Financial Accounting: Analysis of ASOS PLC and Preparation of Financial Statements for Ovid Ventures

This report provides a critical analysis of the financial position and performance of ASOS PLC and the preparation of financial statements for Ovid Ventures. It includes analysis of financial ratios, income statement, balance sheet, adjustments on P&L and balance sheet, and cash flow statement items.

AC4052QA Financial
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
SECTION A.....................................................................................................................................3
QUESTION 1..............................................................................................................................3
Critical analysis financial position and performance of ASOS PLC..........................................3
SECTION B.....................................................................................................................................5
Question 1........................................................................................................................................5
1. Preparation of Profit and loss account And balance sheet of Ovid Ventures.........................5
Question 2........................................................................................................................................6
1. Briefly explain the following adjustments on Profit & Loss account and Balance sheet.......6
2. Adjustment of the cash flow statement items.........................................................................6
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
The classification, recording, summarizing and reporting of business transaction in the
systematic manner, it is known as financial accounting. The main objective of the financial
accounting is to reveal the income and expenses of a business. It represents the true and fair
picture of the financial statement and it also protects the interest of investors (Baker, 2018). This
report is divided into two sections. In the first section includes the critical analysis of financial
ratios. In the second section of the report includes to preparation of the financial statements of
Ovid Ventures that is situated in china and selling swimwear. This report also includes the
critical analysis of financial term
SECTION A
QUESTION 1
Critical analysis financial position and performance of ASOS PLC
ASOS PLC is a fashion and cosmetic retailer that is situated at London in UK. It was
established in 2000 and the primary objective of the company is fulfil the needs off young adults.
From the above data shows the company is earned profit every year but profit of the company in
2018 was higher but in the year 2021 profit was decreased. The given ratios is showed the
financial position of the given company (Barakat, Khoury and Abdul-Malak, 2018).
Profitability- It shows the real profit that are earned by the company. It includes various types of
ratios such as gross profit, net profit and return on capital employed. GP margin ratio means the
profit is earned by selling of goods and rendering of services. High GP ratios shows the better
position for the company. Net profit ratio means the profit is generated after deducted operating
expenses and divided by revenue. Return on capital employed means the profit is determined by
dividing profit before interest and taxes by capital employed. Capital employed means the
current liabilities is subtracted from the total assets. In the year 2018 shows high return on capital
employed but in the year 2021it was decreased to 9.39. But in the pandemic period company is
also earned profit rather than in 2019 the return on the capital employed was decreased rapidly.
If company should maintain in the environment then company should provide the services in
according to consumer needs (Golden and Kohlbeck, 2019).
Efficiency ratios- It evaluates the company is using assets and liabilities with effectively
manner. It analyses the amount received by customers and repayment of creditors. It also

evaluate the financial position of investment banks. It evaluates the short term performance of
the company. It measures the organisation's ability to utilise its assets to earned income. It can
view indifferent types such as amount received from consumer or amount of time it takes to
change stock to cash. If efficiency ratios increase automatically improved the operational
efficiency of the company. The meaning of efficiency ratio is totally different for bank. For
investment bank the meaning of these ratio is non interest expenses is divided by income. It
shows how well the owner control their variable expenses that is back office expenses.
As given data the in 2020 shows the high stock turnover ratio. It means the company
more times turned over its stock although in 2020 the whole world company and people was
suffered in COVID-19. But during the period ASOS PLC has maintain its business. In second
wave of the COVID-19 they were suffered huge losses as compare to 2020. The collection
period of the customer was very good in 2018 because debtors are quick paid. Year 2021 the
collection period are 3.88 days it means the business need invest more cash in its debtor assets
while if collection period are smaller number that there is lesser investment in debtors and more
money is being made utilised for another purpose. The payment period of the creditors was also
better in pandemic period because company have not sufficient money to paid the creditors. In
2019 there was no any current liabilities of the company. Company was more cash retain in the
business so that they paid all amount of creditors (Malik and et.al, 2021).
Liquidity ratio- it shows liquidity position of the company. The liquidity of the company can be
view in two types such as current ratio and liquid ratio. The ideal current ratio is 2:1. Year 2021
the current ratio better as compare to another year. In year 2021 the company have more current
assets to payment its current liabilities. In year 2018 the current ratio was very rapidly fall down.
Because company was not enough cash to payment its liabilities. The liquid ratio means current
assets divided by current liabilities. Current assets taken all assets except stock and prepaid
expenses. Gearing ratio shows the relationship between debt and equity. If proportion of non
current liabilities and shareholder fund is great then company may be thought of as being highly
geared. The gearing ratio of the company was better in 2021 because the proportion of equity
and debt was great.

SECTION B
Question 1
1. Preparation of Profit and loss account And balance sheet of Ovid Ventures
Income statement- It is the part of the financial statement. It describes the profit and loss
of the company. It includes all the activities that are related with business or not. It includes all
the expenses and incomes of the fiscal year (McCallig, Robb and Rohde, 2019). It gives the
information of the whole year.
Balance sheet- It provides the financial position of the company at the year end. It has
two sides: Equity and liabilities and assets. Equity and liabilities include shareholder fund, non
current liabilities and current liabilities and assets side includes non current and current assets.
Income statement for the year ended 31st year2021
Particulars Amount(£) Particulars Amount(£)
To opg stock 14000 By sales 280000
To purchases 160000 By closing stock 18000
To wages and salaries 21000
To Gross profit 103000
To bank interest 200 By Gross profit 103000
To office expenses 700
To Deprecation
Motor vehicle 2365
Fixture and fittings 10000
To insurance (1700-400) 1300
To electricity(2800+250) 3050
To Delivery 8500
To advertising 900
To audit and accountancy 500
To rent and rates 7500
To net profit 67985

Balance sheet as at 31st December 2021
Liabilities Amount(£) Assets Amount(£)
Share Capital 20000
Add-profit of the current
year 67985
Non current
assets
current year profit 13200
Fixtures and
fittings 30000
Non current Liabilities Motor vehicle 21285
Long term bank loan 2200 Current assets
Current liabilities Bank 1500
Creditors 8900 Debtors 41350
Outstanding electricity bill 250 Closing stock 18000
prepaid insurance 400
Total 112535 Total 112535
Question 2
1. Briefly explain the following adjustments on Profit & Loss account and Balance sheet
a. Prepaid expenses- It means those expenses that are not related with current year but making
payment in current year. The expenses are related with subsequent year. It is an assets for the
company so it shows in the balance sheet as a current assets with the name of prepaid expenses
and amount of prepared expenses are deducted in the profit and loss account (Pereira and et.al,
2020).
Accrued expenses-It means those expenses that are related with current year but the payment of
expenses is not made in the current year. It is a liabilities for the company and it shown in the
balance sheet as a current liability. The expenses are added in the P&L.
Prepaid Income-It means the income received in advance but it is not related with current
period. It is liabilities for the company and it shown in the balance sheet as a current liabilities
and the amount of prepaid income is deducted of the income statement.

Accrued Income – It refers the incomes may earned in the current accounting period but it is not
received in the same period. It shown in the balance sheet as a current assets and add in the profit
and loss account to that specified income (Petkov, 2020).
2. Adjustment of the cash flow statement items
Deprecation- It is non cash item and cash flow statement only shows cash income and expenses
so the deprecation will be added back when preparation of cash flow statement by indirect
method.
Disposal of non current assets- If any loss is occurred on assets then it will be added back and
profit is gained then it will be deducted from CFS and cash amount received is added in the
investment activities.
An increase in inventories- It will be deducted from cash flow statement when usin indirect
method.
CONCLUSION
In the above report, it is concluded that the financial ratios shows the financial position of
the company. If the company wants to survive till long term, company should maintain adequate
current assets that they can pay current liabilities. In the income statement shows only those
expenses which are related with current year rather balance sheet shows the financial position at
the year ended.

REFERENCES
Books and Journals
Baker, C.R., 2018. The lack of impact of fair value accounting: a commentary on ‘“fair value”
accounting as the normative Fisherian phase of accounting’. Accounting History
Review, 28(3). pp.191-198.
Barakat, M., Khoury, H. and Abdul-Malak, M.A., 2018. Financial accounting treatment of
differing site conditions claims: A contractor’s perspective. In Construction Research
Congress 2018 (pp. 217-226).
Golden, J. and Kohlbeck, M., 2019. The unintended effects of financial accounting standard
123R on stock repurchase and dividend activity. Journal of Accounting, Auditing &
Finance, 34(3). pp.411-433.
Malik and et.al, 2021. Managing sustainability using financial accounting data: The value of
input-output analysis. Journal of Cleaner Production, 293. p.126128.
McCallig, J., Robb, A. and Rohde, F., 2019. Establishing the representational faithfulness of
financial accounting information using multiparty security, network analysis and a
blockchain. International Journal of Accounting Information Systems, 33. pp.47-58.
Pereira and et.al, 2020. To fail or not to fail: an algorithm for SME survival prediction using
accounting data. In The changing role of SMEs in global business (pp. 83-107). Palgrave
Macmillan, Cham.
Petkov, R., 2020. Artificial intelligence (AI) and the accounting function—A revisit and a new
perspective for developing framework. Journal of emerging technologies in
accounting, 17(1). pp.99-105.
Velte, P., 2018. What do we know about meta-analyses in accounting, auditing, and corporate
governance?. Meditari Accountancy Research, 27(1). pp.17-43.