales commission 1200*350= 420,000*10/100= 42,000 Question 2 BCCL Trial Balance As at Dec 2017 Accounting Item Dr Cr Cash 86,500 A/C receivables 574,000 Inventory 270,000 Plant & Eq. 22,350 Artwork 3,000 Prepaid Insurance 2,000 A/c payables 30,000 Notes Payable 100,500 Acc. Depreciation 10,000 Overdraft 9,000 Dividends payable 2,000 Retained earnings 7,000 Ordinary shares 10,000 Revenues 474,000 Expenses 367,750 Drawings 3,000 Reserves 55,400 Totals 1,013,250 1,013,250 Question 3 BCCL Income Statement For the Period Dec 2017 $ $ Revenues 474,000 Less: Expenses Insurance 2,000 Depreciation 4,250 Factory-line staff salaries 11,000 Council rates 11,000 Commission 42,000 Materials 80,000 (150,250) Net Profits 323,750 Question 4 BCCL Balance Sheet Statement As at 31st Dec 2017 Current Assets $ Current Liabilities $ Cash 86,500 A/C payables 30,000 A/C receivables 574,000 overdraft 9,000 Inventory 270,000 Dividends payable 2,000 Prepaid Insurance 2,000 total 41,000 Artwork 3,000 Non-current liabilities Total 935,500 Notes payable 100,500 Non-current Assets: Plant & Equipment 18,000 Equity: Less: acc depreciation (4,250) Retained Earnings 7000 Total 13,750 Ordinary Capital 10,000 Profits 320,250 Less: drawings (3000) Reserves 473,500 949, 250 949,250 Question 5 Both the artwork and patents are considered to be intangible assets in the BCCL. It is important to understand that intangible assets form the non-physical section of assets that provide value or even a marketplace competitive edge and will usually have a useful life that exceeds one single year. For the case at hand, patents are intangible assets that are categorised as being intellectual property. The process involved with the efficient valuation of accounting of imminent intangible assets is deemed to be a challenge, which is in fact brought about by the manner for which these intangible assets are handled. In the guidelines set forth by the generally accepted accounting principles (GAAP), intangible assets are basically listed on the financial statement of a company only in the event that they have been acquired and thus, assets that have an identifiable value and useful lifespan can thus be subjected to amortisation process. Internally generated intangible assets would normally not appear in the balance sheet. In the case of BCCL, artwork has been acquired hence; it is suggested that they are included as long-term assets of the company in accordance with their purchase prices and amortisation schedules. For the case of patents, which is assumed to be generated internally, it is recommended that it does not appear in the firm’s balance sheet given that there is not marketplace that can be used to ascertain its underlying value. There is no specific absolute price that can be used to value the patent hence it is important that it does not feature in the balance sheet altogether. Question 6 Contribution margin= sales price per unit- total variable costs per unit Sales price per unit= $350 Total variable costs per unit= 80,000+45,500+180,000/ 1,300= $235 Thus, contribution margin per unit = $350-$235= $ 115 It is important to note that a contribution margin per unit is the underlying selling price of products offered less the variable cost per unit. The contribution, in this case, represents the overall portion of the sales revenues that has not been used up by variable costs and thus, plays a great role in covering for the existing fixed costs. In numerous fields, contribution margin per unit is perceived to be a useful measure that is adopted in numerous calculations and hence used for operating leverage. For most cases, a lower contribution margin is prevalent in most labour-intensive sectors while high levels are mostly seen in capital-intensive industry as a whole. When offered with a contribution margin, managers can easily compute both break-even and target incomes sales for their products or services. In this regard, it is deemed to be a better tool that allows managers to make efficient and better decisions on whether or not to add or even minus a product line and also, on the best pricing strategies for these products. Question 7 Break even units= fixed costs/ contribution margin per unit = 45,000/115 = 391 units Operating Leverage = contribution margin/ net operating income Contribution margin= sales – variable expenses Sales= 1,300*350= 455,000 Variables expenses= 80,000+45,500+180,000= 225,500 Contribution margin = 455,000-225,500 = $ 229,500 Operating leverage = 320,250/229,500*100% =139.5% Analysis The company seems to be operating on a high leverage position of 139.5%, which is an indication that a significant proportion of the firm’s costs are composed of fixed costs. Following this line of argument, it can be noted that the company earns an enormous level of profits for each incremental sale however; it should meet a sufficient sales in order to counter its substantial fixed costs. Question 8 Possible weaknesses in the economy of the country can result to a significant effect on the level of revenues and profits to fall steadily. For instance, there is a high possibility that BCCL can be impacted negatively whenever the level of consumer confidence changes so that they withhold their big purchases hence there is a need to always be re-strategizing business operations to shelf itself from possible market shocks. Certainly, there has been an emergence of a new company that has a similar model of manufacturing as BCCL. This means that the competitive environment of the company has also been altered. The major aim of this shifting environmental rivalry would require that the company come up with new strategies of conducting business. In fact, it should consider conducting cost-benefit analysis immediately to ascertain the effects of competitors’ actions. In the event that the level of sales and profits fall within a certain time; should be a major concern for BCCL since it means that customers have shifted to the rival company. Thus, monitoring the operations of the competitors is the surest way for BCCL to spot possible operational threats to the business before they can be serious. There is a possibility that the regulatory environment can affect the business in either a positive or negative manner. For instance, an implemented government regulation can affects business operations by increasing the cost of doing business, which would definitely result to a significant cut on profits earned. For that reason, it is important that BCCL adopts effective monitoring strategies that would be useful in cushioning operations from such happenings. Read More