1.0 Introduction
The rules of accounting assignment consisted of 4 undertakings. The undertaking 1 is about the descriptions of five different users which are employees, directors, investors, providers, and besides clients. Other than that, the undertaking 1 besides consisted of the account for five regulative features of fiscal statements.
Undertaking 2 is about the necessary workings of the other information that has been provided in the assignment inquiry which is note from ( a ) until ( H ) in order to finish the undertaking 2 by complete prepare the income statement and the balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010.
Undertaking 3 is the working that done by the writer to fix the income statement and balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010 in the recognized format for external coverage or publication.
Undertaking 4 is the computation of the appropriate accounting ratios for twelvemonth stoping 31 Dec 2010 based on the income statement and balance sheet that has been made in undertaking 2 and 3. Besides that, undertaking 4 besides consisted of the comparing with the industry norms provided to entree the profitableness and liquidness of Continental Limited.
2.0 Presentation and analysis of findings
The findings consisted of the accounts, workings and computation for the undertaking 1, 2, 3, and 4 in order to finish the whole assignment.
2.1 Definition of Task 1
The definition of undertaking 1 is about the five different users, their demand for Continental Limited fiscal statements and the account of fiscal statements with five regulative features that will supply utile information to the users.
2.1.1 Five types of accounting users
Investors: In the web site of helium.com, it stated that the “ stockholders, spouses or institutional investors base their investing determinations on the fiscal place and profitableness of a concern ” . It explained that the investors need the fiscal statements to cognize whether it ‘s worth or non for them to put their money inside the concern or purchasing the portions of the company.
Suppliers: The research for providers in the web site of helium.com, it shows that the “ providers are concerned with whether they should provide an organisation on recognition and might desire to cover with the company as a traveling concern ” . It means that the providers need the company ‘s fiscal statements to guarantee whether there ‘s no bad debts happen from their aggregation from the company.
Employees: In earlier research, accounting-simplified.com stated that the “ employees need the fiscal statements to accessing the company ‘s profitableness and the effects on their future wage and their occupation security ” .
Directors: These are the people who appointed by the company ‘s proprietors to oversee daily activities of the company. They need fiscal statements to cognize about the company ‘s fiscal statements and for them to do determination efficaciously when pull offing the company so it will take them to be more efficient. Other than that, they ‘re able compared the net income that made in this month and last month with the fiscal statements.
Customers: Customers are the people who ‘re purchasing goods and services from the company. They need fiscal statements to guarantee the company is unafraid because they will take the hazard if the concern near down.
2.1.2 Five regulative features of fiscal statements
Comprehensibility: Although the fiscal statements can be rather complicated for the naive to understand, users must be able to understand the information. This applies to the format or layout of the statement, and utilizing the term policy to supply the methodological analysis and premises used in the statement. Users of fiscal statements are assumed to hold sufficient cognition to larn the right information. Comprehensibility, guaranting that users are equipped with the basic cognition to be able to place information related to corporate public presentation and fiscal status.
Relevance: Fiscal statement users to do economic determinations, information must be relevant to the determination, the consumer demands to make. Once all the points in the fiscal statements, to assist the user to measure historical events or the hereafter, information about the user in a statement. Information will impact the consequences of the consumer economic system, related to the nature of the information, and the impact ( of the substance ) . Materials, lending to one of the premises used in fiscal coverage.
Dependability: In the accounting context, “ dependable ” information is free from errors will impact the consequences of the consumer economic system, material mistake and prejudice. In other words, the fiscal statements can be trusted to be just, there is ever the consequences and fiscal place of an entity. Consumers must hold assurance in the fiscal statements misdirecting or intentionally construct an entity that is presented in a good visible radiation. Core maps of the audit are used to beef up the dependability of information in the fiscal statements.
Comparison: Imagine that you see supplying different from other companies in the same industry, different from the old release, although fixing the fiscal statements of the company. It is likely that the user will non be able to be used to compare between companies, as clip goes by world. Over clip, a certain grade of transparence, the fiscal statements for comparing and comparison between entities. Comparison by the consistent presentation and revelation of accounting policies, particularly in the undertaking to be a comparing, can utilize a different entity but every bit effectual methods such as additive / worsening balance depreciation or the mean cost method. This shows that the fiscal statements are non needfully comparable uniform, but merely accurate comparing.
Seasonableness: In the web site of Accounting-simplified.com, it stated that the definition for seasonableness is “ Timeliness rule in accounting refers to the demands for accounting information to be presented to the users in clip to carry through their determination devising demands ” . Timeliness of accounting information is extremely desirable, since they are by and large more user-relevant information, presented in a mode contrary to timeliness and the hold in supplying information that is frequently presented is non related to the decision-making demands of users. Therefore, the rules of seasonableness are closely related to the relevant rules. Punctuality is really of import to protect the users of accounting information based on their consequences, and outdated information. Imagine, jobs may happen, if the company is after 12 months of fiscal accounting statements issued to the populace. Fiscal statements, such as possible investors, consumers may happen it hard to measure whether the company ‘s current fiscal state of affairs has wholly changed, as shown in the fiscal statements.
2.2 Definition of Task 2
The writer defined task 2 as the working of notes ( a ) until ( H ) in order to finish the income statement and balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010 for the internal usage by the company managers and direction.
2.2.1 The workings of undertaking 2
The necessary workings of note ( a ) until ( H ) shown below.
Working for note ( a ) of the assignment inquiry:
The shutting stock is recorded at the cost or net resale value and it should be the lower sum in between the cost and net resale value. Since cost RM65000 & lt ; net resale value RM70000, The lower sum which is in the cost should be the shutting stock value that will set into the trading history of income statement and under the current plus in balance sheet.
Working for note ( B ) of the assignment inquiry:
Cash history
Gross saless ( Difference ) RM5000 Purchases RM4000
Stationery RM700
Electricity RM300
RM5000 RM5000
The sum that recorded in gross revenues from test balance is RM360000. Hence, the RM360000 which recorded in gross revenues from test balance will be put into the gross revenues in trading history of income statement. RM360000 from test balance + RM5000 = RM365000. The purchases that recorded in test balance are RM200000 + RM4000 = RM204000 and the entire up of RM204000 will be put into the purchase in merchandising history of income statement. Stationery as disbursal will set into Profit & A ; Loss history of income statement = RM700. The electricity & A ; H2O in Profit & A ; Loss history of income statement = RM7000 from test balance + RM300 = RM7300.
Working for note ( degree Celsius ) of the assignment inquiry:
Gross saless committee as disbursals put into net income & A ; loss history of income statement, it means that RM18000 that paid from test balance + RM1500 accrued at the terminal of the twelvemonth and it equal to RM19500. After that, the accumulated gross revenues committee RM1500 is recorded under the class of current liability in the balance sheet.
Office wages consider as the class of disbursals that will set into the net income & A ; lost history of the income statement. Therefore, RM28000 from the test balance subtraction ( – ) RM2000 prepaid at terminal of twelvemonth and it equal to RM26000. RM2000 which is prepaid office wage is recorded under the class of current plus in the balance sheet.
Working for note ( vitamin D ) of the assignment inquiry:
Debtor history
Balance b/d RM75000 ( – ) Bad debts RM5000
Balance c/d RM70000
RM75000 RM75000
Balance b/d RM70000
Bad debts account
Debtor RM5000 P/L history RM5000
Provision for bad debts account
31 Dec 2010 Balance c/d RM7000 1 Jan 2010 Balance b/d RM5000
P/L history RM2000
RM7000 RM7000
1 Jan 2011 Balance b/d RM7000
Working for note ( vitamin E ) and ( degree Fahrenheit ) of the assignment inquiry:
Vehicles account
Balance b/d RM300000 Vehicle disposal history RM50000
Balance c/d RM250000
RM300000 RM300000
Balance b/d RM250000
Provision for depreciation on vehicle history
Vehicle disposal history RM12500 1 Jan 2010 Balance b/d RM60000
31 Dec 2010 Balance c/d RM60000 P/L history RM12500
RM72500 RM72500
1 Jan 2011 Balance b/d RM60000
Vehicle disposal history
Vehicle cost sold RM50000 Provision for depreciation RM12500
Returns from disposal of vehicle RM35000
P/L history RM2500
RM50000 RM50000
Provision for depreciation on premises account
Balance c/d RM54000 1 Jan 2010 Balance b/d RM40000
P/L history RM14000
RM54000 RM54000
Working for note ( g ) of the assignment inquiry:
Taxation charge RM15300 is deducted from net net income at the underside of income statement. It is besides recorded as accumulated revenue enhancement RM15300 under the current liability inside the balance sheet.
Working for note ( H ) of the assignment inquiry:
Proposed dividend to be deducted from net net income at the underside of income statement is equal to 2 % ten RM500000 and portion capital from Trial balance equal to RM10000. After that, the proposed dividend RM10000 is recorded under current liability in balance sheet.
2.2.2 Income statement of Continental Limited
Income Statement of Continental Limited for twelvemonth stoping 31 Dec 2010 for internal usage
RM RM RM
Gross saless 365000
( – ) Tax return inwards ( 10000 )
Net gross revenues 355000
( – ) Cost of gross revenues:
Opening stock 50000
( + ) Purchases 204000
( – ) Tax return outwards ( 15000 )
( + ) Passenger car inwards 5000 194000
( – ) Closing stock ( 65000 ) 179000
Gross net income 176000
( + ) Income:
Dividend received 5000
181000
( – ) Expenses:
Stationery 700
Office electricity & A ; H2O 7300
Office salaries 26000
Gross saless committee 19500
Bad debts 5000
Addition in proviso for bad debts 2000
Loss on disposal of vehicles 2500
Depreciation on vehicles 12500
Depreciation on premises 14000
Vehicles disbursals 12000
Interest charge 3000 104500
Net net income 76500
( – ) Taxation charge ( 15300 )
( – ) Proposes dividend ( 10000 )
Net income for the twelvemonth 51200
( + ) Retained net incomes brought frontward 100000
Retained net incomes carried frontward 151200
2.2.3 Balance sheet of Continental Limited
Balance sheet of Continental Limited as at 31 Dec 2010 for internal usage
RM RM RM
Fixed assets/ Non-current assets
Office premises at cost 350000
( – ) Provision for depreciation on premises ( 54000 ) 296000
Vehicles at cost 250000
( – ) Provision for depreciation on vehicles ( 60000 ) 190000
Long-run investing 100000
586000
Current assets
Closing stock 65000
Debtors 70000
( – ) Provision for bad debts ( 7000 ) 63000
Bank 42000
Prepaid office wage 2000 172000
758000
Issued portion capital
Share capital 500000
( + ) Reserve
Retained net incomes carried frontward 151200
Stockholders ‘ equity 651200
( + ) Long-term liabilities/ Non-current liabilities
Loan 55000
( + ) Current liabilities
Creditors 25000
Accrued gross revenues committee 1500
Accrued revenue enhancement 15300
Proposed dividend 10000 51800
758000
2.3 Definition of Task 3
Undertaking 3 defined as the workings of the income statement and balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010 in the recognized format for external coverage or publication.
2.3.1 Distribution Costss and Administrative Expenses
Distribution costs Administrative disbursals
RM RM
Stationery — 700
Office electricity & A ; H2O — 7300
Office wages — 26000
Gross saless committee 19500 —
Bad debts 5000 —
Addition in proviso for bad debts 2000 —
Loss on disposal of vehicles 2500 —
Depreciation on vehicles 12500 —
Depreciation one premises — 14000
Vehicles disbursals 12000 —
Entire 53500 48000
2.3.2 Income statement in recognized format
Income statement of Continental Limited for twelvemonth stoping 31 Dec 2010 for external coverage
RM RM
Employee turnover 355000
Cost of gross revenues ( 179000 )
Gross net income 176000
Distribution costs 53500
Administrative disbursals 48000
( 101500 )
Operating net income 74500
Dividend received 5000
79500
Interest charges ( 3000 )
Net income on ordinary activities before revenue enhancement 76500
Taxation charge ( 15300 )
Net income on ordinary activities after revenue enhancement for the twelvemonth 61200
Proposed dividend ( 10000 )
Retained net income for the twelvemonth 51200
Retained net income brought frontward 100000
Retained net income carried frontward 151200
2.3.3 Balance sheet in recognized format
Balance sheet of Continental Limited for the twelvemonth stoping 31 Dec 2010 for external coverage
RM RM RM
Fixed Asset
Tangible Asset:
Premisess 296000
Vehicles 190000
486000
Investing:
Long term investing 100000
586000
Current Assetss
Stock 65000
Debtors 63000
Prepaid office wage 2000
130000
Cash at bank 42000
172000
( – ) Creditors: Sums Falling Due Within One Year
Creditors 25000
Accrued gross revenues committee 1500
Accrued revenue enhancement 15300
Proposed dividend 10000
( 51800 )
Net Current Assets 120200
Entire Assets Less Current Liabilities 706200
( – ) Creditors: Sums Falling Due After More Than One Year
Loan ( 55000 )
651200
Capital and Militias
Called up portion capital 500000
Net income and Loss history 151200
651200
2.4 Definition for undertaking 4
The writer defined task 4 as the computation of the appropriate accounting ratios for twelvemonth stoping 31 Dec 2010 and the comparing.
2.4.1 Table of ration computation
Ratios with expression
Ratios computation for twelvemonth 2010
Industry norm
Percentage of gross net income on gross revenues
= Gross net income / Net net income ten 100
176000 / 355000 ten 100 = 49.57 %
& gt ;
30 %
Percentage of operating net income on gross revenues
= Operating / Net net income ten 100
74500 / 355000 ten 100 = 20.99 %
& gt ;
18 %
Tax return on capital employed
( 76500+3000 ) /706200 x 100 % = 11.26 %
& gt ;
9 %
Current ratio
= Current plus / current liabilities
172000 / 51800 = 3.32:1
& gt ;
2:1
Stock turnover period
= 365 yearss / stock turnover
365days/stock turnover in times
= 365/3.11=117.36days
& gt ;
90 yearss
Debtors collection period
= Debtor ratio x 365days
63000 / 355000 ten 365 yearss = 64.7 yearss
& gt ;
45 yearss
Creditor payment period
= creditor ratio x 365 yearss
25000 / 189000 ten 365 yearss = 48.28 yearss
& lt ;
60 yearss
Working for ( vitamin E )
Stock turnover = cost of gross revenues / mean stock value
= cost of gross revenues / ( opening stock + shuting stock ) / 2
= 179000 / ( 50000 + 65000 ) / 2
= 179000 / ( 115000/2 )
= 179000/ 57500
= 3.11times
Working for ( degree Fahrenheit ) = ( debtor / net recognition gross revenues ) x 365 yearss
= [ 63000 / ( 365000-10000 ) ] x 365 yearss
= ( 63000 / 355000 ) x 365 yearss
= 64.7 yearss
Working for ( g ) = ( creditor / net recognition purchase ) x 365 yearss
= ( 25000 / 189000 ) x 365 yearss
= 48.28 yearss
2.4.2 Profitableness of Continental Limited
The per centum with gross net income on gross revenues for twelvemonth 2010 after the ratios computation which is 49.57 % and it ‘s greater than the industry norm which is 30 % . The comparing between the gross net income on gross revenues and the industry is the per centum increased by 19.57 % due to some ground such as commanding over its purchase cost in lower cost from the provider and the efficiency in commanding its input cost by the effectivity of utilizing the stuffs or labor to cut down its input cost. Controling over the input cost by the ground stated above is better than travel on the industry norm.
The per centum of operating cost after the ratios computation is 20.99 % and the per centum for industry norm is 18 % . The per centum of operating cost shows that it ‘s greater than the industry norm cost. Operating cost is the cost that spent for running concern such as rent, wages, insurance, electricity and H2O but excepting loan involvement and overdraft involvement. The per centum of operating cost is greater than the industry norm cost because of the company is set uping on commanding in outgo doing lower disbursals incurred to increase its net net income earning.
Tax return on capital employed which given short signifier as ROCE was given definition by readyratios.com as “ the measuring of the returns that a concern is accomplishing from the capital employed, normally expressed in per centum footings. ” The per centum for return on capital employed is 11.26 % and it ‘s greater than the industry norm which is 9 % . The ground of the per centum of return on capital employed is higher than the industry norm is because of the effectivity of utilizing capital employed in production and concern activities to cut down production and gross revenues volume every bit good as to increase the net net income earning.
2.4.3 Liquid of Continental Limited
The current ratio is used to mensurate the fiscal position and ability of house in utilizing current assets to finance its current liabilities. The current ratios for Continental Limited after the ratios computation for 2010 are 3.32:1 and the industry norm is 2:1. If the current ratios computation is lower than 2:1, it means that the current assets of the company confronting financially unstable or some fiscal job such as short term fiscal jobs.
The stock turnover of Continental Limited after ratios computation is 117.36days and the industry norm is 90 yearss. The lower stock turnover and the longer stock turnover period indicate slow stock turnover in concern where the goods purchased are kept in stock for a long clip and so easy taken out for resale so that the stock is accumulated to bind up money, doing short-run fiscal job.
The computation ratios of debitor aggregation period for the twelvemonth ended 31 December 2010 is 64.7 yearss which is more than the industry norm which is 45 yearss. The debitor aggregation period are used to mensurate the size or sum of debitor accumulated from recognition gross revenues made and how long is the clip to roll up back the debts from the debitors. The shorter clip to roll up back the money is the better for the company because the money that owed by the debitors will non be tied up.
The computation ratios of creditor payment period for the twelvemonth ended 31 December 2010 which is 48.28 yearss and it ‘s shorter than the industry norm which is 60 yearss. The shorter yearss for the creditor payment period are non good because the company necessitate money to turnover from avoiding the short term fiscal jobs.
3.0 Conclusion & A ; Recommendation
From the undertaking 1, the writer learnt about the five regulative features of fiscal statements, account users and their demands for the fiscal statements. Then come with undertaking 2, the writer has learnt how to make the accommodations in the fiscal statements. After that, the things that the writer had learnt about in the assignment undertakings 3 are the manner how to make the fiscal statements in recognized format. Other than that, the writer besides learnt how to cipher, remark, comparison and contrast about the accounting ratios.
In decision, the writer think of making the rules of accounting assignments truly helps a batch because of the attempts that have put on the research to be more understanding about the accounting assignment and more clear about the subjects in the assignment.
