Volare Practice Questions - Study Notes

Volare Practice Questions - Study Notes

• Q1 Restaurant and Delivery Kitchen Count: Volare has 130 restaurants and 220 delivery kitchens in the UK and Ireland. A competitor, Nando's, has 430 restaurants that also function as delivery kitchens.

Q2 Going Concern Audit Review

• Going Concern Assumption: A company is considered as operating continuously for the foreseeable future, and will not be liquidated. External auditors review this assumption in their audit.
• Areas Requiring Further Review (for Volare): Volare is in a competitive restaurant sector, plans to expand by acquiring another struggling chain, and prepared forecasts. The group accountant must review:
  • Strategic Plan Assumptions: Identify the assumptions made when creating strategic plans, including expansion plans.
  • Forecast Suitability: Evaluate the validity of financial forecasts; compare gross profit margins (42% average for the sector) to net profit margins (32% average) to competitors. Compare these to Volare's figures. Analyze cash flow forecasts to assess profitability
  • Short-Term Plans: Examine how short-term plans aiming to reduce overheads (via sustainable packaging) will impact profitability and competitiveness.
  • Long-Term Plans: Review plans involving the acquisition of a struggling chain, and assess the potential impact on the company's financial position.

Q3 Environmental & Sustainable Disclosures

• Briefing Note for Board of Directors (Draft): This note focuses on incorporating sustainable disclosures into financial statements, demonstrating Volare's commitment to sustainability.
• Sustainability Actions: The company aims to reduce cost of sales and achieve carbon neutrality by 2030 through various initiatives.
• Attainable Target: Carbon neutrality is attainable through methods like reducing food waste, avoiding plastic packaging, and improving energy efficiency.
• Industry Best Practices: Companies like Jaguar Land Rover have reduced costs and carbon footprints by implementing energy-efficient manufacturing processes and materials recycling.
• Avoiding Greenwashing: Prevent misleading consumers about environmental impact. Transparency and adherence to regulations are essential.
• Relevant Regulations and Laws:
• Natasha's Law (UK Food Industry Transparency)
• Calorie Labelling Regulation (Out-of-Home Food in England)
• Food Standards Agency (UK Food Hygiene and Safety)
• Environmental Impact Report: Volare should consider creating an environmental impact report to demonstrate adherence to regulations, build customer trust, and increase repeat business.
• Implementing Initiatives: Incorporate policies similar to competing companies (Nando's and others), including reducing food waste, implementing circular energy practices, and acquiring sustainably-minded businesses.
• Potential Hinderances: Expanding operations (increased supply, deliveries, exposure) might negatively impact sustainability efforts

Q4 Financial Reporting Process Success

• Evolution of Financial Reporting: Financial reporting standards today rely on good practices, guidelines, and recommendations from various institutions and committees to produce useful financial statements.
• Success of Regulations: Regulatory bodies aim to promote transparency and integrity in business, which previous standards lacked, preventing large-scale business failures.
• User Perspectives:
• Investors: Interested in firm profitability (going concern).
• Employees: Seek stability and job security within the financial stability of the company.
• Suppliers: Examine the company's continuing financial health and ability to meet obligations.
• Banks: Assess debt repayment capabilities to determine lending viability.
• Good Practices, Guidelines, and Recommendations: These are exemplified by banks observing the repayment period to adjust interest rates, reflecting reliability and transparency. Consistency and truthfulness, user education, are also key aspects.
• Future Considerations: Ongoing progress should involve clearer, more accurate and actionable information when conveying financial statements.

Q5 Alternative Accounting Policies & Prior Year Statements

• IAS 8 Applicability: If an organization changes accounting policies, estimates, or corrects errors, IAS 8 outlines how such changes should be documented and applied to the statements.
• Changes in Estimates (Prospective Application): Changes in accounting estimates (e.g., depreciation) are applied from the reporting period of the change forward (prospectively).
• Reasoning for Change: Provide justifiable reasons for changes in policies, keeping financial statement comparisons consistent and eliminating misinformation.
• Impact of Changes: Users rely on these statements for decisions. Incorrect, misleading, or inconsistently changed statements can damage the company.

Q6 Financial Statement Consolidation Procedure

• Inconsistent Consolidation: A new procedure for consolidating financial statements (group financial statements consolidation) is needed for multiple subsidiaries due to issues with the current system.
• Management Tools: Implement interim financial statements (quarterly reports) to track financials more consistently and promptly.

This quiz focuses on key concepts related to Volare's restaurant operations and the going concern audit review. Questions cover aspects such as the number of restaurants and delivery kitchens, as well as the assumptions and forecasts necessary for financial audits. It is designed for students or professionals seeking to deepen their understanding of business operations in the restaurant sector.