Introduction to Accounting and Finance - Desklib

This report covers topics related to accounting and finance, including income statements, balance sheets, break-even analysis, investment appraisal techniques, and more. It includes solutions to various questions and provides working notes for calculations. The subject covered is UGB 163 Introduction to Accounting and Finance. The report is relevant for students pursuing courses in accounting and finance in any college or university.

UGB 163 Introduction
to Accounting and
Finance

INTRODUCTION
Accounting is defined as a method in which day to day record of certain task is being handled
and on other side when ansh defined as a why the term that emphasize on managing the assets
and liabilities of the particular business. Both the terms are basically important for the business
as they are are helps in installation the financial position of an organisation. Accuracy in these
aspects helps in knowing the particular knowledge and the growth of the business which can we
take its effective decision. This report is is inducted into parts the first question is deal with the
preparation of income statement and balance sheet. second question will give the solution for
analysing the break even point and the margin of safety additional e analyse whether the
different types of budgets are related for all type of business or not. Third question will evaluate
the project for deciding that whether should be accepted or not and also analysed the advantage
and disadvantage of various techniques of investment appraisal. It also assess the pros and cons
of budget for making the business plan.
TASK
Question 1: Produce an income statement and balance sheet of Tom and Jerry Ltd.
Profit and loss account of Tom and Jerry Ltd. for the year ending 30st December, 2020
Particulars £ £
Sales revenue 633000
- Cash sales 504000
- Credit sales 129000
Less: Cost of goods sold 644175
Purchases (486000 + 39000) 525000
Wages 117000 119175
Add: Outstanding 2175
Add: Closing Stock 228000
Gross Profit 216825
Less: Operating Expenses 148200

Depreciation on Van 9600
Electricity bill 5700 7725
Add: outstanding 2025
Rent 112500 90000
Less : Prepaid rent 22500
Rates 6900 5775
Less: Prepaid rates 1125
Van running expenses 33600
Provision for doubtful debts 1500
Net Profit 68625
Statement of financial position of Tom and Jerry Ltd. as on 30st December, 2020
Assets £ £
Delivery van 60000 50400
Less: Depreciation 9600
Current Assets 597525
Prepaid rates 1125
Prepaid rent 22500
bank 281400
Inventory 228000
Trade receivables 66000 64500
Less : Provision for doubtful debts 1500
Total 647925
Liabilities and capital £ £
Equity 180000 248625

Less: Profit 68625
Long term Borrowing 302100
Current Liabilities 97200
Wages outstanding 2175
Outstanding electricity bill 2025
Trade payables 93000
Total 647925
Working Notes:
 Prepaid rent = 112500 – 90000 = £ 22500
 Prepaid rates for the time period of 1st January, 2021 to 31st March, 2021
Prepaid rates = 4500 * 3 / 12 = £1125
 Depreciation on van = (Price – scrap value) / Number of years
= (60000 – 12000) / 5
= 48000 / 5
= £ 9600
 Calculation of cash at bank
Balance in beginning = £ 180000
less: paid for inventory = £ 39000
Add: cash sales = £ 129000
Add: cash received from trade receivables = £ 438000
Less : paid to trade payables = £ 393000
Less: Van running expenses = £ 33600
Balance = £ 281400
 Calculation of trade receivables
Credit sales = £ 504000
Less: received £ 438000
Balance = £ 66000
 Calculation of trade payables

Inventory bought in credit =£ 486000
Less : paid = £ 393000
Balance = £ 93000
 Calculation of inventories
Purchased on credit = £ 486000
Add: Bought on cash = 39000
Less: Sold on credit = £ 243000
Less: Sold on cash = £ 54000
Balance = £ 228000
Question 2: Calculate the following:
(a) Calculate the contribution made by each kettle for covering fixed costs
Number of units = 53000 units
Sales price per unit = £ 13
Total sales = 53000 * 13 = £ 689000
Variable costs
Material cost = 53000 * 5.25 = £ 278250
Labour cost = 53000 * 2.95 = £156350
Variable cost = 53000 * 1.85 = £ 98050
Total variable cost = £ 278250 + 156350 + 98050 = 532650
Contribution = Sales – Total variable cost
= 689000 – 532650
= £ 156350
Contribution per unit = Contribution / Number of units sold
= 156350 / 53000
= £ 2.95
Contribution made by per unit of electric kettle towards covering fixed cost = £ 2.95
(b) Determine break even point and margin of safety in terms of units and revenue both.
Fixed cost = 59000 + 47600 = £ 106600
Variable cost per unit = 5.25 + 2.95 + 1.85 = 10.05
Break even point in units = Fixed cost / (Sales price per unit – Variable cost per unit)
= 106600 / (13 – 10.05)

= 106600 / 2.95
= 36136 units
Break even point in revenue = Fixed cost / Contribution Margin
= 106600 / 156350
= £ 0.68
Margin of safety in units = Actual units – Break even units
= 53000 – 36136
= 16864 units
Margin of safety in Revenue = Margin of safety in units * Price per unit
= 16864 * 13
= £ 219232
(c) Profit of Stockstone Ltd. if it produces and sells 48000 units if electric kettle at £ 13
per unit.
Calculation of profit
Particulars £ £
Sales 624000
Less : Variable cost 482400
Material 252000
Labour 141600
overheads 88800
Contribution 141600
Less: Fixed cost 106600
Production 59000
Selling 47600
Net Profit 35000
The profit at sale of 48000 units would be £ 35000.

(d) Analyse whether the new strategy of firm is good or not for Stockstone Ltd.
New sale units = 53000 + 53000* 17 % = 62010 units
Selling price per unit = 13+ 13* 9% = £ 14.17
Particulars £ £
Sales 878681.7
Less : Variable cost 623200.5
Material 325552.5
Labour 182929.5
overheads 114718.5
Contribution 255481.2
Less: Fixed cost 151600
Production 59000
Selling 47600
Marketing 45000
Net Profit 103881.2
From the given income statement, this has been analysed that the firm would make £
103881.2 by selling 62010 units even after paying £ 45000 as marketing expenses. This means
that the company can opt for continuing with the new strategy.
(e) Identify and explain the underpinning assumptions attached to the break-even model
including analysing whether the model can successfully be utilised by a range of differing
businesses.
Break-even point is based on the certain assumptions that are as follows:
 Consideration of only fixed & variable costs: Break even point is the variant and stable
costing which also helps in analysing the specific given values that are not semi variable
account but it's also show the certain possible aspect in every business as they can not

filtering the values in certain categories of the working within the organisation(Bryson,
2018).
 Fixed costs will remain constant at all volume of outcome: The cost of the certain item
are fixed and cannot be changed with the change in output level. It changing
consideration is completely depend upon the level of productivity it is not always seen
constant because decrease or increase in the product level can be vary in the costing of
given goods. Fixed cost includes the plant machinery equipment as variable cost includes
the raw material and their cost which can be vary as per the change in the factors of
demand and supply in the large market which can directly imply on the change in
variable cost.
 Variable costs will move in direct quotient to volume of output: The values of the
certain goods can be changed in terms of variability in which is related to the direct
expenses and adminstration expenditure and the sale. The junction of certain things are
always correct in every business organisation as there are many changes along with the
change in variable costing of certain goods and services which is lead into to impact the
overall cost of the product and sale of the good and large market.
 Selling price will remains constant: It is analyse the selling price at the consistency
level because it is the myth that only business can change their selling cost with change in
the stability for the growth in market share of the competitive advantage by which the
prices of the goods can be fallen down irrespective of change in other factor which can
implied in the demand and supply of given goods. BEP considers selling price at
consistency level (Durocher and Fortin, 2021).
 Product mix will remain unchageable: BEP takes assumption related to the production
mix in area that cannot be changed at any cost there are some aspect that are completely
influence by that supply and demand of their goods and services in the large market.
When there is a fluctuation in the demand with various factors that includes demographic
competition technology in the external market area this implied the sudden change in the
product mix.
 Productivity per worker will remain unchanged: It is known that working criteria of
every employee India working and the protectiveness of them can be determine. This

cannot happen in every organisation which consists of certain factor that might only
believe that it can determine the productivity of every individual.
Question 3: Provide solution for the investment appraisal technique
(a) Initial Investment = £ 40000000
Annual cash inflow = £ 17000000
Annual cash outflow = £ 6400000
Payback period = Initial Investment / Net annual cash flow
= 40000000 / 10600000 = 3.774 years
Accounting Rate of Return = (Annual cashflow – Annual Depreciation)/ Initial Investment * 100
= (10600000 – 7000000) / 40000000 * 100 = 9%
Net present Value = present value of annual cash inflow – present value of annual cash outflow
= (1.43 * 17000000) – (1.43 * 6400000)
= 24310000 – 9152000 = £ 15158000
The organisation can except certain offer as it is related to the present value of business which
has more than their investment in the equipments and machine so ARR of the given assignment
is very high which is profitable to the purchase of this project.
(b) Produce a report that explains and analyses the key merits and limitations of the
differing
investment appraisal techniques.
Pay back period- This is the aspects to assess cetain investment by the time's it is the
basic technique which leads to assess the investment and their time period it would take to repaid
within a given set format. It was so analysis at how much time it will take to get the return on
investment within a set period of time.
 Merits- This method is less time consuming and leads to have quick decision making.
 At the time of analysing payback period it considered the value of money.
 It is the easy process which can easily calculate and understand by the companies.

Disadvantage-
 It is basically not considered have value of money.
 It is not equal and can be biased in the long-term project.
 In this status difficult to determine whether the investment will increase the overall value
of form or not.
 As per the payback period time it not emphasize on the cash flow.
Accounting rate of return- It is the certain aspect which is used to measure the overall expected
profit from the expenses and its investment arises from the certain percentage of capital invested.
(Lonie, Nixon and Collison, 2018).
Merits- it is based on the accounting profit. Also analyse savings over entire period of their
investment. It also helps in analysing the benefits in the percentage that can be easily compared
with the other assignment.
Limitations
 There is no need of other calculations.
 It does not analyse the risk associated with the each project.
 It is usually overcoming ignore the certain time of money.
 It uses accounting profit in order to participate in the certain project.
Net present value- It access the company to make their decisions and allowed them to consider
the given time value of money e and its calculation required all the cash flow related to the
investment will be considered in net. It is related to the certain aspect which helps in knowing the
completion time of uncertain project within a given time.
Merits
 It leads to uninstall the the overall wealth of the shareholders within the given money.
 As the overall value of the company can be increased by their invested amount(Murata
and Pan, 2018).
 It analyse the cash flow and the certain value of money.
Limitations
 It is very critical to calculate and analyse

 The overall results of net present value is based on the discount rate used in expected
interest rate can be accurate.
Internal rate of return- It is related to the interest rate which is having the same value as
expected in the receipt of certain cost of investment within the certain outlet.
Merits
 It also analyse the time value of money within the time of calculating IRR.
 That is the easy and simplest method to analyse the certain aspect by the business
management.
 By this and individual can easily communicate the certain value of project to someone.
 Debt is considered the risk which is associated in the cash flow and also analyse the value
of money.
Limitations
 There are various positive and negative mixture in the cash flow.
 For taking decisions at required the cost of capital.
 It leads to sound decisions in comparison to exclusive investment within the project.
Profit ability index- The respective index which refers to the amount which is being and dollar
by their investment. It is generally analysed divide in the present value of expected cash flow in
future by the initial investment in the given assignment.
Merits
 It is helpful to communicate and capital rationing in an project.
 It can easily analyse the expected return on investment of the given project which is
closely related to the net present value taking certain decision.
Limitations
 It candidates to have a wrong decision in comparison to the exclusive investment buy
mutual understanding.
 When the different project using certain life then it will be difficult to analyse the overall
profitability index of the project.

(c) Produce a report that identifies and explains the key benefits and limitations of using
budgets as a tool for strategic planning.
A budget is defined as a financial document that can be used by the certain management
in order to meet their income and expenses. It is the general plan format in the future expenses
and analysed where a business can minimise their spending.(Soka, 2020). It shows the financial
resources different use and at the end of the financial year business management can compare
their desire result with the actual spending and analyse the business position in the target market
and gradually work for their further improvement.
It is the significant tool for the business management which helps in grabbing the various source
of income and play a significant role for making the best use of their resources in order to
achieve their set objectives and goals of the company.
The key benefits that can be get by using Budgets are:
 Turns strategic plan into action- It is basically analyse the task activities and resources
that are being necessary to to make the strategic plan for upcoming year.
 Resource allocation- It also enhance the overall use and fulfill the request that are being
justified and needed for conducting the various business activities for getting better
result.
 Plan for spending- This is worked as a certain plan which creates effective emphasize on
controlling expenditure and income of a particular business.
 Cost consciousness- It can create attitude of conciseness related to the cost in the
management and keep their resources with best use that how much day can be used to get
a better result.
 Problem solving- It give the control and organisation approaches in order to solve the
certain problem that are being accumulated within the organisation.
The limitations of using budgets are:
 Judgement based- All the budget are being finalized and made on the decision taken by
the management by effective planning budgeting and forecasting which is not the exact
theory related to the science and this cannot be fixed as the future is not predictable.
 Cooperation- the overall succession plan of the budget is mainly depends upon the
cooperation and coordination by all the team members within the organisation. When the

budgeting has failed due to all the decision has been taken by the top management only
which server is execution.(Tannen, 2020).
 Tool- It is the certain aspect which not take the consideration in the management as it
helps to make plan and execute in an effective manner within the organisation.
 Budget allowance- At the last of the budgeting period when the actual expenses is not
meeting with the invested amount so the employee must be temporary 2 to give more
time so that they can have a better result within the organisation.
Reduces initiative- A rigid budget may reduces initiative and innovation, making it impossible
to obtain money for new ideas. It can also reduce creativity among lower levels of management.
CONCLUSION
From the above report it is concluded that there are certain financial tools which helps in
enhancing the overall business performance. Financial reports also help in building the
knowledge about the overall performance along with its profitability of the company. It is helpful
for assessing the internal and external environment you can use the report for taking their
effective planning and investment related aspect. There are different types of techniques which
helps in analysing the specific project should be acceptable or not so they make the effective use
of time value of money for analysing the correct information and on the basis of such tools
company can prepare the budget. But budget are not helpful for all the the aspect as there are
some function which needs to have differentiation and its application so business must evaluate
their overall performance whether they will be able to cover their invested amount or not. As a
whole these all techniques are helpful for analysing the effectiveness of such tools within the
organisation.

REFERENCES
Books and Journals
Abernathy, J.L. And et.al., 2019. Financial statement footnote readability and corporate audit
outcomes. Auditing: A Journal of Practice & Theory. 38(2). pp.1-26.
Durocher, S. and Fortin, A., 2021. Financial statement users’ institutional logic. Journal of
Accounting and Public Policy. 40(2). p.106819.
Bryson, J.M., 2018. Strategic planning for public and nonprofit organizations: A guide to
strengthening and sustaining organizational achievement. John Wiley & Sons
Harris, E., Hoang, T. and Ngan, G., 2017. Accounting for capital investment appraisal: time for a
radical change?. In The Routledge Companion to Accounting Information Systems (pp.
173-189). Routledge.
Tannen, M.B., 2020. Introducing Learning by Doing into Ite Break-Even Analysis
Model. Journal of Accounting and Finance. 20(3). pp.11-19.
Lonie, A., Nixon, B. and Collison, D., 2018. Internal and external financial constraints on
investment in innovative technology. In New Technologies and the Firm (pp. 265-291).
Routledge.
Krishna, K.M., Pandey, N.K. and Thimmalapura, S., 2017, December. Break-even analysis and
economic viability of powertrain electrification—An analytical approach. In 2017 IEEE
Transportation Electrification Conference (ITEC-India) (pp. 1-6). IEEE.
Murata, C. and Pan, D., 2018. Budgets on my mind: Changing Budget Allocations to Meet
Teaching and Research Needs.
Soka, I.M., 2020. Impact of Appraisal Techniques on Investment Returns A Survey of
Institutional Investors (Doctoral dissertation, The Open University of Tanzania).
Seifzadeh, M. And et.al., 2020. The relationship between management characteristics and
financial statement readability. EuroMed Journal of Business.
Vagner, I., 2020. Importance of break even point analysis. In Актуальные вопросы
бухгалтерского учета, анализа и аудита в инновационной экономике (pp. 87-91).