Preparation of Financial Statement and Evaluating Balance Sheet

Accounting

TABLE OF CONTENTS
QUESTION 1.............................................................................................................................3
a) Preparation of financial statement......................................................................................3
b) Evaluating why the statement of financial position balances............................................4
QUESTION 2.............................................................................................................................4
a) Schedule of ratios for Chocco plc for 2019 and 2018........................................................4
b) Analysing and interpreting the financial performance and position of Chocco plc..........6
REFERENCES.........................................................................................................................11

QUESTION 1
a) Preparation of financial statement
Eccles plc
Income Statement for the year ended 31st December
2019
Particulars Amount (in £)
Sales 827630
Less: Cost of sales 578650
Gross profit 248980
Less: Expenses
Administrative expenses 30000
Directors remuneration 5000
Distribution costs 28000
Outstanding commission to salesmen 3000
Profit before interest and tax 182980
Interest paid 2000
Earnings after interest 180980
Tax 68000
Net profit 112980
Eccles plc
Statement of financial position as at 31st December 2019
Particulars Amount (in £)
ASSETS
Current assets
Stock 330600
Debtors (170125+980) 171105
Cash and bank (12900-68000) -55100
Total current assets 446605
Non-current assets
Plant and equipment 632730
Total Non-current assets 632730
Total assets 1079335
LIABILITIES
Current liabilities
Accounts payable (Creditors) 171355
Outstanding commission to salesmen 3000
Total current liabilities 174355
Non-current liabilities

Share capital (310000+300000) 610000
4% Debentures 100000
Retained profits at 1st January 2018 (132000-
50000) 82000
Net profit for the year ended 31st December 2019 112980
Total Non-current liabilities 904980
Total liabilities 1079335
b) Evaluating why the statement of financial position balances
The statement of position is one of the most important financial statements as it
provides information on the firms’ assets, liabilities and any difference between the two as of
the date of that accounting period. This statement must reflect the basic accounting principles
and the standards. The balance sheet is prepared in such a way that all the assets of a business
entity is equivalent to the sum total of entire amount of liabilities and the equity (Daniel,
Marioara and Isabela, 2017). The reason why balance sheet is always at the equilibrium is
because of the reason that the assets of the firm might have being financed from the internal
sources, for instance, the share capital and the profits of the company or from the external
sources like lenders, loan from the bank, trade creditors and so forth. Therefore, the total
assets of the business must be equivalent to the amount of the capital invested by the business
owners in the form of share capital or profits or any other form of borrowings, thus, the total
assets of the entity must to equivalent to the sum total of the total liabilities and equity of that
entity. This has resulted into the accounting equation of Total assets = Total liabilities +
Equity.
QUESTION 2
a) Schedule of ratios for Chocco plc for 2019 and 2018
Ratio analysis of Chocco plc
2019 2018
Liquidity ratio
Current assets 2303 2355
Current liability 2511 3046
Inventory 708 659
Quick Assets 1595 1696
Current ratio Current assets / current liabilities 0.92 0.77
Quick Ratio
(Current Assets - Inventory) / Current
Liabilities 0.64 0.56
Profitability ratio