Accounting Principles: Final Accounts, Ratio Analysis, Purpose and Scope, and Decision Making

ACCOUNTING
PRINCIPLES

Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Question No 1..................................................................................................................................3
Final accounts of Ravan Ltd for the year ended 31June 2020 (Figures in Pound)......................3
Question No 2..................................................................................................................................5
Ratio Analysis of Digs Enterprise:..............................................................................................5
Question No 3..................................................................................................................................7
Purpose and scope of accounting in the complex business environment:...................................7
Explain how the accounting function assists in making the informed business decisions:.........8
How accounting function helps in meeting the societal needs and expectations:.......................8
Main Branches Of accounting along with the job skills and competencies required..................9
Question No 4................................................................................................................................12
Evaluation of the role of Budgets play in the effective planning and control of resources in an
organisation along with the benefits and limitation:..................................................................12
An outline of the range of budgetary control solutions with justification to support
organization decision making and ensure efficient and effective development of resources:...13
CONCLUTION.............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Accounting is the process of documenting, analysing, and summarising financial
transactions in order to present financial outcomes to a company. It is impossible for a business
to remember all of the transactions that occur on a day-to-day basis; it is critical for a business to
focus on maintaining reports, and it has thus become extremely crucial to each and every
organisation. The financial statements are divided into three categories. The paper investigates
the purpose and role of accounting standards in regard to ethical and legislative compliance. In
addition, the report includes the creation of financial accounts as well as a trial balance. It also
includes the computation of ratio analysis. It also includes the computation of ratio analysis as
well as the interpretation of the results. It also includes the establishment of a cash budget as well
as theoretical data on the budget's constraints and benefits, as well as budgetary planning and
management inside a company organisation (Alamad, 2019).
TASK
Question No 1
Final accounts of Ravan Ltd for the year ended 31June 2020
Income Statement of Ravan Ltd:
Particulars Amount (£) Amount (£)
Sales
Less: cost of goods
sold:
Opening stock
(+) purchases
(-) closing stock
25000
120000
30000
450000
(115000)
Gross profit 335000
Less: Operating
expenses
Office Expenses
(-) Prepaid
11000
(1000)
10000
Office Salaries 60000
Sales force Wages 40000

(+) Outstanding 2000 42000
Advertisement 6000
Communication
Expenses
2000
Director
Remuneration
80000
Interest Paid 600
Allowance for trade
receivables
15889.50
Depreciation on office
equipment @ 20%
51200
Total operating cost -267689.50
Net profit 67310.50
Less: Taxation 20000
Net profit after tax 63200
Less: Interim
Dividend Paid
4000
Net Profit after
dividend
43310.50
Statement of Financial Position of Ravan Ltd:
Current Assets Amount (£)
Non-Current Assets
Property, Plant and Equipment 204800
Total non-current assets 204800
Current Assets
Trade Receivables 518950
Inventories 30000

Prepaid office Expenses 1000
Total current assets 544760.50
Total assets 749560.50
Owner’s Equity
Ordinary Capital 200000
Reserves and Surplus
Opening Balance of P&L 250000
Profit during the Current Year 43310.50
Share Premium account 150000 443310.50
Total Equity 643310.50
Current Liabilities
Outstanding Wages 2000
Trade Payable 81250
Bank over draft 3000
Tax Liability 20000
Total current liabilities 86250
Total liabilities 86250
Total Liabilities and Equity 749560.50
Question No 2
Ratio Analysis of Digs Enterprise:
 Gross profit margin: Gross profit/ Net sales * 100
 2020: 800 / 1400 * 100 = 57.14%

 2021: 500 / 1180 * 100 = 42.37%
Interpretation:
The margin in both the year are good but there is a reduction in the current year that
needs to be improved for the company. It shows that company is doing quite well in
performing operational activities. The revenue generated in both the year is sufficient to
cover the amount of direct expenses. But there is a reduction in the gross profit margin
from the last year. There can be a no. of reasons for that such as increase in the discounts
provided to the customers, reduction in the sales or increment in the direct expenses
prices etc. Company should try to counter these in order to maximise profitability of the
company.
 Operating profit margin: Operating profit/ Net sales * 100
 2020: 300 / 1400 * 100 = 21.43 %
 2021: 234 / 1180 * 100 = 19.83 %
Interpretation:
The operating profit margins of the entity in both years reflects that company is earning
quite good on each pound of sale and company is effectively utilising their resources
efficiently with the maximum output. Company is in a good position to control its
operating expenses in such a manner that will result into higher profitability for the
company. Company should try to maximise its efficiency and earning capabilities. But
there is a sudden decrease in the operating profit margin from the last year that can be
caused by several reasons such as increment in the operating expenses amount. Company
should try to remove these so that it can maintain its high profitability.
 Return on capital employed (ROCE): Earnings before interest and tax/ Share equity
+ Long term liabilities * 100
 2020: 300 / 1800 * 100 =16.67 %
 2021: 234 / 756 * 100 = 30.95 %
Interpretation: