Accounting for Business: Income Statement, Financial Position, Break-Even Analysis, and More

This study material covers accounting for business, including income statement, financial position, break-even analysis, and more. It includes solved assignments, essays, and dissertations. The content also discusses the financial viability of a project and non-financial factors to consider. The output is in JSON format.

Accounting for Business

TABLE OF CONTENTS
SECTION A...............................................................................................................................3
Question 1..............................................................................................................................3
SECTION B...............................................................................................................................4
Question 3..............................................................................................................................4
Question 4..............................................................................................................................6
REFERENCES.........................................................................................................................10

SECTION A
Question 1
a) Income statement
Sales 20000
Less:
Cost of goods sold
Opening stock 2000
Purchase 15200
Closing stock (2500) (14700)
Gross profit 5300
Less:
Selling expense 700
Administrative cost 300 (400 – 100)
Distribution expense 200
Audit fees 70
Salaries and wages 930 (900 + 30)
Director remuneration 300
Interest paid 80 (60 + 20)
Interim dividend paid 50
Machinery depreciation 500 (2500 * 20%)
Depreciation on building 120 (2400 * 5%) (3250)
Less: 2050
Tax liability (200)
Net profit 1850
b) Statement of financial position
Assets Amount
Current asset
Closing stock 2500
Debtors 1370 (1400 – 30)
Cash 50
Bank 130
Advanced administrative
expense
100 4150
Long term asset
Freehold premises 6000
Building 2400
Machinery 3000 11400
15550
Liability Amount
Current liability
Creditors 1000
Accrue salary 30
Debenture interest accrue 20
Provision for tax liability 200 1250

Long term liability
Accumulated depreciation
on building
520
Accumulated depreciation
on machinery
1000
5% Debenture 1600 3120
£1 Ordinary shares 8000
Retained profit 1390
Current year profit 1850 11240
15610
SECTION B
Question 3
a) Calculating Payback period
Year Cash inflows Cumulative cash inflows
1 600000 600000
2 700000 1300000
3 800000 2100000
4 500000 2600000
5 200000 2800000
6 300000 3100000
Initial investment 2000000
Payback period 0.9
Payback period 2 year and 9 months
b) Calculating Net present value
Computation of NPV
Year Cash inflows PV factor @ 10 %
Discounted
cash inflows
1 600000 0.909 545454.5455
2 700000 0.826 578512.3967
3 800000 0.751 601051.8407
4 500000 0.683 341506.7277
5 200000 0.621 124184.2646
6 300000 0.564 169342.179
Total discounted cash inflow 2360052
Initial investment 2000000

NPV (Total discounted cash
inflows - initial investment) 360052
c) Advising on financial viability of project
 Nature of goods and services affect the financial viability of project because in case of
complex product which makes it difficult to acquire raw materials and other
resources, production process becomes difficult. Such things affect adversely the
viability option.
 Political factors such as instability of government and their policies may badly affect
company because it cannot sustain in an environment where there is not stable
government and its policies (Pieroni and et,al., 2021).
 Labor availability also has an impact over viability of project because if cheap labor is
not available in abundance than production process cannot be operated to meet the
demands of consumers, thereby losing customers will be bad for enterprise.
d) Five non- financial factors to be considered by J Ltd
 If the new product is introduced in the market, it should be seen by company that it
will enhance the business reputation and make it stand ahead of its competitors in
market and also satisfy consumers’ needs and wants to the fullest.
 J ltd. bringing in new product should also anticipate and deal with future threats like
intellectual property right and copyrights in order to have a firm position in industry.
 It should be able to attract and hire new employees with good skills and expertise to
enhance the production level and achieve higher profitability level.
 Sometimes, existing employees resist change, such employees should be motivated
and encouraged to adapt changes that will benefit them in future.
 Production capacity should be analyzed and improved according to the new product
requirements.
e) Commenting on internal rate of return and its benefits in capital budgeting decision
The IRR of J ltd. is 17% which is good enough and company should invest in new product
that will bring better returns in future. The cost of capital is 10% which is less than the
anticipated returns, that is, 17% which means company should implement production of new
product.
Benefits:
 It takes into consideration time value of money so that each cash flow is equally
weighted by using time value (Zhang and Xu, 2020).

 Another benefit of using IRR is that it is very simple to calculate and easy to interpret
which can be used for budgeting purposes.
 IRR does not consider the size of project and simply compares cash flows with capital
outlay and gives answer whether to invest in a particular project or not.
Question 4
a) Calculating Profit
Particulars Amount (£)
1. Total sales 100000 units @ 160
= 16000000
2. Total cost
a) fixed cost 3500000
b) variables cost 145000 * 100
= 14500000
Total profit Total sales – total cost
=16000000 – 18000000
=2000000 (loss)
b) Calculating break-even point for original budget
Particulars Formula Figures
Selling price per unit 160
Variable cost per unit 100
Contribution per unit Selling price per unit - variable
cost per unit
60
Fixed cost 3500000
BEP (in units) Fixed cost / contribution per
unit
58333
BEP (in value or monetary terms) BEP (in units) * selling price
per unit
9333333.3
c) Calculating break-even for Proposal 1
Selling price = 160 + (160*10%) = £176

Variable cost = £104
Sales = 130000 units
Particulars Amount (£)
1. Total sales 130000 units @ 176
= 22880000
2. Total cost
a) fixed cost 3500000
b) variables cost 145000 * 103
= 14935000
Total profit Total sales – total cost
=22880000 – 18435000
=4445000
Break-even analysis
Particulars Formula Figures
Selling price per unit 176
Variable cost per unit 103
Contribution per unit
Selling price per unit - variable
cost per unit 73
Fixed cost 3500000
BEP (in units)
Fixed cost / contribution per
unit 47945
BEP (in value or monetary terms)
BEP (in units) * selling price
per unit 8438356.2
d) Calculating profit & break-even for Proposal 2
Selling price = £155
Variable cost = £100
Sales = 140000 units
Profit calculation
Particulars Amount (£)
1. Total sales 140000 units @ 155
= 21700000
2. Total cost
a) fixed cost 3500000

b) variables cost 145000 * 100
= 14500000
Total profit Total sales – total cost
=21700000 – 18000000
=3700000
Break even analysis
Particulars Formula Figures
Selling price per unit 155
Variable cost per unit 100
Contribution per unit Selling price per unit - variable
cost per unit
55
Fixed cost 3500000
BEP (in units) Fixed cost / contribution per
unit
63636
BEP (in value or monetary terms) BEP (in units) * selling price
per unit
9863636.4
e) Calculating break-even for Proposal 3
Selling price = 180
Fixed cost = 3500000 + 250000 = 3750000
Total sales (units) = 115000
Profit calculation:
Particulars Amount (£)
1. Total sales 115000 units @ 180
= 20700000
2. Total cost
a) fixed cost 3750000
b) variables cost 145000 * 100
= 14500000
Total profit Total sales – total cost
=20700000– 18250000
= 2450000

Break even analysis
Particulars Formula Figures
Selling price per unit 180
Variable cost per unit 100
Contribution per unit Selling price per unit - variable
cost per unit
80
Fixed cost 3750000
BEP (in units) Fixed cost / contribution per
unit
46875
BEP (in value or monetary terms) BEP (in units) * selling price
per unit
8437500
f) Recommending which proposal to implement
It would be recommended to go for proposal 2 because original budget is resulting loss and
rest of the two proposals are not giving profit as much given by proposal 2. It is a very good
technique of reducing the prices and keeping costs at constant which helps in improving the
profitability. The break-even point is realized at 63636 units which will be covering major
cost of 9863636.4. Therefore, I would suggest proposal 2 to K Ltd,
g) Discussing limitation of break-even analysis
 It is a very difficult and tough job to differentiate between fixed cost and variable cost
clearly. In addition to this, semi-variable cost is not considered which is important in
production process and has significant impact on productivity levels.
 Fixed costs are considered constant at all level of production which is not true because
after certain level of production it tends to change (Kravchyk, Okur and Kovalenko,
2021).
 Selling price are also observed to be constant which is not possible in today’s
competitive environment. It keeps on changing with the changing demands of
consumers.

REFERENCES
Books and Journals
Pieroni, M. P. and et,al., 2021. An expert system for circular economy business modelling:
Advising manufacturing companies in decoupling value creation from resource
consumption. Sustainable Production and Consumption. 27. pp.534-550.
Kravchyk, K.V., Okur, F. and Kovalenko, M. V., 2021. Break-Even Analysis of All-Solid-
State Batteries with Li-Garnet Solid Electrolytes. ACS Energy Letters. 6. pp.2202-
2207.
Zhang, C. and Xu, Y., 2020. Economic analysis of large-scale farm biogas power generation
system considering environmental benefits based on LCA: A case study in
China. Journal of Cleaner Production. 258. p.120985.