Introduction to Accounting and Finance

Introduction to Accounting and
Finance

Contents
INTRODUCTION...........................................................................................................................1
Part A – Terry Joe Plc......................................................................................................................1
Statement of Income for the year ended 31st December 2018 for Terry Joe Plc........................1
Statement of Financial Position as at 31 December 2018 for Terry Joe Plc...............................3
Part B – Kokolet Limited.................................................................................................................5
a. Contribution.............................................................................................................................5
b. Break even point and margin of safety....................................................................................5
c. Calculation of profit.................................................................................................................6
d. Assessment of good strategy for Kokolet Limited..................................................................7
e. Assumptions attached to break even model.............................................................................8
Part C – Smith Howe Limited.........................................................................................................8
a. Calculating the Payback Period, the Accounting Rate of Return and the Net Present Value
of the machine, and providing recommendations........................................................................8
b. Key merits and limitations of the differing investment appraisal techniques.......................11
Key benefits and limitations of using budgets as a tool for strategic planning.........................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Accounting and finance is a field of study which allows a learner to deeply understanding
fundamental science behind organisational accounts and other financial activities (Ahmed and
Duellman, 2013). The main aim of this report is to build an understanding about the fundamental
models, concepts and techniques used within financial accounting and management accounting.
In this report, three individual assessment parts are covered in which knowledge and skills of
accounting are applied to understand the role of finance at a local and international level. In first
part of this report, income statement and balance sheet is developed which are based on journal
and primary books of accounting. In second part of this assessment, break even and contribution
margin is determined using costing techniques. In the last part of this report, investment appraisal
techniques are used to compute Payback Period, the Accounting Rate of Return, and the Net
Present Value along with description of merits and demerits of these techniques.
Part A – Terry Joe Plc
Statement of Income for the year ended 31st December 2018 for Terry Joe Plc
Particulars Amount Total
Sales 759600
less: cost of sales 356400
gross profit 403200
less: Operating expenses:
rent 108000
wages 143010
depreciation 1100
van running expenses 40320
bad debts 1800
Electricity bill 9270 303500
Profit 99700
Working notes:
1.
Sales revenue account
1