Introduction
Accounting is the procedure of recording, coverage, and construing fiscal information pertaining to an administration about a concern entity to users such as stockholders and directors. The procedure starts by first placing minutess and events that affect the fiscal place and public presentation of the company.
Purpose of Financial Statements
The aim of fiscal statements is to supply information. The fiscal place, public presentation and alterations in fiscal place of an endeavor that is utile awide scope of users in doing economic determinations. The fiscal statements provideuseful information to a broad scope of users:
2.1.1 Directors of the company
A Financial Statements to pull off the personal businesss of the company by measuring its fiscal public presentation and place. and taking of import concern determinations.
2.1.2 ShareholdersA
Fiscal Statements to measure the hazard and return of their investing in the company and take investing determinations based on their analysis.
2.1.3 Prospective Investors
Fiscal Statements to measure the viability of puting in a company. Investors may foretell future dividends based on the net incomes disclosed in the Financial Statements. Furthermore, hazards associated with the investing may be gauged from the Financial Statements. For case, fluctuating net incomes indicate higher hazard. Therefore, Financial Statements supply a footing for the investing determinations of possible investors.
2.1.4 Financial InstitutionsA
Fiscal Statements to make up one’s mind whether to allow a loan or recognition to a concern. Financial establishments assess the fiscal wellness of a concern to find the chance of a bad loan. Any determination to impart must be supported by a sufficient plus base and liquidness.
2.1.5 Suppliers
A Financial Statements to measure the recognition worthiness of a concern and ascertain whether to provide goods on recognition. Suppliers need to cognize if they will be repaid. Footings of recognition are set harmonizing to the appraisal of their clients ‘ fiscal wellness.
2.2.1 Accounting Concept and Principles
Accounting Concepts and Principles are a set of wide conventions that have been devised to supply a basic model for fiscal coverage. As fiscal describing involves important professional judgements by comptrollers, these constructs and rules guarantee that the users of fiscal information are non mislead by the acceptance of accounting policies and patterns that go against the spirit of the accounting profession. Accountants must therefore actively see whether the accounting interventions adopted are consistent with the accounting constructs and rules.
In order to guarantee application of the accounting constructs and rules, major accounting standard-setting organic structures have incorporated them into their coverage models such as the IASB Framework.
2.2.2 Relevance
Information should be relevant to the determination doing demands of the user. Information is relevant if it helps users of the fiscal statements in foretelling future tendencies of the concern or confirming or rectifying any past anticipations they have made. Same type of information which assists users in corroborating their past anticipations may besides be utile in organizing future prognosiss.
2.2.3 Dependability
Information is dependable if a user can depend upon it to be materially accurate and if it dependably represents the information that it purports to show. Significant misstatements or skips in fiscal statements cut down the dependability of information contained in them. The fiscal history information is dependable if,
Neutrality
Faithful Representation
Prudence
Completeness
2.2.4 Accuracy
The fiscal histories should provied accurate fiscal information to the users for determination devising because the inaccurate history information will take to innacurate determination made by the user.
2.2.5 Comparability/Consistency
The fiscal histories made based on accounting constructs should be comparable with the old twelvemonth histories and comparable with the histories of other compan
2.2.6 Comprehensibility
Minutess and events must be accounted for and presented in the fiscal statements. Accounting constructs should be apprehensible by a user who possesses a sensible degree of cognition of the concern, economic activities and accounting.
Undertaking 2
3.0 Working for note ( a ) of inquiry:
Closing stock should be recorded at cost or net resale value which one is lower.
Since cost RM65000 & lt ; net resale value RM70000, the cost RM65000 should be shuting stock value put in the trading history of income statement and under the current plus in balance sheet.
Working for note ( B ) of inquiry:
Cash history
RM RM
Gross saless ( Difference ) 5000 Purchase 4000
Stationery 700
Electricity 300
5000 5000
Gross saless in trading history of income statement = RM 360000 from TB + RM5000 = RM365000.
Purchase in merchandising history of income statement =RM200000 from TB+ RM4000 =RM204000.
Stationery as expence 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 ) of inquiry:
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 ) of inquiry:
Debtor history
RM RM
Balance b/d ( from TB ) 75000 ( – ) Bad debts 5000
Balance c/d 70000
75000 75000
Balance b/d 70000
( Debtor put under current plus in balance Sheet )
Bad debts account
RM RM
Debtor 5000 P/L history 5000
( Bad debts as disbursal put in P/L history )
Provision for bad debts shuting balance = 10 % Debtor shutting 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
( from TB )
Increase difference 2000
( As disbursal put in P/L history
7000 7000
1 Jan 2011 Balance b/d 7000
( Deducted from debitor under current plus in balance sheet )
Working for note ( vitamin E ) & A ; ( degree Fahrenheit ) of inquiry:
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
( Vehicles at cost put under fixed plus in balance sheet )
Provision for depreciation on vehicle history
RM RM
Vehicle disposal history 12500 1 Jan 2010 Opening balance b/d ( fromTB ) 60000
( Cost sold RM50000 x 5 % ten 5 old ages Depreciation as disbursal put in P/L history 12500
from 1Jan 2005 to1Jan 2010 ) ( Vehicles shuting balance RM250000 X 5 % )
31Dec 2010 Balance c/d 60000
72500 72500
1 Jan 2011 Balance b/d 60000
( Deducted from vehicle cost under fixed plus in balance sheet )
Vehicle disposal history
RM RM
Vehicle cost sold 50000 Provision for depreciation on vehicle sold 12500
Returns from disposal of vehicle ( TB ) 35000
Difference for Loss on disposal of vehicle 2500
( As disbursal put in P/L history )
50000 50000
Provision for depreciation on premises account
RM RM
Balance c/d 54000 1 Jan 2010 Opening balance b/d ( from TB ) 40000
Depreciation as disbursal put in P/L history 14000
( Premisess cost from TB RM350000 x 4 % )
54000 54000
Balance b/d 54000
( Deducted from premises cost under fixed plus in balance sheet )
Working for note ( g ) of inquiry:
Taxation charge RM 15300 is deducted from net net income at the underside of income statement. It is besides recorded as accumulated revenue enhancement RM 15300 under the current liability in balance sheet.
Working for note ( H ) of inquiry:
Proposed dividend to be deducted from net net income at the underside of income statement = 2 % x RM 500000 Share capital from TB = RM 10000.
Then, the proposed dividend RM 10000 is recorded under current liability in balance sheet.
Income statement of Continental Limited for twelvemonth stoping 31 Dec 2010 for internal usage.
RM
RM
RM
RM
RM
RM
RM
RM
RM
Gross saless
365000
Less Return inwards
10000
Net gross revenues
355000
Less Cost of gross revenues:
Opening stock
50000
+ Purchases
204000
– Tax return outwards
15000
+ Passenger car inwards
5000
194000
Less Closing stock
65000
179000
Gross net income
176000
Add Income:
5000
Dividend received
181000
Less Expenses:
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 vehicle
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 Proposed dividend
10000
Net income for the twelvemonth
51200
Add Retained net incomes brought
100000
Retained net incomes carried frontward
151200
( Put under modesty added to portion capital in balance sheet )
Balance sheet of Continental Limited as at 31 Dec 2010 for internal usage
A
A
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 from depreciation on vehicles
60000
190000
Long – footings investings
100000
586000
Currents 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
Add Reserve
Retained net incomes carried frontward
151200
Stockholders ‘ equity
651200
Add Long -term liabilities / Non current liabilities
Loan
55000
Add Current liabilities
Creditors
25000
Accrued gross revenues commision
1500
Accrued revenue enhancement
15300
Proposed dividend
10000
51800
758000
Undertaking 3
4.0 Distribution costs and administrative disbursals as follows.
Distribution costs
and
Administrative expences
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 vehicle
2500
–
Depreciation on vehicles
12500
–
Depreciation on premises
–
14000
Vehicles expences
12000
–
Entire
53500
48000
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
Administritive
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
Balance sheet of Continental Limited for the twelvemonth stoping 31 Dec 2010 for external coverage
RM
RM
RM
Fixed Assetss
Tangible Assetss:
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
Less Creditors: Sums Falling Due Within One Year
Creditors
25000
Accurued gross revenues commision
1500
Accurued revenue enhancement
15300
Proposed dividend
10000
51800
Net Current Assetss
120200
Entire Assets Less Current Liabilitiess
706200
Less 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
Undertaking 4
5.1Table of ration computation
Ration with expression
Ration computation for twelvemonth 2010
Industry norm
Percentage of cross 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
Profitableness of Continental Limited
( a ) Percentage of gross net income on gross revenues in the ratio computation for twelvemonth 2010 which is 49.57 % . Its higher per centum than the industry mean 30 % . In this instance can demo that, the gross net income on gross revenues in ratio computation for twelvemonth 2010 is more than effectual and efficient than the industry norms, because it can get the better of its purchase cost by doing the purchase at lower cost from provider and efficient in commanding its results cost by the effectual usage of stuffs and labor to command its production cost instead than industry norm.
( B ) Percentage of operating net income on gross revenues in the ratio computation of twelvemonth 2010 is 20.99 % which more than industry norm that is 18 % . From the ratio comparing, the immense disbursals to gross revenues ratio indicates that company is uneffective in its outgo control doing higher disbursals incurred to cut down its cyberspace net income earning. Other than that, the industry norm ratio is lower disbursal to gross revenues ratio indicates that company is effectual in costs control doing down disbursals to incurred to increase its net net income earning.
( degree Celsius ) Tax return on capital employed in the industry norm is 9 % and the ROCE in the ratio overole for twelvemonth 2010 is 11.26 % where is higher than the industry norm per centums. In this ratio computation for twelvemonth 2010 showed that the higher comes on capital employed indicates higher net net income generated from the capital employed in production and concern supplies to increase the results and gross revenues ratio every bit good as to in higher the net net income earning. More than that, the lower of the industry norm is the lower comes on capital employed indicates down net net income generated from the capital employed for uneffective usage of capital employed in production and concern supplies to cut down production and gross revenues volume every bit good as to cut down net net income earning.
Liquid of Continental Limited
( vitamin D ) The comparing between the ratio for twelvemonth stoping 31 December 2010 and the industry norms which the former is higher than the latter. Because, the current ratio of the twelvemonth stoping 31 December 2010 is 3: .32: 1 higher than industry norm which is 2:1.
( vitamin E ) The stock turnover period for the twelvemonth stoping 31 December 2010 is 117.36 yearss which more than the industry norm because it merely 90 yearss. Obviously, the longer stock turnover period indicate low stock turnover in the concern where things purchased are kept in stock for long period and so lower taken out for resale so that the stock is accumulated to bind up money, doing short term job.
( degree Fahrenheit ) The computation ratio for the twelvemonth terminal 31 December 2010 is 64.7 yearss which longer than the industry norm which is 45 yearss merely. From the ratio comparing, the longer debitor aggregation clip for twelvemonth terminal 31 December 2010 indicate that company has given longer recognition clip to let results having, doing longer period taken by company to roll up cost easy from debitors, so that larger debitor balance is accumulated to bind up cost, conveying to shortage of money for paying back liabilities and confronting short term fiscal job.
( g ) The consequence ratio of twelvemonth terminal 31 December 2010 is 48.28 yearss which is shorter than the company norm which in 60 yearss. Therefore, the shorter creditor payment period indicate that company has obtained shorter recognition clip for having and paying to creditors so that company needs to pay creditor in period, doing smaller creditor accumulated and short term fiscal job for deficit of money to pay back creditor.
5.2 Decision.
The decision of this assignment demoing us the Principle of Accounting and the of import intent of accounting.Beside that, it besides teach us how information provide can assist them do determination and take any action. We besides learn wheter to spread out the businness, beginning for cheaper supplies or escalate sale campaigns..As we know the has a five basic types of accounting flows Minutess, Records, Report, Interpretation of fiscal statements and Decision by internal/external users. We besides learn the purcase of hard currency is a typical businness dealing. Other than that Goverment and other interested parties may maintain a close ticker on the public presentation of the concern for assorted grounds. Apart from that creditors oncial duties. We besides learn the accounting ratios are the ratios expressed and counted based on accounting figures derived from fiscal statements or concluding histories of the house. Accoumting ratios must be compared over two different periods or between two different companies or with the industry norm to step concern public presentation of the house.
