FINA1161 – Introduction to Finance for Business – Assessment 2
Case Scenario Brief and questions
Assessment 2 - Report 2 Instructions
Please read the following 3 case scenarios briefs and complete the questions after them. Next to
each scenario brief there is an indicative wordcount of the words that should answer the question fully.
The report has a wordcount limit of 1,500 words +/-10% and there is penalty of a deduction of 5
points from your final mark if you go outside the wordcount limits. In the total report please cite
at least 5 but no more than 8 reference sources when answering your questions.
References are not included in the final wordcount.
Case Scenario 1 - Lisa Mayfield
Background
Lisa Mayfield has been operating a quaint bookstore for several years in a leased building in the city
centre. She sells both new and second-hand books and also offers a book repair service, with the help
of a part-time assistant. The business has been reasonably profitable, providing Lisa with a decent
income. Her husband, David, works as a nurse at a local hospital, and their combined earnings have
been enough to secure a mortgage on a house and go on vacation once a year.
Business in decline
However, Lisa is worried that her bookstore is seeing a drop in customers. A new online shopping
platform has started delivering books and other items in the city. Prior to this, people used to visit a
popular café next to Lisa’s shop, which would often bring foot traffic to her bookstore. This is no longer
the case, and Lisa feels that her store's visibility has decreased. While she still has a strong customer
base of literature enthusiasts, her sales of best-selling and popular novels have declined, particularly
during the holiday season. Lisa suspects that this traffic has shifted to the online platform.
Sales of rare and antiquarian books to literature enthusiasts are the more profitable end of Lisa's
business. Her stock of these kinds of books is at a standard level on 28 February, which is Lisa's fiscal
year-end. However, the storage room is packed full of the latest novels reflecting the fact that holiday
sales were lower than expected.
Effects of downturn in trade
It is now early March 20X4. Lisa is keen to prepare the annual accounts so she can measure the
overall effects of the drop in business on her profitability. She is concerned about both the immediate
and long-term future of her business. The business bank account balance on 28 February 20X4 is
significantly lower than it was at the previous year end.
Lisa provides the following list of figures for incorporation into the statement of profit or loss and
statement of financial position:
£
Revenue 157,210
Opening inventory 11,390
Non-current assets 4,785
Opening capital balance 1 March 20X3 22,846
Bank 2,348
Rental expense 18,800
Insurance 2,600
Electricity 2,400
Trade payables 14,952
Trade receivables 2,300
Drawings 26,080
Bank interest received 135
Purchases 115,890
Income from book repairs services 5,890
Repairs service expenses – book repair materials 1,560
Administration, finance and sundry expenses 2,680
Assistant’s wages 10,200
Closing inventory* 19,560
*Counted and valued the inventory on 28 February 20X4.
Questions: (Indicative wordcount 140+530 = 670 words)
You were hired as a local business adviser to do two things:
a) Prepare a statement of profit or loss for the year ended 28 February 20X4 and a statement of
financial position at that date. (Indicative wordcount 140 words)
b) Prepare a brief report on the profitability of Lisa's bookstore compared to the previous year
with some recommendations as to possible courses of action in the future. To help you with
this, you were provided with the following information about the previous accounting year, the
year ended 28 February 20X3: (Indicative wordcount 530 words)
Book sales for the year to 28 February 20X3 178,900
Gross profit on book sales 53,670
Gross profit margin 30%
Profit on repairs service 3,750
Total expenses 29,865
Interest received 285
Net profit 27,840
Net profit margin 15.6%
Case Scenario 2 - Alan Hogan
Alan Hogan runs an office equipment business. He has presented you with the following information,
profit and loss, balance sheets over two years which created the cashflow statement also presented.
Alan Hogan: Statement of cash flows for the year ended 31 May 20X4
£ £
Operating Profit (£1,181,889 – £1,160,960) 20,929
Depreciation (£107,775 + £57,756) 167,531
Operating Profit 188,460
Inventory increase (£314,447 – £303,638) (10,809)
Receivables increase (£484,393 – £455,660) (28,733)
Payables increase (£432,960 – £380,444) 52,516
12,974
Cash generated from operations 201,434
Interest paid (15,000)
Net cash inflow from operating activities 186,434
Cash flows from investing activities
Purchase of non-current assets (18,000)
Net cash outflow from investing activities (18,000)
Cash flows from financing activities
Capital returned to owner - drawings (205,000)
Increase in long-term loan (£150,000 – 142,000) 8,000
Net cash outflow from financing activities (197,000)
Net decrease in cash (28,566)
Cash at beginning of period 37,446
Cash at end of period 8,880
Alan Hogan: Statement of profit or loss for the year ended 31 May 20X4 was as follows:
£ £
Revenue 4,327,242
Cost of sales
Opening inventory 303,638
Add: goods manufactured 3,156,162
3,459,800
Less: closing inventory (314,447) 3,145,353
Gross profit 1,181,889
Expenses (1,160,960)
Interest paid (15,000)
Profit for the year 5,929
Alan Hogan: Statements of financial position on 31 May 20X4 and 20X3 were as follows:
20X4 20X4 20X3 20X3
£ £ £ £
ASSETS
Non-current assets 1,745,500 1,895,031
Current assets
Inventory 314,447 303,638
Receivables 484,393 455,660
Cash at bank 8,880 37,446
807,720 796,744
2,553,220 2,691,775
CAPITAL AND LIABILITIES
Capital
Capital brought forward 2,169,331 2,198,061
(Loss)/profit for the year 5,929 1,270
Drawings (205,000) (30,000)
1,970,260 2,169,331
Non-current liabilities
Long-term loan 150,000 142,000
Current liabilities
Payables 432,960 380,444
2,553,220 2,691,775
Given the limited information analyse the cash inflows and outflows in the cashflow statement using
the profit and loss statement and balance sheet statements.
Questions: (Indicative wordcount (150 + 115 = 265 words)
a) Explain why the cash balance would have decreased by so much? (Indicative wordcount (150
words)
b) Advise him on any actions he could take to improve the cash position. (Indicative wordcount
(115 words)
Case Scenario 3 - Alison Kovář
Background
Alison Kovář is a software engineer in the tech hub of London who is growing frustrated with her
demanding job. Recently, her uncle passed away, leaving her a rustic ranch in the Colorado
mountains. At first, Alison was considering selling the ranch. However, during a visit to settle her
uncle's affairs, she saw the potential for a retreat centre. The ranch is vast with numerous cottages,
and Alison could see it becoming a destination for people seeking a break from the stress of modern
life. She has no previous experience in hospitality, but she believes it could be a manageable venture.
Costs of Setting Up the Retreat Centre
The ranch was appraised in its current condition at £1.5 million, and Alison has invested an additional
£700,000 on improvements and conversions. Despite this considerable expense, Alison still maintains
a sizeable fortune, and plans to fund the operating costs of her business from her savings.
The total cost for furnishing the cottages, setting up the common areas, and purchasing necessary
equipment comes to a further £150,000. Finally, Alison plans to inject £40,000 into the business bank
account at the beginning of her fiscal year in January 20X5. The total value of the ranch, furnishings,
and starting cash forms her capital input into the business. Before Alison quits her current job, she
settles down to draft a budget for the first six months of operation.
Revenue and Expenditure Projections
Alison makes the following projections related to revenue and expenditure:
1. She plans a marketing campaign with a budget of £50,000. The new business will commence
on 1st January 20X5, and Alison expects to spend £30,000 in the first month and £20,000 in
the second month on marketing.
2. Through her extensive network of contacts, she has already secured a booking for a corporate
retreat for three days in March for 15 people, at a rate of £800 per person. 20% of the fee will
be received in January as a deposit, with the remainder due in April. Despite this early
success, Alison remains cautious and assumes she won't be able to secure any additional
corporate bookings during the six-month period.
3. Alison is targeting an average occupancy rate of 50% in the first year, though she anticipates
a slow start until the retreat becomes well known. Cash inflows from room rentals are
estimated as follows:
Month Days Rooms Hotel Price per Cash
occupancy room inflows
rate £ £
January 31 3 30% 175 16,275
February 28 4 40% 175 19,600
March 31 4 40% 175 21,700
April 30 4 40% 175 21,000
May 31 5 50% 175 27,125
June 30 5 50% 180 27,000
Although some of the cash will be received in advance in the form of deposits, Alison
Kovář decides to assume that all the cash will be received within the month (so, for
example, £19,600 will be the cash receipt from room lettings in February).
4. A small café will be open for non-guests. Expected takings (from both guests and non-guests)
are projected to be £6,000 in the first month, increasing to £7,000 each subsequent month
from February to June.
5. To ensure guest comfort, Alison is prepared to invest in a quality team. She has partnered
with a renowned Denver chef who will act as menu consultant and aid in the hiring of
exceptional staff. The chef will charge a consultancy fee of £2,000 per month. Beyond this,
staffing costs are projected to total £15,000 each month from January to April, increasing to
£17,000 in May and June.
6. The cost of food, beverages, and other consumables is projected to be £7,000 per month in
January and February, increasing to £9,000 in March (due to the corporate retreat), £7,000 for
April and May, and £8,500 for June. Alison plans to source most of these supplies on credit,
paying the following month (so, e.g. January’s costs will be paid for in February).
7. General administration, communication, utilities, and property expenses are estimated to
average £3,500 per month, payable the following month.
8. The ranch will be depreciated at a rate of 2.5% per year, assuming a nil residual value after 40
years.
9. Fixtures, fittings, and equipment will be depreciated at a rate of 10% per year over a 10-year
period, also assuming a nil residual value.
Questions: (total indicative wordcount 140 + 200 =340 words)
For Alison Kovář’s business:
a) Prepare a budget cash flow statement for the six months to 30 June 20X5 showing the bank
opening and closing balances each month (indicative wordcount 140 words)
In addition to the cashflow statement you create in a) you are provided with the following
statement of financial position/balance sheet for Alison Kovář.
ASSETS £ £
Non-current assets
Hotel at cost 2,200,000
Less: depreciation (27,500)
2,172,500
Fixtures, fittings and equipment at cost 150,000
Less: depreciation (7,500)
142,500
Current assets
Bank balance 15,200
2,330,200
CAPITAL AND LIABILITIES
Capital introduced (£1,500,000 + 700,000 + 40,000) 2,240,000
Loss for the six months 78,200
2,318,200
Current liabilities
Accrued expenses (8,500 + 3,500) 12,000
2,330,200
Question
b) Please prepare a brief commentary on the first six months’ budget (Indicative wordcount 200
words).
c) Visit the website of a bank that offers business services to small businesses and write a
summary for Alison Kovář of the services they offer to business customers. You must include
a screenshot of the bank’s website and the business services page you received your
information. (Indicative wordcount 200 words)
References
Note to student: Please include all references in the Harvard format. Do not only use textbooks but
use journal articles to support your work. The format for the Harvard style is:
Books are in this format:
Bryman, A., Bell, A. and Harley B. (2018) Business Research Methods (5th edition). Oxford University
Press: Oxford, UK.
Saunders, M.N.K., Lewis, P. and Thornhill. A (2019) Research Methods for Business Students (8th
edition). Pearson Education. Harlow, UK.
Journals are in this format:
Irvine, A., Drew, P. and Sainsbury, P. (2012) ‘Am I not answering your questions properly?’
Clarification, adequacy and responsiveness in semi-structured telephone and face-to-face interviews.
Qualitative Research 13(1) 86-106.
