## Ceramix is a company which produces household items. The company is divided into two departments (plates and mugs), which are run as investment centres.

### accounting

##### Description

Assignment 1 – Advanced Management Accounting

Ceramix is a company which produces household items. The company is divided into two departments (plates and mugs), which are run as investment centres. The performance of the heads of these two departments is measured and rewarded purely on the basis of return on investment (ROI). Ceramix’s cost of capital is 5%.

The chief executive of Ceramix has provided you with the following projections which relate to the current financial year.

 Plates Mugs Operating profit £223,000 £65,000 Non-current Assets (cost) £1,900,000 £800,000 Non-current assets (accumulated depreciation) £1,100,000 £200,000 Current assets less current liabilities £50,000 £16,000

Required:

a.       Calculate the return on investment for each of the two department as well as for the entire company.

b.      The head of the plates department is considering buying a new machine at the start of the next financial year, which would increase his department’s contribution by £71,000. The machine would cost £600,000 and depreciate over 20 years, with an assumed resale value of zero. The machine would replace an older machine, which would be sold for £35,000. Its book value at the start of the next financial year is £30,000. If the plates department does not invest in the new machine and keeps the old one instead, the old machine would depreciate by £7,500 over the next financial year.

Calculate the plates department’s ROI for the next financial year assuming that it buys the new machine. Given Ceramix’s performance measurement and reward regime, would you expect the head of the plates department to go ahead with the purchase?

Assignment 2 – Advanced Financial Accounting

On 1 January 2019, Wings plc enters into a six-year contract to lease an airplane. Annual payments under the contract amount to £100,000 and are paid at the end of each year. The contract also includes annual maintenance for the aircraft. Separately, annual lease payments and annual maintenance payments would amount to £95,000 and £11,000, respectively. Wings plc incurred initial direct costs of £5,000. The interest rate implicit in the lease is 6% per annum.

Required:

a.       Calculate the lease liability at the commencement of the lease.

b.      Calculate the carrying amount of the right of use asset on inception of the lease, as well as the annual depreciation charge

c.       Prepare extracts from Wings plc’s financial statement for the financial year ended 31 December 2019 to show how the lease is accounted for.