Accounting Online Exam: Income Statement, Financial Position, Financial Ratios, and Analysis

Accounting Online
Exam

Table of Contents
QUESTION 1...................................................................................................................................3
a) Prepare income statement and the statement of financial position.........................................3
b) Discuss in reference to faithful representation and relevance if the financial statements are
useful for decision making..........................................................................................................5
QUESTION 2...................................................................................................................................6
(a) Calculate the financial ratio for the year 2019 and 2020 of the company.............................6
(b) Discuss the profitability, liquidity and financial risk of the company using the fiscal ratios
calculated, also make assumption that can be made through the financial statement.................9
REFERENCES..............................................................................................................................12

QUESTION 1
a) Prepare income statement and the statement of financial position
Income Statement for the year ending 31st December, 2020
Particulars £' 000 £' 000
Revenue 5000
Less: Opening inventory 655 3055
Less : Purchases 2400
Add: closing Inventory 500
Gross Profit 2445
Expenses 1213
Depreciation on Building 100
Depreciation on Plant and Machinery 150
Bad debts 10 13
Less: old Provision for doubtful debts 30
Add: New Provision for bad debts 33
Debenture interest 125 250
Add: outstanding interest on debenture 125
Selling, general and administrative Expenses 380
Loss on sale of unrecorded asset 100
Prepayment of Building Insurance 200
Audit Fee 20
Net Profit before tax 1232
Less: Corporation tax 50
Net profit after tax 1182

Balance Sheet as on 31st December 2020
Particulars £' 000 £' 000
Equity and Liabilities
Equity 6252
Ordinary shares of £ 1 each 1000
Share premium 1000
Retained Earnings as on 1 January 2020 1570
Add: Net Profit 1182
Revaluation of Asset 1500
Non- Current liabilities 2500
10% Debenture Loan: repayable in 2030 2500
Current Liabilities 515
Trade Payables 220
Revaluation Account 100
Corporation tax 50
Audit Fee 20
Debenture interest Outstanding 125
Outstanding Expenses 400
Total Equity and liabilities 9667
Assets
Non- Current Assets 8050
Freehold Land 3500 5000