Financial Accounting: Interpretation of Ratios, Income Statement, Balance Sheet, and Cash Flow Statement

Accounting

Contents
INTRODUCTION...........................................................................................................................................3
SECTION A...................................................................................................................................................3
Introduction.............................................................................................................................................3
Interpretation of ratios............................................................................................................................3
Highlight limitations in the use of accounting ratios...............................................................................4
Conclusion...............................................................................................................................................5
SECTION B....................................................................................................................................................5
QUESTION 1.................................................................................................................................................5
Prepare Income statement for the year ended 31st December 2020.....................................................5
Prepare Balance Sheet as at 31st December 2020..................................................................................6
Identify FIVE accounting concepts that have been applied in the preparation of financial Statements
and explain their meaning.......................................................................................................................7
QUESTION 2.................................................................................................................................................8
Prepare Harma Limited’s statement of cash flows for the year ended 31st December 2021.................8
Write a short memo to Mrs Harma explaining the findings of your statement of cash flow...................9

INTRODUCTION
Financial accounting is essentially the recording and evaluation of activities. It is conducted
out to assess company sales and effectiveness. To standardize the procedure, government
regulators have outlined several fundamental values. Companies in the United States use GAAP
principles. All money transfers centre on five necessary elements: assets, liabilities, revenue,
expenditures, and ownership (Zhang and Zhang, 2017). In addition, each business deal comprises
two equal halves. For instance, when money is taken from a bank and recorded in the income
statement using the dual procedure. These report categories into two sections in fist section
analysis the financial performance of ASOS plc in three years by financial ration with
limitations. In second section prepare financial statements and explain their meetings.
SECTION A
Introduction
ASOS plc is a Leading digital retailer of clothing and cosmetics. The firm was started in London
in 2000, with a primary focus on young people. The website sells over 850 brands or its own
fashion accessories, and delivers to all 196 nations through distribution center in the United
Kingdom, the United States, and Europe.
Interpretation of ratios
There are analyzing the different financial ratios in order to know actual financial performance
and identify the changes in compare of last year. There are analyzing from 2018 to 2021 such as:
Profitability ratios: Profit offers a "return" on capital for shareholders, as well as a critical supply
of money (i.e. retained earnings) to support the firm's continued prospects. Profitable is used to
assess company's financial success. In this category consist of different types of ratios that help
to investors to analysis profitability of ASOS in different year. From the return on shareholder
funds analysis that
Return on shareholder fund: It is mainly used to compare different originations in different sector
and between 15 to 20% consider as good ratio. In the year 2018 was 23.25 which was good but it
was declining in 2019 reach on 7.3 which is not good for investors after that in the year of 2020