CASE STUDY EXERCISES CASE 3

ALPHA –BETA LIMITED

INTRODUCTION Alpha-Beta limited is a private limited liability steel construction company, fabricating steel storage tanks, lorry bodies, and other such fabrication work mainly for corporate bodies.

Up the early 90s, there were very few companies in this business because of the capital outlay required to run such business. The Alpha-beta thus did very well, enjoying almost a monopoly, ranking third after doorman Long and U-Steel; and oligopolistic situation.

The shares of Alapha –Beta were held 60% by the foreign partners – Alpah –Epsillon S. A. in France, and 40% Nigerian individuals and corporate bodies.

Between 1989 and 1991 there was a great feeling of uncertainty that the military government would relinquish power, though there were pressures from various groups against the then ruling military leaders. This was viewed as political instability and most foreign investors became afraid to sty in the country. The fear heightened in 1993 when the result of the general presidential election was annulled. This fear led the Alpha-Epsillon S.A. to offer its shares for sale.

John Daribo is a Nigerian who had lived in the United states for several years. He graduated in production Engineering from the famous Harvard University. He came back to the country in 1992 after the Local government Elections and preparations for the other general elections, believing that the return to civil rule was certain and that would usher in new business opportunities. When the elections were annulled in June 1993, he concluded that he had already decided to stay put in Nigeria and there was therefore no going back to the U.S. except on business visits.

TAKE OVER OF ALPHA – BETA LIMITED He came across the offer of shares and bought over the entire holding of Alpha Epsilon, s. A. in Alpha Beta in July 1994, and became the Chairman/Managing Director. He immediately reconstituted the Board of Directors.

When the negotiation for the takeover of the majority shares were on, he was represented with a number of documents on Alpha – Beta. These are: Exhibit 1 - Adscription f the company, the nature of its production, and some of its operating procedures.

Exhibit 2 - The audited financial statements for the past five years, 1989-1993. (Not included) Exhibit 3 - The detailed manufacturing, trading and profit and loss account for the

past five yeas. (not included) Exhibit 4 - Statistical data on sales (not included) Exhibit 5: A statement of Basis and valuation of the shares (not included) Exhibit 1- A description of the company, the nature of its production and some of its opeartioi procedures is reproduced below: EXHIBIT 1: ALHPA-BETA LIMITED THE COMPANY, PRODUCTION AND PROCEDURES The company alpha-beta limited was incorporated in Nigeria in 1972. the shares are held 40% by Nigeria and 60% by Alpha –Epsillon, S. A. of Paris in France. ITS PRODUCTION The company is engaged in jobbing operations – the construction of steel works for customers, such as storage tanks, trailer bodies, kerosene tanks, silos, in accordance with customers’ specific requirements. OPERATION PROCEDURE When a customer comes with his request, he is met on arrival by Mark, the Technical receptionist, who would obtain the specific details of the customers requirement, prepare an estimate and make a quotation to the prospective customer. If the customer agrees with the quotation, the customer is required to sign a job request form as evidence of his authorization of the work. The technical receptionist prepares the estimate by estimating the quantity of resources required and obtains the prices form a file of standard prices kept by the company and reviewed periodically by the Chief Executive (the last review was done in June 1994). PURCHASING PROCEDURE The company imports all its raw materials from Alpha-Epsillon, S. A. France through a buying office that charges 1% commission on all purchases form alpha –Epsillon, S. A on behalf of Alpha Beta. All import contracts were C and F customs duty, economic surcharge. VAT on Imports, etc are therefore borne by Alpha – Beta Limtied. COSTING AND PRICING The accounts department of Alpha Beta has a costing section that carries out the landed cost calculation. The landed cost information is used for valuing unused stock of imported a raw materials and materials component of work-in progress when preparing

year end accounts, and also to update the price calculation sheet whenever it was time to review prices. The company uses a cost plus approach in determining selling prices. PRODUCTION UNIT Various types and sizes of construction is carried out, but for convenience, output is measured in terms of a 10,000 litre tank equivalent, called a ”K” John Daribo loves production very much, and has a very strong creative ability, spending most of his hours at the drawing board creating new designs. He believes that to lead a market required coming up with new designs and expanding the volume of sales. STRATEGIC CHANGES

From the study of the papers presented to him before the acquisition of the shares, John was

of the view that despite the reported profitability of Alpha-Beta, the company was relatively

weak as it was poorly represented in the profitable aspect of the steel construction work, and

had limited distribution outlets, few deigns and an inefficient plant.

On acquisition of this hares on 1 July 1994, he became the managing director. He immediately embarked on a number of strategic changes, which repositioned the company to Number 2 position in the steel construction industry. For example:

a. Retrenchment

He laid off a number of hands I the workforce that were considered too old and inefficient.

b. Retraining He organized a series of retraining programmes for the remaining employees. This also brought in new opportunities for promotions.

c. Injection of new blood He was able to recruit high quality employees, taking advantage of the prevailing high unemployment rate. Thus, none o the newly recruited manages had less than a first class degree. Given the Chief Executives American training and orientation, all the newly recruited managers were given very good remuneration packages with company cars.

d. Information technology The company bought the first computer, an IBM PS/2 Desktop with a 386 processor loaded with the reigning lotus 123 release 3 spreadsheet package, multimate advantage II, and Word perfect word processing software, with Appointments Schedulers and two games. The computer was used exclusively in the office of the Chief Executive to store statistical information from the shop floor for later retrieval and processing to generate management information to the Chief Executive, and also for the typing of his correspondences to add prestige to that office.

c. Raising Additional Finance and Expansion

He approached a number of banks and leasing companies for support. He was thus able to secure. i. A N15 million 5-year term loan @ 25% from All states Bank, the company’s

bankers, to purchase land and put up a new workshop building on a two plot land on Olu Obasanjo Way, in Port Harcourt. The same building was used as collateral for the loan, backed up by a Debenture Trust Deed. Draw down was from 1 September 1994.

ii. A N20 million finance lease of new equipment, which were installed in the new

workshop building. The lease is for a duration f 4 years effective from 1 January 1995. rentals are quarterly and option to purchase is 1% of lease value.

f. Marketing Strategies

He also reviewed factors that could improve the market potentials of the company’s production, ranging form the product design, branding to competition.

He saw the need to modify the products an expand the market of the company by moving away form the isolated traditional building to specification on to standard construction 9and branding) that can be demanded, and so create a product which can be marketed. This, however will not close the door to constructions to meet specific customer specification. Both shall be pursued, but emphasis will be laid on the standard designs. This thus “Opened the eyes” of the company to construction of underground tanks for petrol filling stations, storage tanks for trailer bodies for carrying PMS, AGO and LFPO (Keresene) which are usually demanded in designs that can carry either 30,000 litres or 10,000 litres.

g. Change of Auditors He decided to change the auditors, Messrs Tick, check and Vouch, Chartered Accountants, and replaced them with Alexander Eight & CO, Chartered Accountants, Whereas Messrs Alexander & Co had immediately written to accept the offer. Messrs Tick, check and Vouch protested that they cannot be removed until after the `1994 audit at the earliest.

Old practices retained a. He continued the importation of raw materials through alpha Epsillon, S. A in France to

maintain the quality of production b. He also retained the practice of technical Estimation by the Technical Receptionist,

accept that the standard prices of materials were updated using the latest importation prices as at June 1994.

c. He did not affect any major change in the accounting system of the company, except the appointment of Yakubu Jong, a young Chartered accountant, to head the accounts department in replacement of the former chief accountant who was among those retrenched.

Yakubu was also given a good remuneration package, with company car and generous

housing allowance. Business Success The first eighteen months of the company under the new management witnessed an

increase in activities. more customers were won. Quality of production improved. Turnover increased tremendously. There was job satisfaction in the shop floor and this helped productivity.

The year 1996 came in with even brighter prospects for the industry. There was an upsurge of demand for petrol storage tanks caused by an increase in the number of independent marketers to the pipelines and products marketing company (PPMC), a subsidiary of the Nigerian National petroleum corporation (NNPC). (This is the subsidiary of the NNPC that grants lifting rights to registered companies – major and independent marketers – to lift refined petroleum products from its depots throughout the country). The year also came with a new demand for metal filing cabinets. This made the company to expand its operations into the production of metal filing cabinets. A new department was created to handle this business. DIVERSIFICATION PROGRAMME The success recorded in the existing steel and metal fabrication business excited John Daribo so much that he decided to venture into other new areas. Thus, he diversified into two new businesses in 1997 and 1998, respectively. The first was marketing of petroleum products (naturally attracted to it having had the plays as his customers in the fabrication business) and the second was automobile sales and service. The petroleum products marketing operation This business involves the lifting of petroleum products from a designated PPMC depot carried in mobile tankers which will be delivered into underground tanks at approved premises – filling station for retail dispensing through petrol dispenses, called pumps. To start the business a prior approval of a storage licence is required from the department of Petroleum resources. Some other approvals are also needed from other agencies like the fire service, the environmental agency etc. Civil works in the form of foundation casting, burying of storage tanks, underground connection of the pumps to the tanks, building of offices and shop and service workshop, and so on, will require huge sums of money, say N8 million. Alpha-Beta limited did not consider it necessary to raise any new borrowing for this business. Storage tanks will be transferred from the stocks held by the steel fabrication unit, and cash will also be transferred from it even if this means deferring the obligations to the existing creditors, and more so that it was believed that the petroleum business is a cash cow that could repay itself within a very short time.

THE AUTOMOBILE DIVERSIFICATION

This became interesting after the petroleum products marketing experience. No special prior approvals were necessary but quite a lot of money was needed as initial outlay to rent or put up a sales showroom and service workshop, and also to put all the necessary workshop equipment, working capital was also needed to keep some stock of vehicles, to keep stock of the initial repayment parts, the consumables, pay salaries of the personnel and perhaps also to carry the debtors expected when the workshop is patronized by any of its existing customers. Impressed by the physical expansion and activities of Alpha-beta, Banks began to woo the company. A colleague of John while at Harvard, who is now the Managing Director of Naira Bank plc had a dinner with john and offered to assist him with the funding of the automobile business. They agreed to a total package of N50 million facility broken down into N25 million 5 year 18% term loan and N25 million overdraft facility @ 19.5%. the whole N50 million to be secured by a fixed charge on all the existing assets of Alpha –Beta which the managing director of Naira bank plc,. Also saw when he was conducted round the three locations. It was at the stage of this discussions that it become apparent that the accounts of the company for the years 1994, 1995, 1996 were yet to be audited as the problem of the appointment of Auditors was yet to be resolved. So also, the accounts for the year 1997 had not yet been completed by the Chief Accountant. This was in March 1998. Since the Naira Bank Managing Director was determined to assist, it was agreed that a list of all the company assets would be accepted in lieu of the audited Balance sheet of the company. John therefore complied a list of all the assets including the leased machines and forwarded them to him. The funds were disbursed on 1 April 1998, construction immediately begun and the first stock of vehicles and spares were immediately ordered. The automobile business effectively took off on 1 July 1998. The first six months were encouraging in terms of automobile sales and service business. Divisionalisation The existence of three different types of business which required specialized skills now necessitated division of Alpha-Beta for effective supervision. John Daribo, the Managing Director, therefore asked the company’s solicitors to register Alpha Steels and Metal fabrication as a Division of Alpha-Beta Limited to handle the steel business. Alpha petroleum as a Division to handle the petroleum products marketing operations and beta Motors also as a Division to handle the automobile business, while Alpha – Beta Limited remains as the holding company and parent to the three divisions. These were done and completed on 31 July 1998.

Sule, one of the yond managers recruited in 1994 was moved to head the Alpha petroleum as general manager while a new Automobile Engineer, Pascal Nwafor, was appointed as General Manager to head Beta Motors. John would, however, not let go the full control of these divisions. He requested that most decisions would still have to be referred to him as Managing Director. He expressed the view that they were appointed as specialist only to solve the technical problems that may arise, therefore operational mattes like pricing, staff, advertising were still to be referred to him at Alpha –Beta. COMPETITION IN THE STEEL BUSINESS In 1997, while Alpha –beta was expanding through diversification into other businesses, new entrants came into the steel business attracted by the upsurge in demand for petroleum storage tanks. They overcame the problem of initial capital outlay by coming together as cooperative bodies to secure the recognition of banks and also participate in SME loans. Despite the epileptic operations of the steel plants in Nigeria (like the Oshogbo, Katsina and Jos Rolling Mills) in the years 1996 and 1997, these smaller operators managed to get their materials locally. They were therefore able to penetrate the market and brake the near monopoly of the existing major players like Alpha-Beta (Alpha Steel). Alpha – Beta did not feel threatened, as it did not lose any of its existing customers. THE FIRST SHOCK When the accounts for the year 1997 was finally published in September 1998 and the Chief Accountant’s segmental report of the business showed a loss of the steel fabrication business, and a nominal profit for the just commenced petroleum products marketing business the managing director was greatly astonished and disappointed. This created a credibility problem for Yakubu, the young chartered accountant before the managing director. He explained that the delay in publishing the accounting information was due to the manual processing of the accounting data. He had requested for the computerization of the accounting system when the managing director’s computer was bought but his request was turned down. He further explained that though he had then not done any analysis of the result to be able to isolate the causative factors, he was reasonably certain that all his accounting staff were careful and could not have committed any apportionment error in the segmental report. DOWNTURN IN BUSINESS The problems which had begun in 1997 compounded and became manifested in 1998 and even more in the year 1999. for example.

Petroleum products marketing became unattractive following the surprising disappearance of long queues at filling stations. Consequently, demand for underground storage tanks fell.

Alpha-beta Limited began to experience serious cash flow problems defaulting in the lease rentals on the workshop equipment. The loans from all states bank and naira

bank began to experience defaults in periodic repayment. The overdraft limit at Naira Bank was exceeded.

Surprisingly, while the steel business of Alpha –Beta was recording a loss, the small-scale operators were recording huge profits despite the fall in demand for storage tanks. The managing director of Alpha Beta was privileged to get a copy of the 1997 and 1998 accounts of one of the smaller operators Kadan Kadan Fabrication Eng. Enterprises (See schedule 5)

The managing director of Alpha Beta was worried about how to get out of the financial mess and bounce bank

The financiers were worried on how to get back their monies

Another friend to the Managing director of naira Bank Limited has advised him to set aside the fact that he is a personal friend of the managing director of Alpha –beta limited and consider the risk of his being arraigned before the Failed Banks tribunal. He has therefore suggested to him to appoint a Receiver/Manager over Alpha-beta Limited. At least, he argues, that would be more friendly than liquidation or assets stripping.

A team of tax inspectors fro the intelligence division of the federal board of Inland Revenue recently visited the company, and expressed surprise that the company had evaded tax for many years. The team leader therefore threatened to send in a Best-of – Judgement assessment as soon as he gets back to his office, and would only give them seven days within which to pay up.

The Chief Accountant had finally prepared the accounts for the year 1998, and has summarized this along with the accounts for the past years since the take over as well as the year 1993 for comparative purposes. These are shown in Appendices 2 to 4. Emergency Management Meeting. An emergency management meeting was called to consider the way out of the predicament. Yakubu suggested that whereas the full-cost plus approach can be appreciated for the steel Davison, a knowledge of variable costs and price indices for the input costs can provide a useful guide in the determination of a realistic selling price. This is more so now that the production ahs been standardized. He therefore suggested the following formula.

S = (Vk + 38) P1/Po) 1.20 Where S = Selling Price Vk = Cariable cost per “K” unit P1 = Price index at current year Po = Price index at base year, that is, 100 He further supplied the price indices that applied to the production cost of sales in the Steel division during the period These are:

Year 1993 1994 1995 1996 1997 1998 1999 Index 80 100 100 137.5 187.5 170 185 The opinion of Pascal is that the steel division should be closed down and the resources used to increase the investment in the Motors Division, as it is the only profitable line in the group. John Daribo, the Managing Director, on the other hand, believes that he could raise finance from another bank if he could give them the company’s audited accounts. He therefore invited Messrs Alexander Eight & CO. to come in and audit the account for the year 1994-1998. the audit team of Alexander Right & CO. moved in immediately but had to leave after one week without concluding the job because they were unable to get the working papers form Messrs tick, check and vouch who declined to cooperate with Messrs Alexander Right & CO. or surrender their audit working papers.

INDEX TO SCHEDULES Schedule 1 (a) - National Unemployment rate and Distribution Schedule 1 (b) - registered Unemployment and Vacancies Declared (Lower Workers) Schedule 1 (c) - Registered Unemployment and Vacancies Declared (Professional and Executives) Schedule 2 - Alpaha-Beta Limited Balance Sheet Summary (1993-1998) Schedule 3 - Alpha-Beta Limited Segmental Profit & Loss Account (1993-1998) Schedule 4 - Alpha-beta Limited Profit & Loss Account for 1993-1998 Schedule 5 - Kadan-Kadan Fabricatio engineering Enterprises Profit & Loss Account (1997-1998)

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SCHEDULE 1 (A) NATIONAL UNEMPLOYMENT RATE AND DISTRIBUTION

Category 1993 1994 1995 1996 1997 1993 1994 1995 1996 1997 1993 194 1995 1996 1997] 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1. Unemployment 3.4 2.7 1.8 3.4 4.5 4.6 3.8 3/2 3.9 8.5 3.2 2.5 1.7 2.8 3.7] Rate (%) ….. By Educational Level (percentage of total a. Without schooling 17.2 23.3 18.7 18.0 14.8 19.1 15.3 16.3 6.8 7.0 19.0 17/6 14.8 20./4 17.7 b Primary……… 18.9 13.2 36.5 10.8 20.1 10.4 17.7 17.2 11.9 13.7 16.9 17.9 12.3 10.6 21.4 c. Secondary ….. 60.9 68.7 37.5 52.8 53.0 65.6 60.0 71.8 62.7 67.3 57.8 61.1 68.0 50.7 49.9 d Tertiary…. 4.0 4.8 7.1 18.4 12.1 4.9 7.0 4.7 18.6 12.0 6.3 3.4 14.9 18.3 11.0 Revised Provisional; Source: Feeral force of statistics (FOS), Lagos

Schedule 1 (B) Registration unemployment and vacancies declared (Lowe Grade workers) Category 1993 1994 1995 1996 1997* Percentage Change Between 1 2 3 4 5 1 & 2 2 & 3 3 & 4 4 & 6 6 7 8 9 1. Total Registration… 90.523 86.389 84,402 83,411 81,962 -4.6 -2.3 -1.2 -1.7 i. Registration… 69,463 68,930 67,276 66,466 65,267 -0.8 -2.4 -1.2 -1.8 ii Fresh registration 10,560 10,022 9,925 9,642 9,457 -5.1 -1.0 -2.9 -1.9 iii Re-registration… 10,500 7,437 7.201 7,303 7,238 -29.2 -3.2 1.4 -0.9 2. Vacancies declared ------------- 11,184 9,893 9,853 8,940 8,507 -11.5 -0.4 -9.3 -4.8 3. Placements …. 4,181 3,481 4,927 3,927 3,627 -16.7 25.5 -10.1 -7.7 * Provisional

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Source: Federal office of statistics (FOS), lags

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SCHEDULE 1 (C) REGISTERED UNEMPLOYMENT AND VACANCIES DECLARED

(Professional and Executives) Category 1993 1994 1995 1996 1997 1 & 2 2 & 3 3 & 4 4 & 5 1 2 3 4 5 6 7 8 9 1. Total Registration.. 34,174 34,012 33,927 30,457 29,136 -0.2 -0.2 -10.2 -44 (iv) Old registration… 26,159 27,191 28,762 25,361 25,361 -3.9 -.5.8 -9.9 -2.1 (v) Fresh Registration.. 6,880 5,456 3,458 3,458 2,774 -20.7 -29.6 -10.0 -19.8 (vi) registration…. 1,035 1.365 1,324 1,108 1,001 -31.9 -3.0 -16.3 -9.7 2. Vacancies Declared … 3,401 3,731 3,899 3,694 3,678 -9.7 2.9 -3.8 -0.4 3. Placements …. 79 78 61 72 70 -1.3 -21.8 -18.0 -2.8 Provisional Schedule 2 Alpha – beta Balance sheet summary for six years (1993-1998) 1998 1997 1996 1995 1994 1993 Capital And reserves N.0000 N.000 N.000 N.000 N.000 N.000 Share capital 15,000 15,000 15,000 15,000 15,000 15,000 Reserves (deficit) (7,940) (3,810) 6,920 5,190 3,480 2,370 7,060 11,110 21,920 20,190 18,480 17,370 Assets Fixed Assets (Net) 46,820 37,860 40,720 43,580 11,440 12000 Net current assets./liabilities) (11,760) (15,750) 200 3,610 22,040 5,270 Long term creditors (28,000) (11,000) (19,000) (27,000) (15,000) _______ 7,060 11,110 21,920 20,190 18,480 17,370

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SCHEDULE 2 (CONTD) NOTE 1: NET CURRENT ASSETS/LIABILITIES 1998 1997 1996 1995 1994 1993 Current Assets N.0000 N.000 N.000 N.000 N.000 N.000 Stocks 38,000 4,500 2,260 1,434 2,600 1,370 Debtors 15,000 20,000 10,833 5,833 2,250 1,500 __-____ ____-__ -357 4,381 19,140 3,500 53,000 24,500 13,450 11,648 23,990 6,370 CREDITORS: Amount due within 1 year Creditors for raw material 33,750 30,000 4,250 2,188 1,750 750 Finance lese obligation 5,000 5,000 5,000 5,000 - - Accruals 4,810 4,350 4,000 850 200 250 Bank overdraft 21,200 900 - - - -

(64,760) (40,2500) (13,250 (8,038) (1,950) 1,000 Note 2 Long term creditors N,000 N,000 N,000 N,000 N,000 N,000 Loans 28,000 6,000 9,000 12,000 15,000 - Lease Capital Outstanding (After 12 months) - 5,000 10,000 15,000 - -______

28,000 11,110 19,000 27,000 15,000 -_____

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SCHEDULE 3 ALPHA BETA LIMITED SEGMENTAL PROFIT AND LOSS ACCOUNT FOR 1993-1998 ALPHA-STEEL DIVISION ALPAHA PETROLEUM BETA MOTORS ALPHA BET LIMITED 1998 1997 1996 1995 1994 1993 1998 1997 1998 1997 1998 1997 1996 1995 1994 1993 N,000 N,000 N,000 N,000 N,000 N,000 N,000 N,000 N,000 N,000 N,000 N,000 N,000 N,000 N,000 N,000 Turnover 40,000 60,000 52,000 35,000 13,500 8,000 8,500 17,700 20,000 - 68,500 77,700 52,000 35,000 13,500 8,000 Director costs (43,200) (63,000) (44,200) (28,000) (10,00) (6,000) (5,525) (12,500) (12,00) - (60,725) (75,000) (44,200) (28,000) (10,500) (6,000) (3,200) (3,000) 7,800 7,000 3,000 2,000 2,975 5,200 8,000 - 7,775 2,200 7,800 7,000 3,000 2,000 Add: Others Income 2000 320 330 180 200 120 - 1,100 - - 200 1,420 330 180 7,180 120 Gross Profit/Loss) (2,000) (2,680) 8.130 7.180 3,200 2,120 2,975 6,300 8,0000 - 7,975 3,620 81,130 7,180 3,200 2,120 Distribution & Selling expense 780 880 850 520 320 250 Admin Expenses 2,450 2,100 1,800 ,200 520 400 Interest & Similar charges 8,875 3,750 3,750 3,750 1,250 - 12,005 6,730 6,400 5,470 2,100 650 (4,530 (3,110) 1,730 1,710 1,100 1,470 Profit (Loss) before taxation

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SCHEDULE 4 ALPHA-BETA LIMITED

(ALPHA STEEL DIVISION) PROFIT AND LOSS ACCOUNT FOR SIX YEARS (1993-1998)

Production volume (in K units) 1998

400

N.000

1997

600

N.000

1996

520

N.000

1995

350

N.00

1994

150

N.000

1993

100

N’000

Turnover

Production cost of sales (Note

1)

Gross proit/loss)

Add: other income

40,000

(43,200)

(3,200)

200

(3,000)

60,000

(63,000)

(3,000)

320

(2,680)

52,000

(44,200)

7,800

330

8,130

35,000

928,000

7,000

180

7,180

13,500

(10,500)

3,000

200

3,200

8,000

(6,000)

2,000

120

2,120

Note 1: Details of production cost of sales

1998 1997 1996 1995 1994 1993

Raw materials consumed

Production salaries

Electricity & Gas expenses

Factory consumables

Other production overheads

Lease interests

Depreciation

27,200

3,460

2,000

1,500

500

5,500

3,000

45,000

3,640

3,000

2,250

750

5,500

2,860

28,600

2,040

2,600

1,950

650

5,500

2,860

14,340

1,800

1,750

1,313

437

5,500

2,860

6,000

350

750

562

188

-

560

3,800

300

963

312

65

-

560

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Improvement to rented premises -

43,200

-

63,000

-

44,200

-

28,000

2,090

15,500

-

6,000

SCHEDULE 5

KADAN-KADAN FABRICATION ENGINEERING ENTERPRISES PROFIT AND LOSS ACCOUNT FOR YEAR ENDED 31 DECEMBER 1998

1998 1997 Production volume (in K Units 150 100 N.000 N.000 Turnover 22,500 13,000 Production cost of sales (13,500) (8,000) Gross profit 9,000 5,000 Deduct: Distribution & Selling expenses 150 120 Admin. Expenses 420 350 Interest payable & Similar Charges 1,200 1,200 1,770 1,670 Profit before tax

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QUESTION 4.1 a. Comment on the change introduced by John Daribo on his assumption of office as the Managing Director of Alpha – beta Limited

b. Criticize the appropriateness of his divisionalisation of the organization.

Question 4.2 With suitable calculations, where necessary (calculating to the nearest whole number), identify the factors that could have been responsible for the poor performance of the company especially when compared to the small scale operators. Question 4.4 From the legal viewpoint, comment on the suggestion of the other friend to the managing director of Naira bank limited on the chances of the bank in recovering the outstanding advances. Question 4.5 Identify and discuss all the ethical issues raised in the cases. Question 4.5 a. Discuss the tax issues and comment on the threats of the team leader of the tax inspectors b. Corporate the liability of the company for the accounting years 1996, 1997 and 1998, within the provisions of the law, and on the assumption that depreciation charge is equal to capital allowance claimable and that there is no other depreciation charge aggregated elsewhere in the accounts Question 4.6 Using the model suggested by Yakubu during the emergency management meeting. Determine the price at which a “K” Unit of steel should be sold in 1999.