Income Statement And Balance Sheet Of Continental Limited Accounting Essay

In this rules accounting assignment I have four undertaking inquiry and I need to happen research and reply. In undertaking 1, I need describe and specify five type of different users of accounting such as directors of the company, employees of the company, creditors, client and investors. Beside that, I besides need to explicate five types of regulative features that relevancy, seasonably, truth, comparison and comprehensibility.

In undertaking 2, I want to fix the income statement and balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010 for the imternal usage by company manager and direction. And in undertaking 3, I need 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.

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At the last, for undertaking 4 I have to compare the accounting ratios of Continental Limited against the industry norm to estimate how profitable and to happen out the liquidness for the company. With the accounting ration which is derived from the Balance sheet and Income statement, it is to happen out important quantitative information about the company.

Contented Page

Introduction 4

Accounting users 5

The Five Different Users 5-6

The Five Regulatory Characteristics 6-7

Income statement and balance sheet of Continental Limited 8

3.1 Working for undertaking 2 8-12

3.2 Income statement of Continental Limited for twelvemonth

stoping 31 Dec 2010 for internal usage 14-15

Balance sheet of Continental Limited as

at 31 Dec 2010 for internal usage 15-16

4.0 Income statement and balance sheet

of Continental Limited for external coverage or publication 17

4.1 Working for undertaking 3 18

4.2 Income statement of Continental Limited for

twelvemonth stoping 31 Dec 2010 for external coverage 19-20

4.3 Balance sheet of Continental Limited for the twelvemonth

stoping 31 Dec 2010 for external coverage 21-22

The appropriate accounting ratios and comparison

them with the industry averages 23

Contented Page

5.1 Table of ratio computation 23-24

5.2 Profitableness of Continental Limited 25

5.3Liquidity of Continental Limited 26

6.0 Decision 27

7.0 Mentions 28-29

1.0 Introduction

Accounting is based on the survey of fiscal activities and cost informations aggregation, categorization, formed on the footing of comprehensive analysis and reading of information systems to help in decision-making, an applied scientific discipline in order to efficaciously pull off the economic system, it is the composing of the societal sciencespart, is besides an of import direction subject. Accounting is the conditions of trade good production, we study how the value of activities in the procedure of reproduction measuring, entering and prognosiss based on economic information based fiscal information ( indexs ) , supervising, control value activities to promotethe procedure of reproduction, and invariably better the economic efficiency of an economic direction subjects. It is a the accounting pattern activities to be systematized and structured, and the formation of a complete set of accounting theory and methodological analysis.

2.0 Accounting users:

Accounting information helps users make better determinations fiscal. The users of fiscal information may be internal or external to the organisation. There are internal users ( people within the organisation ) and besides external users ( people outside the organisation ) who use histories to deduce fiscal information for their demands. In this accouting users, that have five different users that is direction, employee, creditor or providers, investor and client.

2.1 The five different users

In this five users, it categerise to two types that is internal and external. For the internal users of accounting information included direction and employees. Management is to analyse the public presentation of the organisation and the state of affairs and take the necessary steps to better the concern consequences. These are people appointed by the company ‘s proprietors to surpervise the daily activities of the company. They need accounting information about the company ‘s fiscal state of affairs as it is presently and as it is expected to be in the hereafter to enable them to pull off the concern expeditiously and to take effectual control and planning decideions. For the employees is to measure the profitableness of the company and its impact on their future wage and occupation security. And employees these are people employed by the company to transport out concern activivies. They need accounting information about the company ‘s fiscal state of affairs because their hereafter callings and the size of their rewards and wages depend on it.

While, in external users of accounting information included creditor, investors and clients. In the first, creditor is to find the solvency of the organisation. Recognition footings are set harmonizing to the rating of the fiscal wellness of its clients. Creditors are providers and suppliers of funding such as Bankss and they need accounting information about the company ‘s ability to pay its debts for guaranting their aggregation from the company. And investors is to analyse the feasibleness of puting in the company. Investors want to do certain that they can acquire a sensible return on their investing before perpetrating fiscal resources for the company. For clients mean able to measure the fiscal state of affairs of your supplier is necessary for a stable beginning of supply regulators term. In long yesteryear is to guarantee that revelation of the information society is in conformance with accounting regulations and ordinances established to protect the involvements of stakeholders who rely on the information in the formation of them.

2.2 The five regulative features

In this five regulative features, it will supply utile information to the users. The five regulative features is relevancy, seasonably, truth, comparison and comprehensibility.

A qualitative feature of accounting, the relevancy is associated with seasonably, utile and it have a prognostic value, and will do a difference to a determination shaper. The fiscal histories prepared based on accounting constructs and policies should show relevant fiscal information which is capable of act uponing the economic determination of the users. Therefore, the information presented by the fiscal histories should be relevant to the determination devising of the users.

Whether the fiscal history information is relevant or non to the determination devising of users, it depends on whether the fiscal acounts are made to show information in clip or non when it is needed for determination devising. If the histories are prepared to supply required information in clip, it is relavant to the determination devising of the users. If Acounts are non willing to supply information in clip, is non relevant to the decision-making procedure of the user. Term of comprehensibility is that indicates that the information is expressed in footings that allow users to comprehend its significance. This fiscal histories is prepared based on the accounting constructs should be capable of being understood by the user who have sensible cognition of concern, economic ativities and accounting.

Accuracy is the rectification of an accounting entry such as history balance, the bill declaration, besides called fiscal just representation. The construct refers to an accounting aim which to the full reflects the subject and enhances all the facts in inquiry, including all facets of economic minutess and events. And comparison is helped when companies use similar accounting processs, measuring constructs, categorization, basic formats of fiscal statements and methods of communicating. And fiscal histories made aˆ‹aˆ‹on the footing of the accounting constructs should be comparable to old old ages ‘ histories and comparable with other companies.

3.0 Income statement and balance sheet of Continental Limited

In this undertaking, the writer must happen and roll up all the informations for the computation of the income statement and balance sheet of Continental Limited. Therefore, the writer must done and be prepare for the undermentioned income statement and balance sheet. The income statement and the balance sheet is prepared for internal usage.

3.1 Working for undertaking 2

Working for note ( a )

Closing stock should be recorded at cost or non resale value which one is lower. Since cost RM 65000 & lt ; net resale value RM 70000, the cost RM 65000 should be shuting stock value put in the trading history of income statement and under the current plus in the balance sheet.

Working for note ( B )

Cash history

RM RM

Gross saless ( Difference ) 5000 Purchase 4000

Stationery 700

Electricity 300

5000 5000

Gross saless in trading history of income statement =RM360000 from TB + RM5000 =RM365000

Purchase in merchandising history of income statement =RM200000 from TB + RM4000 =RM204000

Stationery as disbursal put in P/L history of income statement =RM700

Electricity & A ; H2O in P/L history of income statement =RM7000 from TB +RM300 =RM7300

Working for note ( degree Celsius )

Gross saless committee as disbursal put in P/L history of income statement

=RM18000 paid from TB +RM1500 accrued at terminal of twelvemonth =RM19500

Then, accrued gross revenues committee RM1500 is recorded under the current liability in balance sheet.

Office wages as disbursal put in P/L history of income statement

=RM28000 paid from TB -RM2000 prepaid at terminal of twelvemonth =RM26000

Then, prepaid office wage RM2000 is recorded under the current plus in balance sheet.

Working for note ( vitamin D )

Debtor history

RM RM

Balance b/d ( from TB ) 75000 Bad debts 5000

Balance c/d 70000

75000 75000

Balance b/d 70000

Bad debts account

RM RM

Debtor 5000 P/L history 5000

Provision for bad debts shuting balance =10 % x Debtor shuting balance RM70000 =RM7000

Provision for bad debts account

RM RM

31 Dec 2010 Closing balance c/d 7000 1 Jan 2010 Opening balance b/d 5000

Increase difference 2000

( As disbursal put in P/L history )

7000 7000

1 Jan 2011 Balance b/d 7000

Working for note ( vitamin E ) and ( degree Fahrenheit )

Vehicles account

RM RM

Balance b/d ( from TB ) 300000 Vehicle disposal a/c ( cost sold ) 50000

Balance c/d 250000

300000 300000

Balance b/d 250000

Provision for depreciation on vehicle history

RM RM

Vehicle disposal history 12500 1 Jan 2010 Opening balance b/d 60000

Depreciation as disbursal put in P/L 12500

History

31 Dec 2010 Balance c/d 60000

72500 72500

1 Jan 2011 Balance b/d 60000

Vehicle disposal history

RM RM

Vehicle cost sold 50000 Provision for depreciation on vehicle 12500

sold

Returns from disposal 35000

of vehicle ( TB )

Difference for Loss on disposal 2500

of vehicle

50000 50000

Provision for depreciation on premises account

RM RM

Balance c/d 54000 1 Jan 2010 Opening balance b/d 40000

Depreciation as disbursal put 14000

in P/L history

54000 54000

Balance b/d 54000

Working for note ( g )

Taxation charge RM 15300 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 in balance sheet.

Working for note ( H )

Proposed dividend to be deducted from net net income at the underside of income statement

=2 % x RM500000 Share capital from TB =RM10000

Then, the proposed dividend RM 10000 is recorded under current liability in balance sheet.

3.2 Income statement of Continental Limited for twelvemonth stoping 31 Dec 2010 for internal usage

RM RM RM

Gross saless ( RM 360000 + RM 5000 ) 365000

Less Return inwards ( 10000 )

Net gross revenues 355000

Less Cost of gross revenues / Cost of goods sold:

Opening stock 1 Jan 2010 50000

+Purchase ( RM 200,000 + RM 4,000 ) 204000

-Return outwards ( 15000 )

+Carriage inwards 5000 194000

-Closing stock ( 65000 ) ( 179000 )

Gross net income 176000

Add Incomes:

Dividend received 5000_

181000

Less Expenses:

Stationery 700

Office electricity & A ; H2O ( RM 7000 + 300 ) 7300

Office wages ( RM 28000 – RM2000 ) 26000

Gross saless committee ( RM 18000 + RM 1500 ) 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

Vehicle disbursals 12000

Interest charges 3000

( 104500 )

Net net income 76500

Less Taxation charge ( 15300 )

Less Prepaid dividend ( 10000 )

Retained net income for the twelvemonth 51200

+Retained net incomes brought frontward 100000

Retained net incomes carried frontward 151200

3.3 Balance sheet of Continental Limited as at 31 Dec 2010 for internal usage

RM RM RM

Fixed assets/Non-current assets

Office premises at costs 350000

-Provision for depreciation on premises ( 54000 )

296000

Vehicles at cost 250000

-Provision for depreciation on vehicles ( 60000 )

190000

Long-run investings 100000_

586000

Current assets:

Closing stock 65000

Trade debitors 70000

-Provision for bad debts ( 7000 )

63000

Bank 42000

Prepaid office wage 2000

172000

758000

Issued portion capital:

Share capital 500000

Militias:

Retained net incomes ( carried down from income statement ) 151200

651200

Long-run liabilities/Non-current liabilities:

Loan 55000

Current liabilities:

Trade creditors 25000

Gross saless committees accrued 1500

Taxation accrued 15300

Proposed dividend 10000_

51800

758000

4.0 Income statement and balance sheet of Continental Limited for external coverage or publication

Income statement are normally contains information about the benefits, costs and net income that the information has been cod for a given period of clip. Net net income occurs when the benefits out weigh of the costs operation. A net loss occurs when the operating costs out weigh the benefits. In add-on, the budget is a declaration of a province in fiscal establishment. In add-on, this the income statement and balance sheet is prepared for external information.

4.1 Working for undertaking 3:

Distribution cost Administrative disbursal

RM RM

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 vehicle 2500 –

Depreciation on vehicle 12500 –

Depreciation on premises – 14000

Vehicle disbursals 12000 –

Entire 53500 48000

4.2 Income statement of Continental Limited for twelvemonth stoping 31 Dec 2010 for external coverage

RM RM

Net gross revenues / Turnover 355000

Cost of gross revenues ( 179000 )

Gross net income 176000

Less Distribution cost 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

Tax charges on net income ( 15300 )

Net income on Ordinary activities after revenue enhancement 61200

Dividend Proposed ( 10000 )

Retained net income for the twelvemonth 51200

Retained net incomes brought frontward 100000

Retained net incomes carried frontward 151200

4.3 Balance sheet of Continental Limited for the twelvemonth stoping 31 Dec 2010 for external coverage

RM RM RM

Tangible Fixed Assetss:

Premisess 296000

Vehicles 190000

486000

Long term investing 100000

586000

Current Assetss:

Stockss 65000

Debtors 63000

Prepaid office wage 2000

130000

Cash at bank 42000

172000

Creditors: Sum falling due within one twelvemonth

Creditors 25000

Accrued gross revenues committees 1500

Accrued revenue enhancement 15300

Proposed dividend 10000

( 51800 )

Net current assets 120200

Entire assets less current liabilities 706200

Creditors: Sum due after more than one twelvemonth

Loan ( 55000 )

651200

Capital and Militias

Called up portion capital 500000

Net income and loss history 151200

651200

5.0 The appropriate accounting ratios and compare them with the industry norms

Accounting studies is expressed and counted on the footing of accounting ensuing from the balance sheet and histories of the company. Accounting studies used to construe the fiscal statements to measure the public presentation of the concern. Others the study of the histories can be compared between companies, industries, different periods of clip for a company and a private company and its industry norm.

5.1 Table of ratio computation

Ratio With Formula

Ratio Calculation for Year 2010

Industry Average

Percentage of Gross Net income on Gross saless:

= 49.58 %

30 %

Percentage of Operating Net income on Gross saless:

= 20.99 %

18 %

Tax return on Capital Employed ( ROCE ) :

= 11.26 %

9 %

Current Ratio:

=3.32:1

2:1

Stock Turnover Period:

= 3.11 times

= 117.36 yearss

90 yearss

Debtors Collection Time period:

=64.6 yearss

45 yearss

Creditors Payment Time period:

=48.18 yearss

60 yearss

5.2 Profitableness of Continental Limited

The per centum of gross net income to gross revenues for Continental Limited is 49.58 % more than the industry norm in 30 % . Most of the gross net income on gross revenues indicates gross net income increased by Continental limited gross revenues. This shows that the Continental Limited is effectual and efficient control of the acquisition costs to do the purchase from a supplier frem the lower cost and has control of the production costs for the effectual usage of stuffs and labour to cut down the cost of production and to increase the gross net income. In add-on, the per centum of runing income on gross revenues for Continental Limited is 20.99 % more than the industry norm is 18 % . The addition in runing income on gross revenues indicate a higher net net income from the gross revenues continental limited by effectual control over outgo, to cut down costs to increase net net income, evidenced by lower disbursals gross revenues ratio. Therefore, the return on capital employed ( ROCE ) for Continental Limited is 11.26 % more than the industry norm is 9 % . The higher return on capital employed indicates higher the net income generated by invested capital for the effectual usage of capital employed in productive activities that sell to increase the volume of production and gross revenues, and to increase the net net income.

5.3Liquidity of Continental Limited

The liquidness ratio to 3.32:1 limited Continental is higher than the industry and the norm is 2:1. ‘S largest current assets can be used to fund current liabilities, bespeaking that the limited Continental and financially has their stableness that able to fund its short-run debts. The rotary motion period of the stock Continental Limited for 117.36 yearss is higher than the industry norm is 90 yearss. This period has the highest turnover indicates a rapid turnover of the limited supplies from assets as the acquired Continental in which the portions were sold out so rapidly that the action does non roll up and the money is non tied to the action.

Furthermore, the Debtors Collection for the Continental Limited is about 64.6 yearss higher than the industry norms in 45 yearss. The higher debitor ‘s aggregation period indicate that Continental Limited has given longer recognition clip to let debitor owes, and it will do longer clip taken by Continental Limited to roll up money easy from debitors so that the larger debitor balance is accumulated to bind up money and confronting short-run fiscal job. In add-on, The Creditors Payment Period for the Continental Limited is about 48.18 yearss lower than the industry norms is 60 yearss. The lower the creditor ‘s payment period indicate that Continental Limited has obtained shorter recognition clip for owing and paying for creditors so that Continental Limited demands to pay back the creditor really fast, and it will do smaller recognition balance and accumulated in short-run fiscal job for deficit of money to pay back creditor.

6.0 Decision

From this assgnemtn, I have learned the cardinal issues within the principals of accountng such as the importance of fiscal douments and the users that would necessitate such such paperss. Besides that, the balance sheet and income statement is explained for both internal use and external use. Finally the accounting ratios is compared with the industry norm to happen out the profiatbility and liquidness of the Oontinental Limited company. For undertaking 1, the users and features of fiscal paperss are discussed and explained. For undertaking 2, the balance sheet and in come statement is discussed for internal use while in undertaking 3 these two paperss for external use is discussed and explained. For the concluding undertaking, the accounting ratio and profitableness and liquidness of the company is discussed and explained.

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