Page 17 - CIMA MCS Workbook August 2018 - Day 2 Tasks

Chapter 10

FINANCIAL REPORTING AND

TAXATION (F1)

PRACTICE TASKS

EXERCISE 1 (WORKING CAPITAL)

UPDATE

At the last meeting of the GymFiT Board there was heated discussion about how best to improve
the company’s profitability. Nicola Collette explained how targets for both revenue and profit had
not been hit, mainly due to increased competitive rivalry from Gym4All and Fit4Life. She argued
that the company should enter into special arrangements with corporate customers where annual
regional or national contracts are rewarded with discounted membership. Jessica Treewood was
concerned that this was a move away from the company’s approach of having no contracts but
Ethan Henson felt the idea was worth exploring.

The Board was given the task of investigating these issues and their implications in more detail.

TRIGGER
This morning you received the following email from Nicola Collette:

From: Nicola Collette, CFO.
To: Finance Officer
Subject: B2B contracts.

Hi.

In light of revenue and profit targets not being met recently, the directors have been discussing
ways that we could improve the company’s profitability. One suggestion is to enter into annual
contracts with businesses in return for discounted membership fees.

Impact on receivables management

I am concerned about the potential impact of this change in product base on the efficiency of the
finance function.

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