Use regulative model to fix fiscal statements from company records for internal usage and external coverage or publication. Continental Limited has an authorized portion capital of 1 million ordinary portions RM1 each. It operates sweeping and retail concern of selling a consumer merchandise. As the company helper comptroller, you are required to fix fiscal statements for the fiscal twelvemonth stoping 31 Dec 2010 for the internal usage by company manager and direction and besides in the recognized format for the external coverage or publication. You are given the company records as follows:
Trial Balance as at 31 Dec 2010
Opening stocks 1 Jan 2010
Gross saless
Purchases
Tax return inwards
Tax return outwards
Passenger car inwards
Office wages
Office electricity & A ; H2O
Gross saless committee
Vehicle disbursals
Interest charges
Dividends received
Office premises at costs
Vehicles at costs
Provision for depreciation 1 Jan 2010
: Office premises
: Vehicles
Bank
Trade debitors
Provision for bad debts 1 Jan 2010
Returns from disposal of vehicle
Trade creditors
Loans
Capital
RM
50,000
200,000
10,000
5,000
28,000
7,000
18,000
12,000
3,000
350,000
300,000
42,000
75,000
1,200,000
RM
360,000
15,000
5,000
40,000
60,000
5,000
35,000
25,000
55,000
500,000
1,200,000
Other information provided as follows:
Closing stocks at 31 Dec 2010 were valued at cost RM65000.
No record for the reception from hard currency gross revenues, out of which payments were made for purchase of goods RM4000, letter paper RM700 and electricity measure RM300.
Accrual for a salesman ‘s committee RM1500 and prepayment for an office staff salary RM2000 at 31 Dec 2010.
A client who owed RM5000 has gone into bankruptcy during the twelvemonth. Provision for bad debts is made to 10 % on other trade debitors at terminal of the twelvemonth.
A vehicle costs RM50000 purchased on 1 Jan 2005 was sold for RM35000 at 1 Jan 2010. No record for this dealing except the returns from disposal was entered in bank.
All the vehicles are charged depreciation 5 % per annum on cost for each month of ownership and premises depreciate 4 % per annum on cost.
Undertaking 1
Describe FIVE ( 5 ) different users and their demands for Continental Limited fiscal statements. Explain five regulative features of these fiscal statements that will supply utile information to the user.
Undertaking 2
Fix the income statement and balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010 for internal usage by company managers and direction. Show the necessary workings.
Undertaking 4
Based on the income statement and balance sheet made in undertaking 2 and 3, calculate the appropriate accounting ratios for twelvemonth stoping 31 Dec 2010 and compare them with the industry norms provided to measure the profitableness and liquidness of Continental Limited.
Following are the Industry Average provided for comparing:
Percentage of gross net income on gross revenues: –
Percentage of operating net income on gross revenues: –
Tax return on capital employed ( ROCE ) : –
Current ratio: –
Stock turnover period: –
Debtor ‘s aggregation period: –
Creditor ‘s payment period: –
30 %
18 %
9 %
2:1
90 yearss
45 yearss
60 yearss
Table OF CONTENT
Shred
Page
Question
2-3
Table of content
4
Introduction
5
Undertaking 1
6-10
Undertaking 2
11-13
Undertaking 4
14-
Decision
Bibliography
Introduction
Accounting is something that affects people in their personal lives merely every bit much as it affects really big concern. We use accounting when we plan what we are traveling to make with the money. Besides that, accounting is merely the agencies by which we measure and describe the consequences of economic activities. Normally, people refer to accounting as used by concern and other organisations. Organization non merely record hard currency received and paid out but besides record goods bought and sold. This portion of accounting normally called recording of informations.
Accounting frequently is called the ‘language of concern ‘ because it is so widely used in depicting all types of concern activities. Every investor, director and concern determination shaper needs a clear apprehension of accounting footings and constructs if they are to take part and pass on efficaciously in the concern community. The basic intent of accounting is to supply determination shaper with information utile in doing economic determination.
Undertaking 1
Introduction of Financial Statement
Fiscal statementsA are a aggregation of studies about an organisation ‘s fiscal consequences and status. ThisA includes income statement, A balance sheet, and hard currency flow statement. The aim of fiscal statements is to supply information about the fiscal place, public presentation and alterations in fiscal place of an endeavor that is utile to a broad scope of users in doing economic determinations. Fiscal statements should be apprehensible, relevant, dependable and comparable. Reported assets, liabilities, equity, income and disbursals are straight related to an organisation ‘s fiscal place.
Users for Continental Limited Financial Statement
Fiscal statement may be used by different users for different intent. There are 6 different users of fiscal statement which is investor, employees, provider, authorities, clients and loaner.
Investor
Investor is the 1 who invest the money into a concern. Investors are concerned aboutA hazard and returnA in relation to their investings. Investor requires information to make up one’s mind whether they should put in a concern. Stockholders besides interested in fiscal statement which enables them to reexamine the ability of a company to pay dividends. Investors consider two elements in their investing, which is income in the signifier of dividends and addition in the portion monetary value.
If the investor takes on a short-run position, the current dividends are the involvement. But, a longer-term position would concern on future net incomes. The investor group would besides be interested in profitableness and its tendency over a period of clip.
Employees
Employees and their representatives require information on concern public presentation which about the stableness and go oning profitableness of the concern. Employees require fiscal statement for two chief grounds which is pay and salary negotiationA and besides the appraisal of current and forward chance in footings of employment. They would be interested in both the current fiscal stableness and the longer-term fiscal viability of the concern. They need information in a clear, simple and apprehensible signifier.
Supplier
Suppliers and other creditors of a company demand information refering the fiscal place of a company. They would be interested in the fiscal stableness of the concern in footings of hard currency flow and the house ‘s ability to run into its short-run liabilities. They would see current and future hard currency flow together with current and future profitableness. They need to be convinced that the company is liquid plenty to run into with her duties upon adulthood. An involvement in the company ‘s future scheme is besides likely as they would necessitate to see how they, fit with the scheme.
Government
There are many authorities bureaus and sections that are interested in accounting information. The authorities sections require published fiscal information for the intents of revenue enhancement. The authoritiess are determination shapers and their economic programs are influenced by the public presentation of all concerns within assorted sectors in the economic system. The current fiscal studies will be used as a base in their economic theoretical accounts for measuring future public presentation.
Customer
Customers will be interested in the concern ‘s short and longer term fiscal stableness and its possible to provide high quality of goods and services. Customers require the information about the ability of a concern to last and thrive. They interested in information about the continuation of a company, particularly when they have a long-run engagement with. They may even be dependent on the concern for certain merchandises or services. They may besides hold involvement in the environmental policy of the concern.
Lenders
Lenders frequently referred to as the loan creditor group such as Bankss and other fiscal establishments who lend money to a concern with require information that helps them to find whether loans and involvement will be paid. It would include the long, medium and short term loaners of money. A short-run loan creditor will instantly see hard currency flow. Whereas, medium and long-run creditor groups will reexamine the hereafter hard currency flow potency of the concern. A farther consideration would be on the precedence of claims on the concern ‘s resources. They would hold involvement in current and future profitableness and growing chances of the entity.
Characteristic of Financial Statement
Different users require fiscal statement for different intent to help in their determinations. The user is depending on the fiscal statement to do determination, if the fiscal information is non accurate, the users may stop up doing incorrect determinations. Hence, fiscal statements need to hold certain qualitative features to be utile to the users.
Comprehensibility
Comprehensibility means the fiscal statements should be easy understand. Comprehensibility ensures fiscal statements are reported in a simple mode, which even the populace and consumers can understand. Problems in understanding may go on due to the abilities of users or information itself. Accounting is complicated, so it is of import to simplify fiscal statements to avoid unneeded holds and misinterpretation of fiscal informations.
Relevance
Relevance refer to fiscal statements should be material to the concern house. Relevance is the ability of an point to act upon a decision.A A Information is considered relevant which adds value to the determination doing procedure by supplying the needed spots and pieces of yesteryear, present and future times. Through relevant information users can measure whether they are traveling along the right way or doing the right determinations.
Dependability
In accounting, “ dependable ” information is free from material mistake, mistakes that affect the economic determinations of users and prejudice. Information is dependable if it can be depended upon by users to stand for dependably what it either purports to stand for or is moderately expected to stand for and therefore reflects the substance of the minutess and other events that have taken topographic point. It is free from deliberate or systematic prejudice and stuff mistake and is complete, and in its readying under conditions of uncertainness, a grade of cautiousness has been applied in exerting the necessary judgements ‘ . Information may be relevant but this entirely does non do for dependability every bit good. Information must be dependable every bit good as relevant in order to be utile for determination devising.
Comparison
Comparability of information refers to its ability to stand utile overtime and against the fiscal information from other sources.A Users must be able to compare the fiscal statements of an entity through clip to place the tendencies in its fiscal place and public presentation, and besides to compare the fiscal statements of different entities to measure their comparative fiscal place, hard currency flows and public presentation. Therefore, the measuring and show of the fiscal effects like minutess and other events and conditions must be carried out in a consistent manner throughout an entity and over clip for that entity, and in a consistent manner across entities.
( 1,090 words )
Undertaking 2
Information:
Closing stock: – RM 65,000
Purchases of goods: – RM4,000, letter paper: – RM700
Office electricity and H2O + Electricity measure = RM 7,000+RM300
= RM7, 300
Gross saless committee = RM18,000+RM1,500
= RM19, 500
Office wages = RM28, 000-RM2, 000
= RM26, 000
Accrual: – RM1,500, Prepayment: – RM2,000
Debtors = RM70,000-RM5,000
= RM70,000
Provision for bad debt = RM70,000A-10 %
= RM7,000
Entire proviso for bad debt = RM5,000+RM7,000
= RM12,000
Depreciation = ( RM50,000-RM35,000 ) /5 old ages
= RM15,000/5 old ages
= RM3,000
Returns from disposal of vehicle = RM35,000-RM3,000
= RM32,000
Bank = RM42,000-RM3,000
= RM39,000
Depreciation of vehicle = RM300,000A-5 %
= RM15,000
Provision for depreciation of vehicle = RM60,000+RM15,000
= RM75,000
Depreciation of premises = RM350,000A-4 %
= RM14,000
Provision for depreciation of premises = RM40,000+RM14,000
= RM54,000
Income Statement
Continental Limited
Income Statement for twelvemonth stoping 31 Dec 2010
RM
Gross saless
Tax return inwards
LessCost of Goods Sold ( COGS ) :
Opening Stock
50,000
Purchases
200,000
250,000
LessClosing stock list
( 65,000 )
Tax return outwards
( 15,000 )
170,000
Add Carriage inwards
5,000
Gross Net income
Add Dividend received
Proceed from disposal of vehicle
LessExpenses:
Office wages
26,000
Office electricity & A ; H2O
7,300
Gross saless committee
19,500
Vehicle disbursals
12,000
Interest charges
3,000
Stationery
700
Provision for bad debts
7,000
Provision for depreciation:
Vehicles
15,000
Premisess
14,000
Purchases of Goods
4,000
Net Net income
Balance Sheet
Continental Limited
Balance Sheet as at 31 Dec 2010
RM
RM
Fixed Asset
Office Premisess
350,000
-Depreciation of Office Premisess
( 54,000 )
Vehicles
300,000
-Depreciation of Vehicles
( 75,000 )
Current Asset
Debtors
70,000
-Provision for bad debts
( 12,000 )
58,000
Bank Stock
39,000
Prepayment
65,000
2,000
Entire Asset
Current Liabilitiess
Creditors
25,000
Accrual
1,500
Non-current Liabilitiess
Loan
Capital
AddNet Net income
103,500
Undertaking 4
Capital Employed = capital + balance reply in balance sheet
= 500,000+603,500
= 1,103,500
Current Asset = debitors + bank + stock
= RM ( 70,000+39,000+65,000 )
= RM174,000
Current Liabilities = creditors
= RM25,000
Cost of Gross saless = Gross saless – Gross Net income
= 360,000-175,000
= 185,000
Average Stock = ( opening stock + shuting stock ) /2
= ( 50,000+65,000 ) /2
= 57,500
Industry Averages
Continental Limited
1.
Percentage of Gross Net income on Gross saless
30 %
Gross net income
A-100
Gross saless
=
175,000
A-100
360,000
=
48.61 %
2.
Percentage of Net Net income on Gross saless
18 %
Net net income
A-100
Gross saless
=
103,500
A-100
360,000
=
28.75 %
3.
Tax return on Capital Employed ( ROCE )
9 %
Net net income
A-100
Capital Employed
=
103,500
A-100
1,103,500
=
9.38 %
4.
Current Ratio
02:01
Current Asset
Current Liabilitiess
=
174,000
25,000
=
6.96:1
5.
Stock Turnover Period
90 yearss
Cost of Gross saless
A-30 yearss
Average Stock
=
185,000
A-30 yearss
57,500
=
96.52 yearss
6.
Debtors Collection Period
45 yearss
Debtors
A-365 yearss
Gross saless
=
70,000
A-365 yearss
360,000
=
70.97 yearss
7.
Creditors Payment Time period
60 yearss
Creditors
A-365 yearss
Gross saless
=
175,000
A-365 yearss
360,000
=
25.35 yearss
From the tabular array above show that the difference of accounting ratio between Industry Averages and Continental Limited. The per centum of gross net income on gross revenues and net net income on gross revenues for Industry Averages is 30 % and 18 % but, for Continental Limited is 48.61 % and 28.75 % . This shown that the Continental Limited is gained more net income so Industry Averages. This is because the employees of Continental Limited is work more efficiency and effectual in happening new clients. They use the lower limit disbursals to maximise the net income. Return on capital employed for Industry Averages is 9 % , whereas for Continental Limited is 9.38 % . This means that the efficiency and profitableness of Continental Limited capital investings is good. This might because of leader of the company had made the right determination.
Current ratioA is aA fiscal ratioA that measures whether a house has adequate resources to pay its debts. The current ratio of Continental Limited is higher than Industry Averages ; 6.96:1 and 2:1. Continental Limited is holding higher liquidness of money than Industry Averages to pay for their debts over the following 12 month. Stock turnover period is to cipher the yearss it takes to sell the stock list on manus. The stock turnover period for Industry Averages is 90 yearss and Continental Limited is 96.52 yearss, which means the stock of Continental Limited support in manus earlier sell it is longer than Industry Averages.
Debtor aggregation periodA indicates the mean clip taken to roll up tradeA debts. In norm, Continental Limited has used longer period which is 70.97 yearss to roll up their debts if comparison to Industry Averages that used 45 yearss to roll up the debts. This happen might because of the hold of debitors to pay. Creditors Payment Period is to mensurate how rapidly a concern pays its debts to the providers and other short term creditors.A Industry Averages used 60 yearss to pay their debts to creditor, whereas, Continental Limited used 25.35 yearss to pay their debts to the creditors. This show that Continental Limited has more capacity and capital to cover their debts compare to Industry Averages. In overall, the direction of Continental Limited is good than Industry Averages, although they does n’t good in roll uping debts and stock list direction.
Decision
As a decision, history is a really of import facet in any concern operation. It ‘s involves the measuring and proviso of fiscal information to directors, investors, loaners, and other stakeholders to assist them do determinations about how they should apportion the resources of a company, organisation, or public bureau. To increase efficiency, direction of accounting houses should ever be in front of everyone else when it comes to introducing and updating their cognition and engineering. In add-on, there is a demand for these companies to put on their employees or work force, as these people hold the cardinal towards constructing enduring relationships with clients. A proper accounting system is indispensable to any concern whether large or little in order to pull off its day-to-day maps and maintain the concerns running successfully.
