The FAQ list is based on questions from students and helps them solve problems if instruction materials do not provide sufficient support. The FAQ list prevents a slowdown of the planning and control cycle by offering structured solutions without having to remember everything on this site. If you have some questions that are not listed you may direct them to the web-editor: info@il-center.com. He/she will quickly answer your question and if necessary include your question in the FAQ list.

Help

We experience technical difficulties witht he software, what can we do? If you are experiencing problems with the software, please notify us per email at support@il-center.com. Please include a screenshot and brief description of the problem.

Administration costs

 

When will administration costs be accounted for? There are three situations that call for administration costs:

  1. repeatedly submitting incorrect answers will prompt the program to give you the right answer;

  2. dividing steps in order to make intermediary calculations; and

  3. crossing the deadline.

 

How high are administration costs? Normally, each time you fall into category 1 or 2 (see above) you need to pay € 10 and if you fall into category 3, i.e. you cross the deadline, you will incur a cost of € 1500. However, your supervisor has some discretion regarding this amount.

 

Administrative costs are imposed without sufficient reason, as far as we think. How can they be removed? The program has a system that imposes administrative costs. However, if you think these costs were imposed wrongfully, you can contact your supervisor and explain the situation. If the supervisor agrees, he or she can change the administration costs the cycle or redress the costs of the previous cycle. 

 

We didn't enter anything, but we still have administrative cost. How to explain that? It is exactly because you did not enter any numbers that you have to pay administration costs, which will be regarded as expenses in the following quarter. If business people would slack off and not finished their job in time, the company they work for will suffer. The administration costs represent these damages.

 

Miscellaneous 

 

In what quarter of the calendar does the program start? The first quarter in the program (both cycle 0 and cycle 1) is the first quarter of the calendar (January, February and March). 

What is the meaning of the colors of the triangles? Sometimes, when they are red, it says the answer is correctly, while in some cases it says the answer is wrong?

  1. Blue indicates that an answer is missing or out of range. The sales volume, for instance, can never be negative. You will have to enter another number.

  2. Green indicates the answer was correct immediately.

  3. Purple indicates that the answer was not correct the first time, but you can still try to give the right answer

  4. Red indicates the program has given you the correct value. If you copy the answer from the feedback, then the program creates the red color, because you did not compute the answer yourself.
     

Questions on help screens & spreadsheets

Even though we filled in some numbers, we don't see them on the Results screen? It might be that you are looking at an older screen. The numbers you fill in will not automatically appear after you open a screen. In this case, close and reopen the screen.

How come the numbers from the balance sheet from the previous quarter are different for the History and the Results page? It might be that - after you go from phase 4 to 5, or from phase 5 to 6 - the numbers from the balance sheet on the History page differ from the Results page because you submitted your own calculations from the previous phase on the Results page, while the History page shows you the results adjusted for the new cycle of Planning and Control.

 

What are the most important features you need to know of spreadsheets? The most important features of spreadsheets are explained on the Spreadsheets tab. There you will find an introduction and explanation on the most important functions of spreadsheets.

Are there examples of spreadsheets available? Yes, there are a number of sample spreadsheets available on this site. For instance, on the Student Materials you will find a spreadsheet that provides a basic setup for calculating sales and the income statement. 

 

Why use spreadsheets? Spreadsheets support you with your calculations and the discussions you might have with other team members regarding different price strategies. 

 

My numbers should appear in thousands, but they do not. Why is that? It might be that, when you enter for instance € 47.000 you only see 47. This is because Excel uses the American notation, i.e. €47,000, and therefore neglects all zeros that come after a dot. So remember to abstain from using dots when entering numbers in thousands. Instead, write the number as € 47000. 

 

How come a large number appears as text instead of a number? When a number in thousands is delimited by dot, Excel might show this as text as it uses the American notation for numbers in thousands which requires a comma as delimiter. See previous question. 

How can you work with calculation sheets within your team? There are two reasons why you should learn how to work with calculation sheets; it's useful so:

  1. you only need one calculation sheet per team;

  2. everyone has to design a model

That's why it is advised to spread tasks amongst your team members: let one or two members work out a pre-calculation model, while one or two others work on a re-calculation. 

 

What's easier, a pre- or re-calculation model? Irrelevant. The pre-calculation model includes corrections regarding initial sales, while the re-calculation model describes market developments. 

 

Is it useful to include the whole price/initial sales curve in the calculation sheet? You can do it, but it's not necessary. You are free to make a model which has initial sales as one of the input variables. You can always make a table which shows combinations of prices and initial sales.

 

Questions on goals, strategy and tactics

 

What's the difference between direct and indirect strategies? Direct strategies aim to directly approach a goal, e.g. choosing the lowest price possible in order to gain the largest market share. With indirect strategies you achieve your goal through intermediate goals, e.g. you first capture the whole market and then raise prices to achieve maximum profits.

 

Questions about purchases and stock

In what quarter will the purchased goods arrive? Each team can decide upon the number of items to be purchased. The goods will arrive in the same quarter as ordered. That means, it is possible to sell the goods in the quarter they are purchased. For that reason it is very important to make a sharp calculation of the expected sales volume. 

 

How do we compute the available stock? The available stock equals the stock at the start of a quarter plus the number of items to be purchased. This is the maximum amount of products to be sold in the running quarter. If the potential sales are higher, then there will be a kind of no-selling. 

 

How do we compute the stock at the end of the quarter? The stock at the end of the quarter equals the available stock minus the sales volume, thus the stock at the beginning plus the purchased items minus the sales volume. This stock is of course the stock at the beginning of the next quarter. 

 

How do we compute the costs of keeping items in stock? The costs of keeping stock are computed on the stock at the beginning of a quarter. This is a simplification of the situation, but as business men are pragmatic they may choose for simple solutions that are cheaper than complicated solutions. 

 

Shouldn't we take the average stock instead of the beginning stock? If purchases are spread regular in time, then the average stock would be better, but for the sake of simplicity you can assume that all transactions are performed at the end of a quarter. In that situation the stock at the beginning is available during the whole quarter. 

 

Isn't there a systematic error if the average stock should be taken instead of the stock at the beginning? No, even if the average should be taken then the mistakes are compensating each other for most of the quarters. The mean of quarter 2 is half the stock of quarter 2 and half the stock of quarter 3. The mean of quarter 3 is half the stock of quarter 3 and half the stock of quarter 4. So then the stock of quarter 3 will be taken fully, which happens as well in the situation where the beginning stock is taken. Only in the first and the last quarter there will be a difference. That is to say, if the stock in the first and last quarter is unequal.

 

The most important question: How is the sales volume influenced by different factors? Sales depend upon a sales curve where the sales volume is related to the price. This is the basic sales volume that would be attained if no other influences on sales were active. The first factor to influence the sales volume is the price difference with the competitors. Right after that the seasonal influences are effective. They are expressed in a quarterly index. Furthermore quality control is available by using an image-budget per product. This could be a better quality or a sales promotion campaign or any other way of improving the image of the product. Last but not least, the marketing mix exists of mass communication. A budget for an advertising campaign is available as an instrument for claiming a bigger share of the market. But the competitors as well have a budget and they try to catch your customers. The four different variables are computed in multiplication factors. So the potential sales are influenced by a great number of variables: potential sales = basic sales volume x factor price difference x factor seasonal influences x factor image budget x factor advertisingBeware of the influence of customer retention and the importance of purchasing sufficient units to be able to deliver in time. Remember as well the limits on the influences for the image budget and the advertising budget.

 

Basic sales volume

 

Why is the expected sales volume the computer presents different from our sales volume? Most probably you will have made a mistake. For instance you forgot the influence of the price difference or you forgot the seasonal influence. There might as well be a computational mistake, like a division of the price difference by your own price instead of the average price. Or you might have made a calculation error by not rounding each factor separately.

Factor price difference

 

How does the price difference with our competitors influence our sales volume? First you must compute the sales volume by looking at the sales curve (the relation between the possible prices and the basic sales volume) as presented in the information buttons. Then you make an estimation of the average price set by your competitors an you compute the difference between the average price and your own price. If your price is say 10% higher than your competitors, then the sales will be 10% below the number you find in the sales curve. So your sales volume will be (100% - 10%) x the basic sales volume form the sales curve. However, you don't need to compute percentages all the time. It is quicker to avoid the percentages and just take (1 + (average price competitors - own price) / average price competitors). Be aware to subtract your own price from the average price in order to get the minus symbol if your price is higher than the competitors. Always round a multiplication factor at two decimals. 

 

What is the formula for the price difference? However, you don't need to compute percentages all the time. It is quicker to avoid the percentages and just take (1 + (price difference/average price competitors)) x the basic sales volume. Be aware to subtract your own price from the average price in order to get the minus symbol if your price is higher than the competitors. Always round a multiplication factor at two decimals.

Factor seasonal influence

 

How is the sales volume influenced by seasonal developments? To compute the expected sales volume you will have to estimate the quarterly index for the next quarter. It is somewhere between 50 and 200, depending upon the kind of product that is sold and the seasonal fluctuations that go with that product. The quarterly index depends upon the seasonal pattern, the trend and the incidental effects in a quarter. If the expected index is put 25% higher than the index in quarter 1, you will have to multiply basic sales with 1.25. So the formula for the seasonal influence is (1 + (quarterly index/100)) * basic sales. Always round a multiplication factor at two decimals. 

 

How do we know what the seasonal influence has been in the past quarter? To get a right view on the seasonal fluctuations you can buy information about the quarterly index that has influenced the past quarter. Every cycle you can ask for a market research about the developments in a quarter. Of course the results will only be available after the quarter, right before you start the calculations with the real figures in a quarter.

Factor image budget

 

What is an image budget? The image budget is an amount per unit to improve the image of the product. This might mean that the quality of the product is improved or that the packing of the product is made more attractive, or anything to create a special image within the market of monopolistic competition. Financially all such actions result in a higher amount of costs per unit and in an upward shift for the sales curve. 

 

How do we compute the influence of the image budget? The image budget results in a higher sales volume. That gives more receipts and more gross profit. However the rising costs of the marketing budget might exceed the improvement. For that reason it is important to balance between cost and benefit. With the information buttons of Real Business you can find the exact relationship. In essence the rule exists that if the image budget is 10% of the purchasing prise, the sales volume will rise with 10% as well. But the settings of your version of Real Business can be different. Moreover there is a maximum in the influence of the image budget. Anyway, always round a multiplication factor at two decimals.

Factor advertising

How is the influence of the advertising budget on the sales volume? If you spend money on an advertising campaign your sales volume rises accordingly. The influence can be moderated in the settings of Real Business, but originally there is a relationship where every € 100 of campaign money results in a 1% higher sales volume. So € 800 of campaign money results in a multiplication of the sales volume with a factor 1.08. Remember, always round a multiplication factor at two decimals before you continue a multiplication process. 

 

How is the influence of the advertising budget of the competitors on our sales volume? If the competitors launch an advertising campaign your will lose some of your customers. They might be attracted by the products of other companies. To make a correct estimation you should divide the expected average advertisement budget of your competitors by € 400, unless the settings of Real Business are changed. But in that case you will find the exact divider under the buttons of Real Business. So if you estimate the average advertisement budget of your competitors at € 800, then there will most probably be a reduction in sales of 2% and the multiplication factor becomes 0.98. Remember, always round a multiplication factor at two decimals before you continue a multiplication process. 

 

How are the influences of the advertising budgets to be combined? The influence of advertising campaigns is found by multiplying the advertising factor of your own company with the advertising factor of your competitors. This result must be rounded in two decimals before continuing the multiplication. (The reason is that there is a feedback on the combined advertising factor for multiplication): factor advertising = factor own advertising budget x factor advertising budget competitorsThis factor has a limit of 20% of the sales volume, unless the settings of Real Business have been changed. You can check the information buttons in Real Business. 

 

How much money can you spend on an advertisement campaign? You can spend as much money as you want, however there is a limit to the influence. In the list with numbers in Real Business you will find the maximum influence of the combined factors. This means that you will have to estimate correctly the amount your competitors will spend otherwise you might spill money or you might underestimate the market possibilities.

Customer retention

 

Is there any customer retention from one quarter into the next quarter? There is a natural relation between the size of your market in one quarter and the size of the market in the next quarter. Thanks to the image budget the size of the market you attained in onde quarter will influence the sales of the next quarter. That is to say, if your price is not changed too much, because customers are not mad. In principle the expecte sales volume is 30% of the sales volume of last quarter and 70% of the potential sales volume for this quarter. However the percentages can be changed by the coach. So be aware of the real values in your situation.

Other questions

 

What is the relation between the potential sales volume and the expected sales volume? The expected sales volume is based upon the potential sales volume. If you limit the change in price form one quarter to another, there is an influence of customer retention. Part of the sales volume is based upon the real sales in the former quarter and the other part depends upon the potential sales. Only if the change in prices is too big, the sales solely depend upon the potential sales. The second influence on the expected sales volume is the purchasing policy. If you don't purchase enough units, the real sales volume will be limited to the available stock. 

 

Our formula of de break-even analysis is not correct. How is that possible? Mostly the reason is to be found in the costs for stock keeping. These costs are partly a given amount per quarter and an amount per unit. These costs per unit however are not related to the sales volume (as the break-even volume) but to the number of units in the opening stock. So all costs for stock keeping are to be considered part of the fixed costs, even when they change when the stock is changing.

 

How is the real sales volume computed? The real sales volume is computed in the same way as the expected volume except for replacement of the expected developments by real developments. Once the decisions of all the teams are put forward, the market produces the real sales volume for all the companies. For every company the average of the real prices of the competitors is computed and the price factor is decided upon. Then the basic sales volume of every company is multiplied by the real price factor and the real quarterly index. 

 

We found a real sales volume that differs one from the computer computation. How is that possible? Even if you have estimated the factors 100% correct, there might be a small difference between your own computation of real sales and the computer computation. The computer computes the average price of the competitors based on their decisions. Then this price is rounded to full amounts.

Expected market share

 

We don't know how to compute the average market share we have built up. The average market share is the average your team has built up in the quarters up till now. If your market share in the first quarter was 10,5 %, in the second 12,5 % and in the third 17,5% then you have had 10,5% + 12,5% + 17,5% = 40,5% all together in 3 quarters, which is 40,5 / 3 = 13,5 % per quarter. Note: Remember, always round a market share in 1 decimal digit. 

 

How large are the margins for the correct answer? The margin is 15% above and 15% under the answer the computer considers correct. If you are at the boarder of a margin, the influence can be quite big. 

 

Which components are important in making an estimation of your own market share? Once you make estimations you should pay attention to some multiplication factors like the factor seasonal development and the factor price difference that exists for your competitors. In phase 2 and 3 more factors are determining the sales volume, but you don't have to worry about them as the program is not incorporating those factors either in calculating the feedback. 

 

How to make a correct estimation of your market share? If you want to make a correct estimation you have to be prepared for a complex computation. At first you must make an estimation of your own sales volume and the total sales volume in the market. The total sales volume equals your own expected sales volume plus the expected sales volumes of your competitors. The sales volume of your competitors equals:(number of teams - 1) x expected average sales volume of a competitor The expected average sales volume of a competitor depends upon his initial volume as related to the average price you expect for your competitors. Then you include the multiplication factors such as the factor seasonal development and the factor price difference. The last one is an awkward one and depends upon the average price of the competitors of your competitor. It is explained below. 

 

How to calculate the average selling price of the competitors of your competitor? This variable is required to make a good estimation of the expected sales volume of your competitors. An example is maybe easiest to explain the calculation. Imagine there are 5 teams, which results in 4 competitors. Imagine your own price is € 80 and that you expect your competitors to work with an average price of € 70 per unit. Then the selling price of a competitor is € 70 and the expected average price of his 4 competitors is: € 80 + 3 x € 70 = € 290 / 4 = € 72,50, rounded to € 73 per unit In a formula: the average price of the competitors of a competitor equals: {youw own price + (number of teams - 2) x expected average price of your own competitors} / (number of teams - 1) and rounded at 0 decimals 

 

How to compute the multiplication factor selling price for your competitors? For a competitor the same formula is used as for yourself: (1 + (price of this competitor - average price of his competitors) / average price of his competitors) Continuing the previous example where your own price is €80 and the expected price of your own 4 competitors is €70, the multiplication factor selling price is: 1 + (€ 70 - € 73) / € 73 = 1 - 0,04109 = 0,95891  = 0,96 

 

Finally, how to compute your own market share? Once you know the multiplication factor selling price (see above) for your competitors it is easy to compute the expected sales volume of your competitors. Then you find the total sales volume in the market as follows:your own expected sales volume + (number of teams - 1) x expected sales volume of a competitor Your market share is to be found by dividing your own sales volume by the total sales volume. As you see, this is quite a complicated way of reasoning. For that reason it is possible to make a reasonable estimation which is evaluated within broad margins. As soon as you are within the margins you will get the correct answer for free.

Actual market share


How to compute the actual market share? To compute the actual market share you need quite a lot of information. It is easier to buy the information about market shares of all the teams. That saves quite a lot of time. But if you want to calculate it yourself, it is not easy. You need a spreadsheet and you must buy information about the prices of your competitors and the seasonal development. From phase 2 and 3 on, it becomes much more complicated as you will have to know more about the image budget of your competitors, inventory and price changes. But not all information is available; just buy the information about market shares. 

 

The actual market share of the program is not what we have calculates. How is that possible? There are many possible causes. The inventories of others might have been insufficient, or the price changes are too big for the perseverance of sales in the next quarter. Rounding might even be the cause for problems.

Other questions


Our break even calculations are incorrect. Why is that? The problem probably lies in the warehouse costs, which are partially fixed costs and partially depend on inventory. However, you cannot describe inventory as variable costs, as they are not part of sales. To calculate break even sales, you need to treat all warehouse costs as fixed costs. 

 

How do you calculate the actual sales index? The easiest way to retrieve the actual sales index is by buying it. However, using price and market information, you should be able to calculate it yourself, but that requires a sound spreadsheet. If you bought information regarding the prices of your competitors you can calculate 'price difference', while you can calculate the factor 'competitor advertising' using information you bought regarding advertising expenses of your competitors. Then buy adding up your own 'advertising' factor you generate the 'total advertising' factor. Finally, you only need to calculate the 'image budget' factor and the factor for 'seasonal development', multiply the latter with 100 and you have the sales index for the corresponding season.

 

Questions on the calculation of net income

In order to hand in the group report of the results for which we require the re-calculated net income from the previous quarter. However, we have not received this yet. How can we resolve this? You are supposed to receive only the re-calculated sales and the information you bought from the previous quarter. You should carry out other re-calculations yourself and incorporate in your report. If, for example, your goal is to acquire the largest market share, you need to buy information regarding the market share of your competitors in order to know whether you won or not. 

 

How do you calculate the net income? What's the difference between pre- and re-calculation? The difference lies in whether entries are determined after you have done your calculations (i.e. re-calculation) or whether entries are estimated (i.e. pre-calculation). Pre-calculations are based on expected sales while re-calculations are based on actual sales. This mainly affects sales and variable costs. In the diagram below you will see calculations with actual sales. 

 

Does the owner of a sole proprietorship needs to make tax provisions? Not necessarily, but it is wise to do so in order to calculate the tax assessment or even the preliminary tax assessment. Instead of the latter, in Real Business you make a tax provision to remind you that it will be part of the net income. 

Are there differences between the pre- and re-calculation of the current account? Yes, because many receivables and payables depend on sales, which will be different for pre-calculations - that depend on your expectations -, than for re-calculations - that depend on actual sales.

 

How does the calculation of the current account balance looks like? When do operational activities arise? Note: Starting in the fifth phase, VAT calculations should be included, which means that all purchases and services from third parties charge VAT. Also, there will be a new entry, called 'Payable VAT', on the balance sheet. This outstanding bill needs to be paid in the next quarter. 

 

Why does the balance decline after my customers have paid? The balance reflects how much money you've borrowed from the bank. When your customers pay you, you can pay off your debt which lowers the balance. 

 

How do you calculate the total amount of receivables from clients in phase 4? How do you calculate the total amount of receivables from clients in phase 5 and 6? Note: In phase 5 you need to account for VAT when calculating sales. Remember that VAT should also be paid by customers. In the following diagrams we put the amounts that need to be multiplied by the VAT-multiple in italics. 

 

How do you calculate the balance of trade creditors? Note 1: The unpaid share of total payments will usually be a fraction (e.g. 1/6), which in some cases might lead to differences due to rounding. 

 

What about information costs? Shouldn't they be included in total payments? Yes, they should be included in the payments account, and in particular in the payments for cash. Information expenses are included in selling expenses and are paid using the cash account. Remember that, in phase 5, you need to include VAT expenses whenever you purchases information. 

 

How do you calculate the balance of investment activities? Note 1: Investments and negative investments are incidental, meaning that the expected value of these posts will be zero. Therefore, in general, you use these posts as a checklist to check whether there were any investments or disinvestments in the period. Note 2: The Conversion Rate, displayed in italics, is used only once during the conversion of your company to a private company in phase 6. So, remember that, when you convert your company, you multiply the conversion rate with the VAT-multiple (which is 1.19 generally). Subsequently, there will be an entry of depreciation expenses in each quarter, however no additional payments are attached to these entries. 

 

How do you calculate the balance of financing activities? Note: In Real Business it is not possible to transfer money from the cash account to the current account since the bank doesn't have a teller. 

 

How do you calculate the balance of private activities? Note: At the end of the year, the accumulated tax provisions will be converted into a tax liability. Provided you make a profit in the corresponding year, which creates the tax liability, you will have to pay taxes in the next quarter.

 

The current account balance we calculated during the first cycle of phase 5 is incorrect. Why is that? During the transfer from phase 4 to 5, a correction is needed to make the current account balance. In phase 5 you will have to include VAT. Therefore, all the entry posts from previous cycles will be adjusted such they include VAT. This implies that, in the past, you borrowed more money than indicated by the books, which raises your expenses and lowers profit. This would also require a revision of the profit reserves, but that would be too rigorous. That's why an additional funding is provided through the current account. 

 

How do you calculate the new current account balance in the initial balance during phase 5? Due to the inclusion of VAT in phase 5, you require a correction of the initial balance at the start of the first cycle of phase 5. Otherwise, assets and liabilities would not be in balance. The program is designed such that, during the transfer to phase 5, the closing balance of the previous quarter will be replaced by a new initial balance. The calculation is simple: Total assets without the current account - Total liabilities without the current account This will show a positive number on the credit side and a negative number on the debit  side of the initial balance. 

 

How do we need to adjust our spreadsheets? When you make a spreadsheet, you should make an adjustment manually. Otherwise, there will be a persisting difference between debit and credit on the balance sheet. You could also follow the procedures of the game and make a revised balance sheet at the start of phase 5, including the balance of the assets and the liabilities without the current account. This will generate the current account balance you would need to use when calculating the closing balance of the current account in that cycle.

Inventory

If you purchased too much, how would this affect excess stock? Could you use this in the next quarter or will you lose them? Sunglasses don't parish. So, if you buy more sunglasses than you sell, your stock will just increase. However, this will lead to an increase in warehouse expenses, since there is a fixed and a variable part of the costs associated with the number of products. Therefore, the bigger your inventory, the higher the warehouse costs. 

 

What happens if you sell too many sunglasses and you run out of stock? When you are unable to deliver sunglasses to your customers, you lose that customer to one of your competitors. With some products it is possible to make orders, which means that delivery will take place at another time, but in this business you just lose customers. Therefore, you should carefully assess the risk of running out of stock on the other hand and unnecessarily increasing warehouse costs by increasing your inventory. 

 

Should we use LIFO, FIFO, FTP or is it irrelevant? As long as the purchasing price stays constant, it does not matter.

Pre-paid purchasing costs

Pre-pad purchasing costs

 

How do you calculate pre-paid purchasing costs? Pre-paid purchasing costs are costs associated with the costs of buying goods. As long as the goods are not sold yet, these costs will appear on the balance sheet, similar to the stock of unsold goods. Only the purchasing costs associated with actual sold goods should appear on the Income Statement.

Debtors

 

How are debtors interpreted in this game? Debtors are customers that buy sunglasses on order. It is also possible to make claims on other business. However, in this game, we only talk about 'trade debtors', i.e. those who buy tradable goods. 

 

How much, in a particular quarter, do you receive from debtors? On the data list you will see what the terms are for debtors in the fourth phase. Usually, the term will be 30 days. This means that all bills should be paid within a month after the product has been sold. Therefore, total outstanding debt of a quarter equals:[(term debtors in days / 90 days) x turnover] This amount will appear on the closing balance sheet of a quarter, and therefore also on the initial balance sheet of the next quarter. Incoming payments from debtors can, partly, be seen on the initial balance, while the rest will be included in the turnover of the current quarter. Assuming the payment period equals 30 days, you will receive 60/90 from the total turnover in the current quarter. The remaining share will be entered as a claim on debtors and will be posted on the closing balance of the quarter. 

 

How are debtor payments collected? In reality, a company usually converts a share of its incoming payments into cash. The other part is transferred to the bank. At the end, big bills will also go to the bank and only change will remain in the cash register. In the management game it is assumed that all payments will be collected through the current account. Since you put your current account on the credit side of the balance sheet (i.e. you borrow money from the bank) keep in mind that you need to subtract receivables from debtors. 

 

How do sales develop over time? To make things easy, you can assume a constant flow of sales over time. Do not bother accounting for weekends, as this would make the game too complicated. This means that in every month, a third of total sales will be finished.

Profit reserve


Does the profit reserve from quarter 0 stay available within the year? The profit reserve from quarter 0 actually is the accumulated profit from the fourth quarter from the previous year. This amount will therefore not be added to the profit reserve of the current year. However, it will be added to equity at January 1st, but that will not be relevant in the first game.

Creditors

What are creditors? In the game, when we talk about creditors, we actually mean suppliers. Yet, it is possible to include accounts from business other than your suppliers within the Creditors entry, but in this game we essentially focus on 'trade creditors', i.e. suppliers of tradable goods. 

 

How should creditors be paid? In the data list you find the credit period. Payments usually are made automatically and cannot be altered. If, for example, the credit period is 15 days, then that means that at the end of the period 15/90 (or one sixth) of all payables should be paid. This amount will appear as short term debt on the closing balance of the quarter and will be transferred to the initial balance in the next quarter. 

 

What amount is paid to creditors in a quarter? The total amount paid to creditors consists of two parts: account payables based on the recalculations of the previous quarter and purchasing costs that are not filled as debt at the end of the quarter. 

 

How will creditors be paid? The amount paid will automatically be added to the current account on the balance sheet. Depending on whether you have sufficient funds on your account, the payment will be either added on the credit side (as you borrow from the bank) or subtracted from your cash holdings. 

 

How do purchases develop over time? To make things easy you may assume a constant flow of purchases. Do not bother accounting for weekends, as this would make the game too complicated.

Payable selling costs

 

How do you calculate payable selling costs that should appear on the balance sheet? From the initial balance sheet you can infer, based on some calculations, that only 'Other variable selling costs' will be paid in a future period. The game assumes fixed patterns based on the credit period listed in the data list. This way, you are able to calculate total payable selling costs by multiplying the turnover from the current quarter with the price per unit and subsequently with the credit factor (credit period in days / 90 days).

Transactios with the bank


Could you explain how to calculate the current account balance using early stage capital? The bank in your cash account is used as a buffer. Euro 1000 will automatically be transferred to the bank when you have more than euro 1000 in cash. The bank then assesses whether they have some claims against you regarding your current account. If so, then these will first be redeemed. If there aren't any claims, then the remainder will be added to the debit side of the balance sheet. 

 

When you take out a bank loan, where does the money go? If you borrow money, initially it will appear on your bank account in the cash entry. Next, the bank will assess whether you have any outstanding debt. If so, then these will first be redeemed. The remainder will stay on the post 'bank account'.

 

How can you redeem a bank loan? To pay off your debt, you simply submit a negative value in the box where you usually enter the amount you want to borrow. This will then be subtracted from your bank balance. If your bank balance is insufficient to pay off debt, your account will be overdrawn, which is shown by the current account. 

 

Are there fixed dates on which you are obligated to pay off debt? In reality the bank will set out the terms that state exactly when you should redeem your debt. However, in the game you are free to decide when you want to pay off debt. 

 

How should you choose between a bank loan, credit on the current account and the bank balance which appears in the cash holdings? It is not wise to redeem anything using credit on your current account, because you need to pay a higher interest rate on this credit (12%) than on a bank loan (9%). Also, when you have a positive bank balance, it is prudent to redeem your bank loan because you only receive 3% on this balance while you need to pay 9% on the loan.

Other questions regarding the balance sheet

 

Which balance sheet is relevant for the next round: The pre-calculated or the re-calculated balance sheet? Even though a company makes a pre-calculated balance sheet, it usually is used as a forecast. For accounting purpose, you need a re-calculated balance sheet. Thus, when you make the pre-calculation you need to start with the closing balance of the previous period. Based on this balance sheet, you set up the new pre-calculated balance sheet. 

 

How do you sell a building? If you want to sell a building, submit the letter 'h' in the application form where you are asked whether you want to rent or buy. Indicating that you want to rent automatically means you are selling the building. 

 

Why would you want to buy rather than rent a business property? When you buy a building, you don't need to pay any rent. This would be attractive when you have a large positive bank balance, which only pays a small amount of interest. Using that money to buy a building is a much more lucrative alternative.

Questions on key figures

 

How do you calculate the ROE? There are two ways to calculate ROE (return on equity). One is to calculate ROE on an annual basis. In the game, however, it is done on a quarterly basis. However, if the company is obligated to make annual reports, you do need to work on an annual basis. In both cases, you need to divide net income by the period average of equity. 

 

How do you calculate the period average of equity? To make things easy, always sum op the initial equity and closing equity, and then divide the total by two. Remember that, using this simplistic method, you do not take into account equity increases and decreases, which would require the use of a weighted average. 

 

Do you need to include profits from the previous period in average equity? Actually, no. This is why. Profits are a compensation of the equity you've put in. When someone can choose between putting € 1000 on the bank or € 1000 in a company as an investment, the interest you earn will be different between the two options based on the calculation described above. For example, if you receive an annual payment of € 100 from the bank, you make an interest of 10%. Alternatively, when you make an after tax net income of € 100 and divide that amount by (1000+1100)/2 you will make an interest of merely 9.5%. So, in this case it would be wise to put your profit on the bank account, even though the amounts are equal. 

 

How do you calculate ROA? There are two ways to calculate ROA (return on assets). One is to calculate ROA on an annual basis. In the game, however, it is done on a quarterly basis. However, if the company is obligated to make annual reports, you do need to work on an annual basis. In both cases, you need to divide (net income +interest rate balance) by the period average of total assets. 

 

How do you calculate the period average of total assets? To make things easy, always sum op the initial and closing total assets and the profits of the current period, and then divide the total by two. Remember that, using this simplistic method, you do not take into account increases and decreases in total assets, which would require the use of a weighted average. 

 

Should you include the profit of the current period in the average total assets? Actually, no. Profits are a compensation of the equity you've put in. When someone can choose between putting € 1000 on the bank or € 1000 in a company as an investment, the interest you earn will be different between the two options based on the calculation described above. This is due to the role of equity.

 

Questions on external report


What is the interest rate balance? The interest rate balance is the difference between interest rate costs (i.e. interest payments on long term debt and current account credit) and interest rate income (i.e. interest from current account surpluses). The data list shows which interest rate you'll receive on a savings account.

 

FAQ

The FAQ list is based on questions from students and helps them solve problems if instruction materials do not provide sufficient support. The FAQ list prevents a slowdown of the planning and control cycle by offering structured solutions without having to remember everything on this site. If you have some questions that are not listed you may direct them to the web-editor: info@il-center.com. He/she will quickly answer your question and if necessary include your question in the FAQ list.