SAMPLE INSTRUMENT OF ASSESSMENT
CASE STUDY
This Case Study should be provided to candidates 7-10 days prior to the aement date.A copy of the Case Study should be provided to each candidate on the date of the aement along with the questions.
All questions must be answered.
You are the manager of the West End branch of the Bell Bank plc.
Your branch has been asked to train Michael Samuels, a new Graduate Management Trainee.Michael has a degree in Architecture from Glasgow University but has decided that a career in financial services would be more challenging.
Michael has now been with you for two weeks and has shown a keen willingne to learn.You have encouraged this willingne to learn by allowing him to sit in during some of your interviews with your customers.You have suggested that Michael take notes during each interview and then use these notes to ask you questions relating to each of the interviews.
Michael has sat through four interviews.Some of the material facts relating to each interview are provided below.
Interview 1
John and Mary McCusker have been customers of your branch for 18 years.You have got to know the McCuskers quite well during your three-year stay at the West End branch.
John earns £35,000 per year from his job as a Quantity Surveyor and Mary earns £21,000 per year from her job as a Nurse.The McCuskers have three children aged 14,12 and 10.The two youngest children have always shared a bedroom but the McCuskers now feel the time is right to move to a larger house to give all three children their own bedroom.
You had agreed at an earlier interview to provide a capital and interest mortgage facility for £120,000 over 20 years, and the McCuskers have since purchased a new four-bedroomed house in Hamilton for £175,000.Their existing home in Lanark has been sold for £120,000 and the McCuskers have £40,000 outstanding on their current mortgage loan.
The McCuskers have now identified a problem in that they have arranged to move into their new home on 10 May but their buyers will not settle on their old home until 4 June.
Michael Samuels is curious to learn what proce you used to decide upon the mortgage facility that you agreed to provide the McCuskers, and to learn what you intend to do to help the McCuskers overcome their new problem.
Interview 2
You discued providing a term loan of £80,000 over 15 years to your commercial customers, Albion Tyres Ltd.Mark and James Thomas, a father and son, run the company, which has traded succefully for 8 years.Mr Thomas, Senior is 52 years of age and his son is 28 years of age.
The busine employs four members of staff, three of whom are tyre and exhaust fitters, and one of whom deals with office administration.One of the fitters also deals with matters relating to brake and suspension repairs, a part of the busine that accounts for around 15% of the overall turnover.
The company’s existing premises are now too small for the busine and they have identified new premises in the centre of town that would suit their purposes.It is expected that by moving into the centre of town that their turnover and profits should increase by around 20% per annum.
The company has produced a substantial and impreive busine plan, including a cash flow forecast that shows that the busine should be able to comfortably meet the new commitments.
The busine plan has also incorporated the last three years’ accounts.
You have asked the Thomas’ to allow you time to examine the information in the accounts before confirming your decision.
Interview 3
You arranged an appointment with your busine customer, John Thomson, to discu some concerns that you have been having with the operations of his busine account.You have now made some suggestions to Mr Thomson to help him to regularise his financial position.
Michael Samuels is somewhat confused as to how you were able to identify that there were problems with the operations of the busine in the first place. QUESTIONS
All questions must be attempted.
1.Following the interview with the McCuskers, Michael has asked you to explain to him the the most appropriate loan facility that would help the McCuskers overcome their current problem.
Summarise the main features of this loan facility,and calculate the level of borrowing required by the McCuskers.
2.Michael is curious to ask for you about the principle.please introduce the main ideas of the principle of lending.
3.You have spent time with Michael showing him how to calculate various ratios from the accounts that Albion Tyres have provided.The following ratios have now been calculated:
Ratio
Year 2001 Year 2003 Year 2004
Current Ratio 2.4:1
2.6:1
2.8:1 Liquid Ratio
0.5:1
0.8:1
1:1 Gro Profit % 56%
58%
57% Net Profit %
23%
21%
20%
Explain to Michael how each ratio would have been calculated and how these figures might be interpreted from a lending viewpoint.
4.Michael is curious to learn how you can get the information for loan decision making.Summarize the difference between annual accounts and management accounts.
5.Michael was quite impreed that you were able to identify from John Thomson’s busine accounts that his busine was ‘getting into trouble’.
6.Explain the meaning of creative accounting and measures to identify it.
7.Explain to Michael how the figures of stocks and debtors items in balance sheet to might be interpreted from a lending viewpoint.
