Question: Jacobs Ltd has recently completed its draft
Jacobs Ltd has recently completed its draft financial statements for the year ended 30 December 20X9, which showed a draft profit for the year of £300,000. During the audit a number of mistakes and omissions were uncovered. These are listed below. 1. A payment from a credit customer amounting to £7,100 had been received on 27 December 20X9 but had not been banked or included in the financial statements. 2. Depreciation on a non-current asset had been incorrectly calculated. The asset’s cost was £125,000, it was being depreciated on a straight-line basis over four years. £16,250 was charged in the financial statements. 3. Although included in inventory an invoice for goods sold by Jacobs amounting to £17,500, dated 26 December 20X9, had not been included in the financial statements. 4. Two items of inventory, currently valued at a total cost of £35,000, are now considered obsolete. The director estimates that they will only realize about £10,000 between them. 5. The company accountant forgot to include a charge for interest on the 10 per cent long-term loan of £240,000 for the final six months of the year. 6. Rates of £1,500 for the year to 1 April 20X9 were paid for in April 20X8. No entries have been made in the financial statements in relation to this item other than correctly recording the original payment. 7. An item of capital worth £3,000 had been incorrectly entered into the prepayments account instead of non-current assets. The asset has a useful life of three years and a residual value of £600. The accounting policy states that the reducing balance method is most appropriate for this type of asset. 8. One of the credit customers contacted Jacobs Ltd to inform them that the cashier had not given him the correct agreed trade discount of 20 per cent. The invoices affected were noted by the accountant as follows: 
Required a. For each of the items (1) to (8) above, state and describe the effect on the profit for the year and calculate the total effect on Jacobs’ draft profit figure. b. For each of the items (1) to (8) above, describe the changes, if any, which will have to be made on the statement of financial position of Jacobs Ltd.
> IAS 10 – Events after the Reporting Period defines the treatment to be given to events arising after the statement of financial position date but before the financial statements are approved by the Board of Directors. Required a. Define the terms ‘adjus
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> Describe the main kinds of debenture loan stock.
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> An acquaintance of yours, H. Gee, has recently set up in business for the first time as a general dealer. The majority of his sales will be on credit to trade buyers but he will sell some goods to the public for cash. He is not sure at which point of the
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> A colleague from the sales department has approached you with an idea for an expansion plan for the car dealership where you both work. Second-hand cars have higher margins. Therefore, he suggests that we change the current system which would mean that w
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> Using the information from question 7.8, re-prepare J. Magee’s statement of financial position, using the horizontal format, as at 31 December 20X9.
> Complete the following table showing which ledger account is to be debited and which is to be credited:
> You are a consultant to a large manufacturing corporation that is considering a project with the following net after-tax cash flows (in millions of dollars): Years from Now After-Tax Cash Flow 0 ………………………………………..−40 1–10 ………………………………………15 The
> Characterize each company in the previous problem as underpriced, overpriced, or properly priced.
> Are the following true or false? Explain. a. Stocks with a beta of zero offer an expected rate of return of zero. b. The CAPM implies that investors require a higher return to hold highly volatile securities. c. You can construct a portfolio with beta of
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> If the simple CAPM is valid, which of the following situations are possible? Explain. Consider each situation independently.
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> If the simple CAPM is valid, which of the following situations are possible? Explain. Consider each situation independently.
> If the simple CAPM is valid, which of the following situations are possible? Explain. Consider each situation independently.
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> Suppose that on the basis of the analyst’s past record, you estimate that the relationship between forecast and actual alpha is: Actual abnormal return = .3 × Analyst’s forecast of alpha a. Redo Problem 17 using appropriately adjusted forecasts of alpha.
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> What are the advantages of the index model compared to the Markowitz procedure for obtaining an efficiently diversified portfolio? What are its disadvantages?
> A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 8%. The characteristics of the risky funds are as follows: The c
> A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 8%. The characteristics of the risky funds are as follows: / T
> A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 8%. The characteristics of the risky funds are as follows: The
> Convert the asset returns by decade presented in the table into real rates. Repeat Problem 20 for the real rates of return.
> Input the data from the table into a spreadsheet. Compute the serial correlation in decade returns for each asset class and for inflation. Also find the correlation between the returns of various asset classes. What do the data indicate?
> a. John Wilson is a portfolio manager at Austin & Associates. For all of his clients, Wilson manages portfolios that lie on the Markowitz efficient frontier. Wilson asks Mary Regan, CFA, a managing director at Austin, to review the portfolios of two of h
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> Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: / Suppose that it is possible to borrow at the risk-free rate, rf . What must be the value of the riskfree rate? (Hint: Think
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> Now draw the indifference curve corresponding to a utility level of .05 for an investor with risk aversion coefficient A = 4. Comparing your answer to Problem 6, what do you conclude?
> Draw the indifference curve in the expected return–standard deviation plane corresponding to a utility level of .05 for an investor with a risk aversion coefficient of 3. (Hint: Choose several possible standard deviations, ranging from 0 to .25, and find
> Consider a portfolio that offers an expected rate of return of 12% and a standard deviation of 18%. T-bills offer a risk-free 7% rate of return. What is the maximum level of risk aversion for which the risky portfolio is still preferred to T-bills?
