ACC501 Assignment 1 Spring 2023 – Assignments – Solution VU

ACC501 Assignment 1 Spring 2023

ACC501 Assignment 1 Spring 2023 Solution idea:

Requirement # a) Compute N.M’s ROA and ROE before and after the proposed investment.

ROA Before Proposed Investment:

 = Net Income/ Total Asset

=Rs.95,000/Rs.1,075,000

=0.0884

ROA After Proposed Investment:

 = Net Income/ Total Asset

=Rs.120,000/Rs.1,205,000

=0.0996

ROE Before Proposed Investment:

 = Net Income/ Shareholder’s Equity

=Rs.95,000/Rs.645,000

=0.1473

ROE After Proposed Investment:

 = Net Income/ Shareholder’s Equity

=Rs.120,000/Rs.645,000

=0.186

N.M should go for the investment as ROA & ROE increased after proposed investment.

Supporting Calculations

1- Total Assets Before Proposed Investment:-

Total assets turnover ratio= Total sales/Average assets

0.8=Rs.860,000/Average assets

0.8 Average assets= Rs.860,000

Average assets=Rs.860,000/0.8

Average Assets=Rs.1,075,000

Average assets are assets before proposed investment

2- Total Debts Before Proposed Investment:-

Debt ratio= Total debts/ Total assets

0.4=Total debts/ Rs.1,075,000

0.4XRs.1,075,000 =Total debts

Total debts =Rs.430,000

3-  Equity Before Proposed Investment:-

Assets= Owner’s equity+ Liabilities

Rs.1,075,000= Owner’s equity + Rs.430,000

Rs.1,075,000-Rs.430,000= Owner’s equity

Owner’s equity= Rs.645,000

4- Net Profit After Proposed Investment:-

Rs.95,000 + Rs.25,000=Rs.120,000

5- Assets After Proposed Investment:-

  Rs.1,075,000+ Rs.130,000= Rs.1,205,000

Assets were purchased by taking loan Rs.130,000 and Rs.130,000 were paid cash from the business.

6- Debts After Proposed Investment:-

 Rs.430,000+ Rs.130,000=Rs.560,000

Download attachment for ACC501 assignment 1 solution file.