Miguel’s Answers

1)

Balance sheet for JB Tax Solutions as of 31 Dec. 2018

$ (thousands)

Fixed Assets

Fixed assets 750

Accumulated depreciation 15
Net fixed assets 735

Current assets

Cash 15
Debtors 65
Stock 5
Total current assets 85

Current liabilities

Overdraft 10
Creditors 30
Short-term loans 60
Total current liabilities 100

Net current assets (working capital) -15

Total assets less current liabilities 720

Long-term liabilities 425

Net assets 295

Financed by:

Share capital 150

Retained profit 145
 Equity 295

2)

Profit and loss account for  JB Tax Solutions for 2018

$ (thousands)

Sales revenue 870

Cost of goods sold 450
Gross profit 420

Expenses 205
Net profit before interest and tax 215

Interest 55
Net profit before tax 160

Tax 40
Net profit after interest and tax 120

Dividends 0
Retained profit 120

3)

One reason why JB Tax Solutions may need to prepare final accounts is because if they want funding by venture capitalists or
banks. These banks would be interested in final accounts to check the overall financial standing of the firm and its ability to repay
loans. Venture capitalists would also need the final accounts to assess the financial state of the company. This is important for JB
Tax solutions because they are going to complete a new round of funding by selling shares to a venture capital firm .

Another reason why JB Tax Solutions may need to prepare final accounts is to calculate the tax that they have to pay. It is a legal
requirement for businesses such as JB Tax Solutions to keep records of their financial statements. This is needed by government
tax authorities, to determine the tax payable by the firm. Final accounts are also required by the government to ensure that the
business is conducting its financial affairs with honesty. This means that JB tax solutions has to prepare final accounts to send to
the respective sectors of government, or the company would risk having to pay a penalty (or even worse consequences).

4)

Intangible assets are recorded as long-term assets in the balance sheet.

5)

Some of JB’s accountants are believed to not be doing enough to screen out clients that are interested in evading taxes. Making the
ethical decision to put a system in place to screen out clients that might be interested in evading taxes would negatively impact the
values shown on JB Tax Solutions’ balance sheet because it would mean that they would lose customers. This would decrease rev-
enue which would change the retained profit on the balance sheet (retained profit would be lower).

In this case study, Joseph has had a disagreement with one of his senior managers because he (Joseph) believes that they should be
more conservative in assessing the brands value as an asset. The ethical decision would be to be conservative on the brands value
(rather than make it seem higher value than it is, which would be unethical). This decision to be more conservative in assessing
the brands value would impact the balance sheet because brand equity is an intangible asset of the balance sheet.

6)

Retained profit value will be different on JB Tax Solutions’ balance sheet and profit and loss accounts because they take different
things into account. A profit and loss statement reports a company's revenues, costs, and expenses, while the balance sheet reports
assets, liabilities and equity. This means the retained profit value is found using different methods.

7)

Liquidity is the degree to which an asset could be converted into cash without affecting the asset's price. Investors can use the bal-
ance sheet to identify any liquidity problems by dividing current assets by current liabilities, which would give the current ratio, a
common way to assess companies liquidity. In this case study, JB Tax Solutions has a current ratio of 0.85 which means the com-
pany doesn’t have enough in current assets to cover all of its current liabilities.