Posted: August 24th, 2022

Introduction to Accounting and Finance Module code: IYC020C103

Headline information for students:
1)Type of assessment:
(One summative assessment
per module)
Case Study (40 % weighting)
4) Word limit or time limit
(presentation/podcast/videos
etc.):
1,500 words
5) Examination Type:
Unseen, open book, closed,
pre-circulated task, case study
etc.
Case Study – coursework
6) Time limit: Coursework
7) Examples of assessment &
FAQ are on Moodle:
On Moodle
8) Mode of submission: This will be via Turnitin
Submission date and time 30th August 2022 by 2pm (GMT)
Academic year and term: 2021/22
Module title: Introduction to Accounting and Finance
Module code: IYC020C103
Module Convener: Jo Whitefoot
Learning outcomes assessed
within this piece of work as
agreed at the programme
level meeting
Students who successfully complete this module will:
1. Knowledge outcome – be able to develop
understanding of the value of accounting
information in different contexts to both internal and
external users as well as developing knowledge of
technical language and current practices.
2. Intellectual/transferrable skill – be able to record
and present transactions in simple financial
statements as well as prepare and analyse
information for management decisions to maintain
the financial sustainability of the business.
Business Readiness
outcomes assessed within
this piece of work as agreed
at the programme level
meeting
You are beginning to develop a range of specific
transferable skills and knowledge which can be applied
to solve quantitative business problems.
As agreed in the Programme
level meeting:
Marks and feedback date: Feedback & grades will be given 28 days after
submission.
Final results & progression will be announced after the
July exam board.
9) Formative Assessment
Detail:
Type
Dates as agreed at programme
level meeting
How formative contributes to
summative assessment
Formative feedback is provided through:
• Review of answers to scheduled exercises in class
• Practice tests
• These tests (and practice tests) provide scaffolding
for the exam
1. General Assessment Guidance
• Your coursework summative assessment for this module accounts for 40% of the
marks.
• The deadline for submission is 30th August 2022 by 2pm (GMT). Please note late
submissions will not be marked.
• You are required to submit all elements of your assessment via Turnitin online
access. Only submissions made via the specified mode will be accepted and hard
copies or any other digital form of submissions (like via email or pen drive etc.) will
not be accepted.
• For this coursework, the submission word limit is 1,500 words. You must comply with
the word count guidelines. You may submit LESS than 1,500 words but not more.
• A total of 40 marks are available for this module assessment, and you are required
to achieve minimum 40% to pass this module.
• You are required to use only Harvard Referencing System in your submission. Any
content which is already published by other author(s) and is not referenced will be
considered as a case of plagiarism.
• You should include a completed copy of the Assignment Cover sheet. Any
submission without this completed Assignment Cover sheet may be considered
invalid and not marked.
2. Assessment Brief
PLEASE READ CAREFULLY
INSTRUCTIONS TO STUDENTS
Key Assessment Requirements
1. Read the questions carefully and only answer what is required.
2. Present a critical report of your analysis and responses to all questions.
3. Where appropriate, present key financial and economic theories to support your
answers and present assumptions used in your analysis and any practical
implications these may have.
4. You also need to do a full bibliography of your sources.
There are four questions in total, plus a recommendation. You are required to answer
all questions in full. Marking for each question is allocated as below:
Marking Guideline for Students
To help structure your presentation in a professional manner, you should clearly identify
which question you are attempting. The report is marked out of 40.
The following table shows the mark allocation, approximate word count per question
and the approach required.
Questions
Allocated
Marking &
Word Count Type
Q1
7 marks
Up to a max of
c.285 words
a) i) Marks are awarded for accurately identifying
the relevant financial statement for each
description (1 mark each) and ii) the specific
section in that statement (1 mark each).
b) Marks are awarded for a general explanation
using your own words of what each statement
does/is for. (3 marks)
Q2 14 marks
a) Marks are awarded for accuracy of the
calculation of the year-on-year change in
revenue. (1 mark)
Up to a max of
c.565 words
b) Marks are awarded for accuracy of the
calculations in the segmentation revenue
analysis. (3 marks)
c) Marks are awarded for accuracy of the
calculations in gross profit margin segmentation
analysis. (3 marks)
d) Marks are awarded for the identification of the
different levels of cost in the SPL, using your
own words. (2 marks).
e) Marks are awarded for accuracy of the
calculations in the segmentation operating profit
margin analysis. (3 marks)
f) Marks are awarded for critical thinking in the
interpretation of operating margin ratio results
(2 marks)
Q3
8 marks
Up to a max of
c.325 words
a) Marks are awarded for critical thinking in the
interpretation of the effects of depreciation on
the SOFP, using your own words. (2 marks)
b) Marks are awarded for accuracy of the
calculations for the company’s gearing ratios. (2
marks)
c) Marks are awarded for accuracy of the
calculations for the company’s interest cover
ratios. (2 marks)
d) Marks are awarded for critical thinking in the
interpretation of the company’s financial
solvency, using your own words. (2 marks)
Q4
6 marks
Up to a max of
c.245 words
Marks are awarded for the identification of three
major changes in figures from 2019 to 2020 that
contributed to a net outflow of cash. (3 marks)
Marks are awarded for critical thinking and
being able to give a valid reason why each cash
outflow happened. (3 marks)
Q5
3 marks
Up to c.80
words
This should be a brief synopsis of your critical
evaluation of the company’s expansion into
online and hotel activities.
You must include relevant facts, figures, and
ratios which you have discovered during your
analysis to support your recommendation.
Structure &
Presentation 2 marks
Marks are awarded for:
i. appropriate use of business language (1 mark)
ii. clear layout and structure and appropriate use
of appendices and referencing (1 mark)
CASE STUDY ON NEXT PAGE
CASE STUDY – Relaxation Company Ltd
Background
Relaxation Company Ltd (Relaxation) manufactures and sells its own-brand luxury
perfumes, toiletries, and candles via its 15 stores in the UK and also to other larger
retail companies.
Revenue and profits have been steady over the last 10 years up to the end of 2020.
During lockdown due to Covid-19, the company launched a new online shop to sell
Relaxation’s products and has also secured a lucrative deal with a famous hotel chain,
Opulence Hotels (Opulence).
Your task
You work in Relaxation’s finance department. As part of your role, the Finance Director
has asked you to prepare the following:
• An analysis of the financial performance of Relaxation in 2020 compared to
2019.
• A recommendation as to whether the new online shop and hotel deal have been
a good idea for the business.
To assist you with this task you have been provided with information as follows:
Exhibit 1: Extracts from Relaxation Company Ltd’s Financial Statements for yearend December 2019 and 2020, including:
• The Statement of Profit or Loss,
• The Statement of Financial Position, and
• The Statement of Cash Flows.
Statement of Profit or Loss at year-end December 2020
2020 2019
£’000 £’000
Revenue 9,000 5,550
Cost of Sales (6,125) (3,885)
Gross Profit 2,875 1,665
Overheads
(1,006) (620)
(996) (534)
Operating profit 873 511
Finance costs (65) (51)
Profit before Tax 808 460
Income tax expense (202) (120)
Profit for the period 606 340
Statement of Financial Position at year-end December 2020
2020 2019
£’000 £’000
ASSETS
Non-current Assets
Property, Plant and
Equipment 570 600
Development costs 30 15
600 615
Current Assets
Inventories 1,575 1,470
Trade and other receivables 683 465
Cash and cash equivalents 0 63
2,258 1,998
Total Assets 2,858 2,613
EQUITY AND LIABILITIES
Equity
Share Capital 825 825
Retained Earnings 768 615
Total Equity 1,593 1,440
Non-current Liabilities
Long-term borrowings 618 606
Current Liabilities
Trade and other payables 545 567
Bank overdraft 102 0
647 567
Total Liabilities 1,265 1,173
Total Equity and Liabilities 2,858 2,613
Statement of Cash Flows at year-end December 2020
2020 2019
£’000 £’000 £’000 £’000
Cashflows from operating activities
Profit before tax 808 460
Adjustments for:
Finance cost 65 51
Depreciation 60 78
933 589
Increase in inventories (105) (12)
Increase in trade & other receivables (218) (6)
Decrease/increase in trade payables (22) 11
Cash generated from operations 588 582
Interest paid (65) (51)
Income tax paid (202) (120)
Net cash flow from operating activities 321 411
Cashflows from investing activities
Purchase of Property, Plant & Equipment (75) (53)
Investment in product development (15) 0
Proceeds from sale of property, plant & equipment 45 0
Net cash flow from investing activities (45) (53)
Cashflows from financing activities
Proceeds from long-term borrowings 75 0
Repayment of long-term borrowings (63) (109)
Dividend paid (453) (225)
Net cash flow from financing activities (441) (334)
Net (decrease)/increase in cash and cash equivalents (165) 24
Cash and cash equivalents at the start of the year 63 39
Cash and cash equivalents at the end of the year (102) 63

Exhibit 2: Additional financial information which supports the Financial
Statements in Exhibit 1.
Segmental Analysis: year-end December 2020
Retail Online Hotel Total
£’000 £’000 £’000 £’000
Revenue 6,006 1,644 1,350 9,000
(4,206) (1,150) (769) (6,125)
Gross Profit 1,800 494 581 2,875
Administration expenses (683) (165) (158) (1,006)
Distribution costs (573) (123) (300) (996)
Operating Profit 544 206 123 873
Exhibit 3: Notes from a discussion with the Finance Director which covers
the two new business segments in 2020.
Online store
• Relaxation developed the infrastructure for the online store in April 2020 with the
website going live at the start of May 2020. Sales have been in line with target
across the first nine months of operations.
• The selling price and costs of making our products have remained the same
across the retail and online operations.
• The company has incurred additional costs around employing staff to help
maintain the website and general online environment, along with additional
people to increase capacity within customer services (to deal with any online
issues customers might experience).
• As customers no longer pick the products up directly, the company has secured
a distribution deal with a national logistics company to deliver the products to
their door.
• These additional costs have been more than offset by not needing incur the
usual overhead costs associated with significant additional sales seen in retail
stores, including rent, rates, marketing, and additional shop staff.
Hotel chain contract
• Relaxation has secured a lucrative two-year deal with a boutique hotel chain,
Opulence Hotels. The deal will see Relaxation manufacture products for the
hotel, carrying the hotel name and logo.
• The contract commenced in January 2020.
• The agreement is based on a range of Relaxation’s products being labelled with
the hotel’s branding. The company is able to charge a premium price on the
products supplied. Example: one of the company’s main beauty products
(Everbright Moisture Mist) which costs us £35 to produce would normally sell for
£50, but with the hotel’s logo attached this can now be sold for £62.
• As with the online shop, this contract also had an impact on the company’s cost
base (which is reflected in the segmental analysis costs in Exhibit 2 for the hotel
contract).
• The company rented additional machinery which attaches the hotel’s logo to the
products.
• It also hired an administrator to oversee and co-ordinate the contract.
Additional notes from a discussion with the Finance Director:
• The segmental analysis provided in Exhibit 2 includes an allocation of
administrative and distribution costs across the various business segments. It
should be noted that the costs under the online store and hotel contract columns
relate to the additional costs the company is now incurring across these new
business segments.
• When considering how the company manages its cash position, most of its
customers are retail or online who pay at the point of sale. Receivables mainly
arise from businesses to which it supplies goods, and its usual payment terms
are 30 days from date of invoice.
• In negotiating the contract with the hotel chain, Relaxation managed to negotiate
preferable payment terms of 21 days when agreeing the distribution fee.
• Good supplier relations mean that the company has been able to negotiate some
preferable payment terms (an extended period of credit) with suppliers. However,
it does not have the same level of history and trust with new suppliers and
therefore it is not yet in a position to negotiate similar terms.
• In 2018, Relaxation’s bank decided that it would not extend any more loans until
the current debt has been repaid. The company has therefore been trying to use
cash flow over the last couple of years to pay off the loans. Over the last year,
the bank agreed to provide some additional long-term loans to help fund the
online and hotel projects, but the interest charged on this new debt was higher
than previously.
You must answer ALL the following questions
Q1: Features of Relaxation’s financial statements
(7 marks for this section)
a) Consider the TWO descriptions below:
• “The company has incurred additional costs around employing staff to
help maintain the website and general online environment, along with
additional people to increase capacity within customer services”.
• “The bank agreed to provide some additional long-term loans to help fund
the online and hotel projects”.
For EACH statement:
i. Choose whether the description relates to either the Statement of Profit or
Loss (SPL) or the Statement of Financial Position (SOFP).
(2 marks)
ii. Explain where each of the transactions would be specifically located in
either the SPL or the SOFP as identified in 1a) above.
(2 marks)
b) Using your own words, briefly explain the different purposes of the THREE
primary financial statements:
• Statement of Profit or Loss;
• Statement of Financial Position; and
• Statement of Cash Flows.
(3 marks)
Q2: Interpreting Relaxation’s Statement of Profit or Loss (SPL)
(14 marks for this section)
a) Using the SPL in Exhibit 1, calculate the percentage change in total revenue to
identify the movement between 2019 and 2020.
(1 mark)
b) Both the online store and the hotel contract were new in 2020. Using the
segmental analysis in Exhibit 2, calculate the percentage of total revenue
contributed by:
• The retail operations,
• The online store, and
• The hotel contract
(3 marks)
c) Using the segment analysis provided in Exhibit 2, calculate the gross profit
margin ratio for EACH of the following segments of the business:
• The retail operations,
• The online store, and
• The hotel contract
(3 marks)
d) Using your own words, describe the key difference between cost of sales and
operating expenses in the Statement of Profit or Loss.
(2 marks)
e) Using the segmental information in Exhibit 2, calculate the operating profit
margin ratio for EACH of the following segments of the business:
• The retail operations,
• The online store, and
• The hotel contract.
(3 marks)
f) Using the information calculated above and in the case study, give ONE reason
why the operating profit margin for the online store is higher than that for the
other segments of the business.
(2 marks)
Q3: Interpreting Relaxation’s Statement of Financial Position (SOFP)
(8 marks for this section)
a) In your own words, explain why depreciation is charged, and its effect on the
value of the property, plant and equipment (PPE).
(2 marks)
b) Calculate:
• Capital gearing ratio in 2020 and 2019.
(2 marks)
• Interest cover ratio in 2020 and 2019.
(2 marks)
c) Explain in your own words how gearing and interest cover ratios help us assess
a company’s financial solvency.
(2 marks)
Q4: Interpreting Relaxation’s Statement of Cash Flows
(Total of 6 marks for this section)
Despite the fact that the company made a profit for the year, the statement of cash
flows (CFS) shows that it has experienced a net cash outflow during 2020.
The cash flows from operating activities show that although the company’s profit is
larger this year than last year, the cash inflow is smaller than last year’s.
Identify THREE movements that contributed to this net outflow of cash. You MUST give
a reason why each cash outflow happened.
(6 marks)
Q5: Recommendation
Your recommendation should draw on the answers you have found from your analysis
as to whether the new online shop and hotel deal have been a good idea for the
business. You must include relevant facts, figures, and ratios which you have
established to support your findings.
(3 marks)
Structure and Presentation
• Correct use of business language.
(1 mark)
• A clear layout and structure and appropriate use of appendices and referencing
(1 mark)
Total: 40 marks
END OF PAPER

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