Scenario:
John & James Flowers
‘John & James Flowers’ is located in Birmingham, UK. It is a very successful family business
with branches in different parts of United Kingdom. The owners have recently acquired 60%
shares of ‘Isaiah & Godwin PLC’, a public limited company. As majority shareholders the
owners of John & James Flowers have resorted to exercising control over Isaiah & Godwin
PLC and have expressed their desire to reduce administrative costs, including, particularly,
dispensing with the services of the qualified accountants, which they deem is costly. They
believe they can replace the qualified accountants with accounting technicians whose
services they have used to run their family business all this while. But the managing director
of Isaiah & Godwin PLC, Mrs Wendy Wang, is in disagreement with the majority
shareholders. She explains that the nature of financial transactions of limited liability
companies significantly differ from those of sole proprietorship businesses and suggests that
a cursory look at the financial statements of public limited companies would reveal
specialist items that require the attention of qualified and experienced accountants to help
put together. Mrs Wang also explains that for compliance purposes qualified accountants
are required to prepare end of year financial accounts.
You are a junior partner of Rose and Regina Associates, a firm of management consultants.
You have been approached by the owners of John & James Flowers, the now majority
shareholders of Isaiah & Godwin PLC, to seek your advice to explain to them the significant
differences in the items appearing in the financial statements of public limited companies
that are of special nature such as to require the services of qualified accountants.
The owners of John & James Flowers are also seeking your advice regarding an acquisition
prospect. The owners of ‘Dip & Bite Delicacy’ a competitor business to that of John & James
Flowers are relocating to the Middle East and have therefore advertised an outright sale of
their business. The owners of John & James Flowers need advice to help them decide
whether to acquire Dip & Bite Delicacy. They are interested in the performance of Dip & Bite
Delicacy measured in terms of profitability, liquidity and efficiency. The most recent
financial statements of Dip & Bite Delicacy can be found in Appendix A of this brief. They
have also indicated to you that if they acquire Dip & Bite Delicacy they would like to invest
in additional capital assets to enhance the operations and image of the business. However,
they are concerned that they may not have the needed capital to embark upon the
ambitious investments programme they would wish to carry out. Therefore, they have
asked for your advice regarding how they could go about deciding which projects to select.
Required:
Draft a three-part report (Part A, Part B and Part C) to be presented to the owners of John &
James Flowers that addresses the following:
Part A: (Suggested number of words for this part: 600 words)
1. Produce an example of one set of financial statements for a sole trader (income
statement and statement of financial position) and another one set for a limited
liability company to show to the owners of John & James Flowers. You should
identify which statements are sole trader statements and which are limited liability
company statements. This should be included in the report as an appendix. This does
not count against word limit.
2. From the sets of financial statement you have produced in ‘1’ above identify items
that are common to both sole traders and limited liability companies. (5 from
income statement, 5 from statement of financial position).
3. Select one item from each of the various headings of the financial statements and
explain what they mean and how they affect the preparation of the particular
financial statement. (Four (4) from the income statement, and four (4) from the
statement of financial position).
4. Select two (2) adjustment items and explain their treatments in the financial
statements indicating whether or not they are treated differently in the accounts of
public limited companies.
5. From the sets of financial statement you have produced in ‘1’ above identify ten (10)
items that are found in the financial statements of ONLY limited liability companies.
(At least four (4) and maximum of six (6) from each type of statement).

6. Select three items listed in 5 above from the different statements (at least, one from
each type of statement) and explain what they mean and how they affect the
preparation and outcome of the financial statements of limited liability companies.
Part B: (Suggested number of words for this part: 800 words)
1. Calculate relevant profitability, liquidity and efficiency ratios for the business of Dip
& Bite Delicacy (two each, a total of six), using the financial statements in appendix
A. Show your calculations in the appendices. This does not count against word
limit.
2. Interpret the performance of Dip & Bite Delicacy using the ratios calculated in 1
above, and advise the owners of John & James Flowers whether based on your
informed opinion they should make a bid for Dip & Bite Delicacy.
3. Comment on whether or not the use of accounting ratios in interpreting business
performance is appropriate.
4. Make recommendations to the owners of John & James Flowers for any changes that
they could make to the business operations of Dip & Bite Delicacy if they go ahead
and acquire the business. This should be based on the analysis you have carried out
and your general understanding of business.
Part C: (Suggested number of words for this part: 600 words)
1. Inform the owners of John & James Flowers that they could employ the technique of
investment appraisal to help them decide which projects they could embark upon,
and explain to them how the techniques of investment appraisal work.
2. Use two techniques of investment appraisal (one traditional, one modern) to
illustrate how decisions could be made in investment appraisal. Make up relevant
data to be used in the illustration. Alternatively, you can use the data provided in
Appendix B. Show your calculations in the appendices.
3. Discuss the advantages and disadvantages of the two techniques you have used in
‘2’ above.