Business Decision Making

This document provides information about business decision making, including a statement of profit and loss account and statement of financial positions. It also discusses the limitations of income statement and balance sheet, and their impact on the financial health and well-being of the company.

BUSINESS DECISION
MAKING

TABLE OF CONTENTS
MAIN BODY.............................................................................................................................................3
Statement of profit and loss account for the year ended 31st March, 2019...............................................3
Statement of financial positions as at 31st March, 2019..........................................................................3
Limitations of income statement..............................................................................................................4
Limitations of balance sheet....................................................................................................................4
REFERENCES..........................................................................................................................................6

MAIN BODY
Statement of profit and loss account for the year ended 31st March, 2019
PARTICULARS £ £
Revenue from operations 290500
Opening inventory 18310
Purchases 157443
Closing inventory -25550
Cost of goods sold 150203
Gross Profit 140297
Advertising expenses -5478
Insurance -9306
Rent and rates -18612
Heat and light -11013
Delivery costs -10132
Salaries and wages -41263
Depreciation on fixtures and fittings -12584
Depreciation on motor vehicles -10440
Net Profit 21469
Statement of financial positions as at 31st March, 2019
PARTICULARS £ £
ASSETS
Non-current assets
Fixtures and fittings 153227
Less Accumulated depreciation -79294 73933
Motor Vehicles 182600
Less Accumulated depreciation
-
103940 78660
Current assets
Inventory 25550
Cash in hand 950
Trade receivables 31099

Prepaid insurance 850
Prepaid rent and rates 4482
Total assets 215524
LIABILITIES
Current liabilities
Trade payables 31511
Bank overdraft 17900
Accrued heat and light 2210
Accrued delivery cost 905
Suspense 2217
Owner's equity
Capital 170600
Less Drawings -31288
Add Profit 21469
Total liabilities 215524
Limitations of income statement
There are some limitations that are pertaining to the preparation of the income statement
of the company showing the profitability of the business:-
 One of the most significant limitations are that the income statement shall only consider
the revenue factors of the business. It ignores the non-revenue factors that might be
contributing to the development of the goodwill and reputation of the business.
 It shows the profitability that is earned by the business but does not disclose the financial
health and well-being of the company (Carnevali and et.al., 2019). The value of the
company can also be misrepresented by the income statement as it represents all the
incurred expenses eve though they are accrued and not yet paid.
 The preparation of the income statement is based on various accounting assumptions like
the matching principle, valuation of inventory, conservatism etc.
Limitations of balance sheet
There are certain limitations that are posed on the business with the representation of the
balance sheet:-
 One of the major drawbacks that are faced by the balance sheet of the company is that it
measures the various fixed assets at the historical cost and is not amended according to its
market value (Fenyves and et.al., 2019).
 Another significant disadvantage is that the assets are measured on the estimated value
like the goodwill, patent, copyright which are the intangible assets of the business. This
might not represent the fair value of the business.

 Some of the valuable assets are omitted from the valuation like the intelligence of the
human resource that are possessed by the company.
REFERENCES
Carnevali, E. and et.al., 2019. Stock-Flow Consistent Dynamic Models: Features, Limitations
and Developments. In Frontiers of heterodox macroeconomics (pp. 223-276). Palgrave
Macmillan, Cham.

Fenyves, V. and et.al., 2019. Analysis of the Notes to the Financial Statement Related to Balance
Sheet in Case of Hungarian Information-Technology Service Companies. Scientific annals of
economics and business. 66(1). pp.27-39.