Accounting: Income Statement, Balance Sheet, Break-even Analysis

Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
PART-A...........................................................................................................................................1
PART-B...........................................................................................................................................6
a. calculation of contribution in order to cover fixed cost..........................................................6
b. Computing break -even and MOS in respect of units as well as value in case each of the
wall clock sold at £40..................................................................................................................7
c. Valuing profit in case the company sells 54000 units at £40.................................................8
d. Calculation of the profit through revised sales and fixed cost................................................9
e. Determining and explaining break-even model with its assumptions...................................10
PART-C.........................................................................................................................................11
a. Assessing viability of project using investment appraisal tools and techniques..................11
b. Explaining and assessing benefits and the limitation of capital budgeting tools..................13
Identifying and explaining key benefits as well as drawbacks associated with budgeting
aspects.......................................................................................................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18

INTRODUCTION
Accounting refers to recording of the business transactions with storing, retrieving,
summarizing, sorting and communicating results in several reports for the users so that they
could assess the results and can make suitable decisions accordingly. The present study focuses
on preparation of the income statement and balance sheet of Terroy Plc which reflects its
financial performance and position in an overall industry. Furthermore, the study includes
computation of contribution per unit, break even assessment, profit evaluation and margin of
safety for Koklet Ltd in order to analyse that its operations are generating sufficient profits after
the payment fixed expenses and the variable cost. Moreover, the report highlights computation of
returns that the project will generate through application of various investment appraisal tools. It
also provides for a deeper insights towards different capital budgeting techniques with their
merits and demerits to the company.
PART-A
Income Statement
For the year ended 31 December 2018
Particulars Amount(
£)
Amount(
£)
Revenues:-
Sales(604800+154800) 759600
Other income 0
Total Revenues 759600
Expenses:-
COGS 291600
64800 356400
Depreciation 11000
1

Wages 140400
Add Outstanding wages at period end 2610 143010
Electricity Expenses 9270
Van running expenses 40320
Bad debts 1800
Rent paid 135000
Less:- prepaid rent at period end 27000 108000
Total Expenses:- 669800
Net profit before tax 89800
Less:- Tax paid 6930
Net profit after tax 82870
Balance sheet
Particulars Total Amount (£)
Liabilities
Shareholder's Equity 216000
Equity share capital 82870
Reserves and surplus
Current Liabilities
Outstanding Wages 2610
Outstanding Electricity Expenses 2430
Trade Payables 111600
Bank Overdraft 132840
Total Liabilities 548350
Fixed Assets
Delivery Van 61000
2

Current Assets
Prepaid Rent 2700
Closing Inventory 27360
Trade Receivables 77400
Prepaid Tax 1350
Cash 10800
Total Assets 548350
Working Notes
1 Total Sales
credit sales 604800
cash sales 154800
759600
2 Depreciation
Purchase Price of Van 72000
scarp value 6000
life in years 6
Depreciation 11000
3 Tax Computation
Tax up-to 31 march 2018 2880
Add:- Tax from 1 April 2018 to 31 march 2019 5400
3

Less:- prepaid tax of 3 months
(from January 2019 to 31 march 2019) 1350
6930
4 Electricity Expenses:-
Expenses paid 6840
Add:- Outstanding expenses at the end of the year 2430
9270
Working Notes
5 Reserves and surplus
Net profit after tax 82870
6 Trade Payables
Credit Purchases 583200
Less:- Payment to Trade Payables 471600
111600
7 Trade Receivables
Credit Sales 604800
Receipts from Trade Receivables 525600
Closing Trade Receivables 79200
Bad Debts 1800
Net Trade Receivables 77400
4