Reference no: EM131393958

Problem -

Nigerian Breweries Plc, is the largest brewing company in Nigeria, serving the Nigerian market and exporting to thirteen countries, across the UK, South Africa, Middle-East, West Africa and USA. The company was incorporated in 1946 and in June 1949 the first bottle of STAR lager beer rolled off the Lagos Brewery bottling lines. From that humble beginning, the company has grown to include 11 breweries, 2 malting plants and 26 sales depots from which products are distributed around the world. The company is also involved in the development of leadership, musical and movie talents, through various programmes. (Company website)

All amounts are in billions of Naira (?'000,000,000) unless noted otherwise-please round to the nearest hundred million Naira(one decimal place) if needed (?0.0B).Assume a tax rate of 30%.

Part I:  Income Statement and Balance Sheet

Forecast an income statement and balance sheet for Nigerian Breweries (NB) for 2016. For this part, refer to the attached summary financial statements and the following assumptions.  Please provide journal entries in the space provided below.  Don't worry if accounts temporarily have negative balances (transactions are not sequential; they are aggregations over the period).The parts can be worked in the order they appear (i.e., you don't need information from later parts to solve earlier parts).

1. Sales in 2016 will total ?300.0.  At the end of 2016, Nigerian Breweries will be owed ?20.0 by customers.

2. When NB sells product in containers (kegs or other large containers), they sometimes require that the customer make a deposit for the return of the containers (i.e., NB retains title to the container and the deposit is returned in cash to the customer when the container is returned).  During 2016, NB will collect cash of ?50.0 for container deposits from customers. At the end of 2016, ?13.0 of container deposits will remain outstanding (i.e., for containers that have not yet been returned).

3. NB sometimes prepays farmers for barley and hops (grains) to be provided in subsequent years' harvests. Prepayments are sometimes for two seasons, but never for more than two. Prepayments always pay out as expected (i.e., grain associated with a 2015 prepayment for the 2017 season will be received in 2017).  Note that this implies that you need to think about how deposits move between the noncurrent and current Prepayment accounts

During 2016, NB will sign contracts and prepay 4.0 for grains to be provided in 2017 and ?2.0 for grains to be provides in 2018. In addition, NB will sign contracts for ?3.5 for grain to be delivered in 2019, payment for which will be made in 2018.

During 2016, NB will purchase ?150.0 of grains from brewers of which 3.3 was prepaid and the remainder is on trade payable. The ending balance in the Trade Payable account will be ?83.0. Note that all costs incurred to produce the beer (including the cost of grains) should be booked to Inventories.

4. During 2016, NB will pay employees who are directly involved in brewing the beer 10.0as well as paying?5.0 for other ingredients that go into the beer.  In addition, NB will pay 52.6 to employees and for other costs involved in marketing and administration.

5. The ending balance in inventory will total 32.0.

6. NB will purchase 50.0 of Property, Plant and Equipment (PP&E) during 2016, all for cash. They will sell PP&E during 2016 which originally cost them 9.0 and is two-thirds of the way through its useful life, and will record a gain on sale of 0.5.  In addition, they will record depreciation during 2016 based on a total of 390.0 of PP&E (gross) with an average useful life of 12 years and no salvage value. (NB uses a Property and Equipment net t-account.  Instead of having an accumulated depreciation account, the company books any debits or credits they would have made to accumulated depreciation directly to the Property and Equipment account.)

7. For simplicity, assume there will be no interest income or interest expense in 2016 (just to keep the problem manageable).  The 2016 income tax rate will be 30% (tax rates vary slightly across years).  Taxes Payable for each year's earnings are always paid in February of the following year.

Prepare an income statement and balance sheet for 2016 on the forms provided. Some lines are already filled in which means you don't need to worry about those lines.  Please be sure to fill in the subtotals and totals on the financial statements. 

Part II: Statement of Cash Flows

On the form below, prepare a Statement of Cash Flows for 2015 under the indirect method.  Do not use any information for 2016 you used in Part 1. Use the balance sheets for 2015 and 2014 and the income statement for 2015 provided above in the attached financial statements.

The PP&E sold during 2015 had a historical cost of 10 and was 40% of the way through its useful life.

Cash from Operations

Net Cash from Operations:

Cash from Investing

Net Cash from Investing:

Cash from Financing

Net Cash from Financing:

TOTAL NET CHANGE IN CASH:

Part III: Ratios

1. Compute the disaggregated return on assets (ROA) for NB in 2015 and 2014.Total assets at year-end 2013 were 263.0 and the tax rate is 30%.

ROA 2015: =  ___________________  X  ________________ ___     =

ROA 2014: =  _________________ __  X ________________ ___     =

2. Based on the decomposition above, explain what accounts for the change in ROA between 2014 and 2015.

Part IV: WorldCom Takeaways

Using two or three sentences for each financial statement, please explain how the income statement, balance sheet, and statement of cash flows are affected when a company treats an expense as a long term asset.

Income Statement:

Balance Sheet:

Statement of Cash Flows

Part V: Asset and Liability Recognition

The following events occur on December 31, 2016.  How much would NB record as an asset on the December 31, 2016 balance sheet as a result?  Note: If cash went out, the question is how much (if any) of an asset would be recorded to offset the cash outflow. For example, if the question indicated that NB purchased inventory for ?100 of cash, the answer would be "+100".

1. On December 31, 2016, NB pays 500 of cash for advertising time on Nigerian television for an ad scheduled to run in February 2017.

2. On December 31, 2016, NB hires a new chief marketing officer for its Gabon operations for 12 per year.  She will begin work in February 1, 2017 and will be paid a ?1 advance on her February salary on January 1, 2017.

3. On December 31, 2016, NB signs a contract to lease one of its warehouses in Spain to another company for 10 per month for a year beginning February 1, 2017.  NB receives a deposit of 20 at the time of signing, which will apply to the first two months' rent.  The remaining rent will be due at the end of each month beginning in April 2017.

4. On December 31, 2016, NB estimates that its next paycheck to employees will total ?100 to be paid on January 15, 2017, 40 of which is for services provided since the last paycheck on December 15, 2016, and the other ?60 is for services to be provided in the first two weeks of 2017.

5. On December 31, 2016, NB borrows 100 in cash from a bank in Abuja on a two-year loan. NB will pay 5 in interest on December 31, 2017, and 5 in interest and ?100 in principal on December 31, 2018.

Part V: Revenue and Expense Recognition

In what month would the following cash paid or received in August be recognized on NB's income statement?

For example, if the question said,

Suppose 1 was paid in August for utilities that were used in July, the answer would be:

July

1. Suppose 1 was spent in August to prepay for advertising time.  The ads run in September and influence a man to buy beer in October. 

2. Suppose 1 was spent in August to prepay farmers for grain to be delivered in September which is placed into production in October. The resulting beer is sold in November and cash is received from the customer in December.

3. Suppose 1 was spent in August to pay for advertising time for ads that ran on local TV in July.  The ads influenced a woman to buy a beer in September.

4. Suppose 1 was received in August as an advance for beer to be purchased by a bar in September and consumed by a retail customer at the bar in October.

5. Suppose 1 was received in Augustfor rent on a building rented out by NB to a retailer. The rent covered the month of July and the original contract to use the building was signed in June.

Attachment:- Assignment.rar