Accounting Fundamentals: Income Statement, Financial Position, Ratios, and User of Company Accounts

ACCOUNTING
FUNDAMENTALS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Question 1........................................................................................................................................3
Income Statement of the Wales plc for the year ended 31st December 2019..............................3
Statement of the financial position of Wales plc for the year ended 31st December 2019..........4
QUESTION 2..................................................................................................................................5
a) Calculation of Ratios for Jerry plc for year 2019 and 2018....................................................5
b) Situation being revealed by the ratios.....................................................................................6
Question 3........................................................................................................................................8
A) Three different group of user of company accounts and reason behind user interested in
information provided by financial statements.............................................................................8
B) Advantages and disadvantages of financial reporting regime for perspective from both user
and prepare of financial statements...........................................................................................10
C) Limitation of Financial statement.........................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Business management is important process which involves arrangement of sufficient
resources such financial and human to complete particular task and delivered qualitative services
to customers. Accounting fundamental majorly includes five main parts like recording,
classifying, interpretation, analysis and formulation of financial reports to know about actual
amount of amount and operating expense within specific period of time. Therefore it is complex
process that includes crucial information of business that are need by all internal and external
stakeholders for their respective decision making. The report has prepared income and financial
statements of Wales Plc’s on 31 December 2019. Various ratio of Jerry Plc has been calculated
in the report on basis of income and financial statements of company to get important
information about company. At last it has explained about use, limitation of financial statements
or income statements of company.
Question 1
Income Statement of the Wales plc for the year ended 31st December 2019
Income statement, 31st December 2019
Particulars £’000 £’000
Sales 30,300
Cost of sales 16,220
Add: depreciation on plant 2,560 18,780
Gross profit 11,520
Revaluation income (land) 5000
Administration expenses 2920
Add: Bad debts written off 240
Add: Discount on account receivables 160
Add: Depreciation on building 320
Add: Outstanding insurance fees 500 4140
Distribution expenses 2160
Debenture interest paid 240
Dividends paid 560
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Tax paid 1600
Net profit 7,820
With the above statement it can be seen that that the net profit of the year was 7820 and the
income of the company was 30300 and the direct expenses were 18780. After deducting the
direct expenses from the income the gross profit of 11520. Further after deducting all the indirect
expenses from the gross profit the net profit was 7820.
Statement of the financial position of Wales plc for the year ended 31st December 2019
Statement of position as at 31st December 2019
Liabilities £’000 Assets £’000
Share capital 29000 Bank 320
Retained profit 8380 Land at cost 20000
Share premium 5000 Buildings at cost 16000
Net profit 7,820
Less: Accumulated
depreciation (4260 +
320) 4580 11420
12% debentures 2024 4000 Plant at cost 25600
Outstanding insurance fees 500
Less: Accumulated
depreciation (4960 +
2560) 7520 18080
Trade payables 4480
Trade receivables
(8240-240- 160) 7840
Income tax liability 1600 Inventory 3120
Total liabilities 60780 Total assets 60780
Workings
Working note
Building cost 16000
Depreciation (2% * 16000) 320
4