Q1) What causes a difference in the value of shareholders equity on the balance sheet and the value on the stockmarket?
The balance sheet value of shareholders equity differs to the value on the stockmarket for a number of reasons:
- Most assets are not valued at their market value- Inventory is valued at net realisable value, Property, Plant & Equipment is valued at historical cost
- Paid in Capital is based on book value (i.e. the amount obtained when the company first issued the shares)
- The balance sheet often excludes intangibles such as brand, location etc
- The balance sheet doesn’t include a number of other important items, nor does it reflect the future expectations of the firm. Does not take into account future transactions, valuable “assets” such as employees, the CEO are not included
Q2) Calculate the values of the flexed budget and Record whether they are favourable or adverse:
Budgeted Actual
Sales 5,000units 6,000units
Revenue $250,000 $280,000
Variable Costs $100,000 $110,000
Fixed Costs $90,000 $100,000
Profit $60,000 $70,000
Answer:
A flexed budget considers the actual sales generated in the period and using this calculates what the budgeted would have forecasted if it had used these sales. This means revenue and variable costs will by the extra cost per unit and fixed costs will stay the same. If the flexed budget is better then the actual then the result is adverse. By contrast if the actaul figure is better then the flexed it is favourable
Revenue 300,000 (Adverse)
Variable Costs 120,000 (Favourable)
Fixed Costs 90,000 (Adverse)
Profit $90,000 (Adverse)