Financial Accounting: Updated Financial Statements and Financial Analysis

This document provides updated financial statements for Bialto Beach Limited and a financial analysis of Rapston Hotels. It includes information on liquidity ratios, such as the current ratio and quick ratio, as well as profitability ratios, such as gross profit margin and net profit margin.

FINANCIAL ACCOUNTING

TABLE OF CONTENTS
ASSESSMENT ...............................................................................................................................1
1. Updated Financial Statements Bialto Beach Limited .............................................................1
2. Financial Analysis of Rapston Hotels
REFERENCES..............................................................................................................................14

ASSESSMENT
1. Updated Financial Statements Bialto Beach Limited
Bialto Beach Limited Income Statement For The Year Ended 31
December 2019
Notes 31/12/19
£
Revenue 7239015
Cost of sales -5338039
Gross profit 1900976
Operating Expenses -12250
Distribution costs 6 -396779
Administrative expenses 7 -801558
690389
Other operating income 22400
Profits from operations 712789
Finance cost -74569
Profit before taxation 638220
Taxation 8 -179766
Profit after taxation 458454
Bialto Beach Ltd Statement Of Financial Position As At 31 December 2019
Notes 31/12/19 31/12/18
£ £ £ £
ASSETS
Non Current Assets
Tangible 1 2516339 1250700
Current Assets
Inventories 2 538675 226549
Other Receivables 3 935673 672371
Cash 0 1474348 426359 1325279
TOTAL ASSETS 3990687 2575979
EQUITY AND
LIABILITIES
1

Equity
Called up share
capital 100000 100000
Accumulated profits 1477015 1577015 1018561 1118561
Non current
liabilities 5 1174550 658854
Current liabilities 4 1239122 798564
TOTAL EQUITY
AND LIABILITIES 3990687 2575979
1 Non-Current Assets Property F&F
Plant &
Machinery
Computer
Equipment Total
Cost b/fwd 1225000 290000 560686 87500 2163186
Additions 1250000 165000 26400 1441400
Disposals -79500 -79500
Cost c/fwd 2475000 455000 481186 113900 3525086
Depreciation b/fwd 361225 139125 335171 76965 912486
Charge for year 39500 47381 56379 19335 159755
Elimination on disposal -63494 -63494
Depreciation c/fwd 400725 186506 328056 96300 1008747
NBA @ 31/12/2019 1574275 268494 158130 17600 2516339
NBA @ 31/12/2018 863775 150875 225515 10535 1250700
2% cost 15% RB 25% RB 33% cost
Computer Equipment
Addition Cost
Accumulate
d Depr'n Depr'n NBV
2018/19 26400 - 8800 17600
2017/18 31605 21070 10535 -
Pre 2017 55895 55895 - -
113900 76965 19335 17600
2

2 Inventories
3

31/12/19 31/12/18
Raw materials 92562 70869
Finished goods 446113 155680
538675 226549
3 Other Receivables
31/12/19 31/12/18
Other Receivables 884733 627471
Trade receivables - 16400
Prepayments 50940 28500
935673 672371
4 Current Liabilities
31/12/19 31/12/18
Bank loans 120000 80000
Trade payables 633283 442664
Taxation and social security 130458 61920
VAT Payable 16502 34580
Proposed dividend - 100000
Director's loan account 64000 64000
Deposits 20000
Builder 5000
Bank Overdraft 236679
Accruals 13200 15400
1239122 798564
5 Non-Current Liabilities
31/12/19 31/12/18
Mortgage 1171550 658854
Contingent Liability 3000
1174550
Proposed dividend 36000
6 Distribution costs
31/12/19 31/12/18
Advertising 16400 8100
Depreciation 159755 148743
Small equipment 46680 -
Hotel excursions costs 128806 43413
Maintenance of hotel vehicles 45138 -
4

396779 200256
7 Administrative expenses
31/12/19 31/12/18
Short-term/Summer workers 100000 308000
Insurance 4540 4540
Utilities 10520 9360
Business rates 30000 30000
Office supplies 8000 7290
Miscellaneous 62178 74095
Audit & accountancy fees 320000 100000
Directors' remuneration 250000 250000
Office repairs and maintenance 8320 10273
Chef Compensation 3000
Building Repairs 5000
801558 793558
Operating expenses
Bad Debts 250
Loss of Food 12000
12250
8 Taxation
31/12/19 31/12/18
Charge for the year 185138 102562
185138 102562
Journal adjustment entries
Land 500000
To Cash 500000
Land 500000
To Cash 500000
Cash 15000
To Vehicle 5000
To Profit & Loss 10000
Sales Revenue 20000
To Deposits 20000
5

Building Repairs 5000
To Builder 5000
Being Repairs made to Building
Bad Debts 250
To Bills Receivables 250
Profit & Loss 3000
To Contingent Liability 3000
Interest Expense 6000
To Cash 6000
Profit & Loss 15000
To Taxation Liability 15000
Loss by Power Cut 12000
To Goods destroyed by power cut 12000
Proposed Dividend cannot be
recognised as liability in balance sheet
unless it has been approved by
shareholders. It has to be recorded in
the notes to accounts as contingent
liability
The above transactions needs to be updated in the financial statements as they have been
omitted by the company and are not included in the draft accounts. It is essential for the company
to record all the transactions incurred during the financial year that are having effect over the
financial statement of the company. The draft accounts have been updated after making
adjustments related to transactions which were omitted by company. The financial statements are
presented to the shareholders and external parties for financial decisions. These can significantly
influence the business decisions therefore adjustments is essential. For instance company had
positive cash balance in draft account but after making adjustments it is found that company has
not accounted the purchase of building in the accounts that has increased the tangible balance. It
makes it necessary for the company to update the draft accounts. The report to be submitted by
the company to the statutory authorities.
Commentary/ Justification
6

2
The land is added in the draft balance sheet as it leads to appreciation of the intangible assets
however the depreciation is not charged over land.
3.
The profit on sale of vehicles will be included in income statement and also the cost of vehicles
is deducted from the balance sheet after the sale of vehicles.
4.
The deposits of 20000 are contingent as they the event is to be occurred in January till that it is
recognised as liability in balance sheet.
5.
The minor repairs to building are revenue expenses as they are not increasing the useful life or
efficiency and charged to income statement.
6.
The cost of bar is 750 but the payment is received only for 500 therefore the amount of 250 is
treated as bad debts and will not be recovered back. It is charged to income statement as it is
loss.
7.
The claim of Chef is contingent and this requires company to make provision as compensations
is required to be paid in future due to mistake of company. Therefore a provision of 3000 is
made in balance sheet.
8.
Company is required to charge interest on loan under finance cost at 5% in income statement.
9.
The increase in tax estimate will require the company to increase the tax liability. It will increase
the balance of tax liability in balance sheet.
10.
The spoilage of food due to power is charged to income statement as it is loss of goods and also
he inventory balance is decreased from the balance sheet for the loss
11
The proposed is not recorded in balance sheet nor charged to income statement unless it is
approved by the shareholders. Therefore it is disclosed in notes to account of company.
7

2. Financial Analysis of Rapston Hotels
Liquidity ratios
1) Current Ratio:
Particulars Formula Easy hotel PLC
2018 2019
Current assets 45.41 23.95
Current liability 6.9 7.45
Current ratio Current asset/current
liability
6.58 3.21
Current ratio
0
1
2
3
4
5
6
7 6.58
3.21
2018
2019
Interpretation: current ratios helps the company, analyst, creditors and investors to
check the ability of company to pay its current liability(Lee and Lee, 2018). Current ratio of
easy hotel PLC company for the year 2018 is 6.58 and in 2019 the ratio is 3.21 which is not
showing good position of the company. An ideal ratio of current asset is 2:1 but the company
invest more in current asset and block the fund. So easy hotel PLC can withdraw the amount
from current assets and invest the fund in that portfolio that gives higher returns to the company.
2) Quick Ratio :
Particulars Formula Easy hotel PLC
2018 2019
8

Quick Assets 42.23 20.86
Current liability 6.9 7.45
Quick Ratio Quick assets/current
liability
6.12 2.8
Quick Ratio
0
1
2
3
4
5
6
7
6.12
2.8
2018
2019
Interpretations: Quick ratio helps in checking the ability of paying short term liability, it
measures the that how much the company is liquidated to pay its obligation easily without any
struggle(Kim and Im, 2017). Easy hotel PLC company have 6.12 quick ratio in 2018 and 2.8 in
the end of year 2019. Which has been declined from previous year and also high from ideal ratio
1:1. It indicating that company is not able to pay its current obligation. So firm has to increased
its current assets to cover its current liability.
Profitability ratios
1)Gross Profit Margin :
Particulars Formula Easy hotel PLC
2018 2019
9

Gross profit 0.68 -3.42
Revenue 11.25 17.56
Gross profit margin Gross profit/Revenue
*100
6.04 -19.47
Gross profit margin
-25
-20
-15
-10
-5
0
5
10
6.04
-19.47
2018
2019
Interpretation: Gross profit ratio is used to calculate the financial health of the
company. The ideal ratio is for the company 10% as a average and more than 20% is considered
to be good ratio. In 2018 the ratio of easy hotel plc company is 6.04% and the ratio of at the year
end of 2019 is -19.47% . Lower gross profit margin is a bad sign for any business and it calls for
a very extensive and careful analysis(Kahn and Baum 2020). The reason for a lower gross
margin may be a higher cost of production, the decline is sales price, or if there is a change in the
sales mix. All these factors need in-depth analysis and watch throughout the year to avoid a
situation of lower gross margins.
2) Net Profit Margin Ratio:
Particulars Formula Easy hotel PLC
2018 2019
Net profit 0.65 -3.78
10

sales 11.25 17.56
Net Profit margin Net profit/sales*100 5.77% -21.52%
Net Profit margin
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
5.77%
-21.52%
2018
2019
Interpretation: Net profit margin measures the profit asking capacity of firm from
generating sales. It highlights the company's profit making curiosity so those who are interested
in investment, they check net profit ratio of company the ideal ratio differs from company to
company so ratio between 0.35%-0.5% can be considered good (Basioudis, 2019). The company
GP Ratio is 5.77%% in 2018 and the ration in the end of year 2019 is -21.52%. This ratio shows
that company have negative effects and needed very extensive and careful analysis. The reason
behind this is lower gross profit margin or may be higher the cost of production, the decline in
sales price and all these factors need in depth analysis and watch throughout the year to avoid a
situation of lower net margins.
Solvency ratios
1) Gearing Ratio:
Particulars Formula Easy hotel PLC
2018 2019
Total debt 15.75 16.73
11

Total equity 119.64 115.32
Gearing Ratios Total debt /total equity 0.13 0.15
Gearing Ratios
0.12
0.125
0.13
0.135
0.14
0.145
0.15
0.155
0.13
0.15
2018
2019
Interpretation: A gearing ratio lower than 25% is considered as low risk by both the
investors and lender. So the ratio is very important for creditors, investors and analyst. In 2018
the ratio of the company is 0.13 and the ratio at the end of 2019 is 0.15. Gearing ratio is an
indicator of the financial risk associated with a company (Kahn and Baum,2020). A high gearing
ratio shows a high proportion of debt to equity, while a low gearing ratio shows the opposite.
Efficiency ratios
1) Assets turnover ratio:
Particulars Formula Easy hotel PLC
2018 2019
Net Sales 11.25 17.56
Total assets 143.47 140.69
Asset turnover Ratio Net Sales/ Total Assets 0.08 times 0.12 times
12

Asset turnover Ratio
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.08
0.12
2018
2019
Interpretations:Asset turnover ratio shows the comparison between the net sales and the
total assets of the company. A lower asset ratio reflects the bad management of assets by the
company. While a higher assets turnover ratio implies that company is more efficient at using its
assets. The company asset turnover ratio in 2018 is 0.08 times and the ratio increases at the end
of year 2019 is 0.12 times. Since this ratio measures the efficiency of a company in managing its
resources to generate sales. The company has good turnover ratio it reflects the better state of
affairs of the company.
2) Fixed assets turnover ratio
Particulars Formula Easy hotel PLC
2018 2019
Revenue 11.25 17.56
Total Fixed assets 98.05 116.75
Fixed Assets turnover
Ratio
Revenue/ Total fixed
Assets
0.11 0.15
13

Fixed Assets turnover Ratio
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.11
0.15
2018
2019
Interpretation: This ratio is one of the efficiency ratio used by analysts to determine the
overall effective utilization of the resources by a company. It measures the productivity of the
company’s fixed assets to generate revenue(Kim and Im,2017). Higher ratio indicates higher
efficiency in utilizing assets and lower ratio indicates that firm does not utilize its fixed assets
efficiently. The company has 0.11 times ratio in 2018 and at end of year 2019 it is calculated that
0.15 times. Easy hotel PLC is in good position because it indicates that the firm is utilizing its
fixed assets efficiently. The return on capital would likely be higher in such cases, and it is taken
positively by the investors and lenders.
From the above evaluation of the ratios it is not a good acquisition for Rapston Hotel's
because Easy hotel PLC has a negative gross profit as well as adverse net profit. So it indicates
that company is running in loss from last year. Company current ratio is also high from ideal
current ratio it means firm does not effectively and efficiently utilize its current assets and
resources. Therefore, Rapston hotel does not acquire Easy hotel PLC company.
14

15

REFERENCES
Books and Journals
Lee, B. H. and Lee, S. H., 2018. A study on financial ratio and prediction of financial distress in
financial markets. The Journal of Distribution Science. 16(11). pp.21-27.
Kim, J. and Im, C., 2017. Study on corporate social responsibility (CSR): Focus on tax
avoidance and financial ratio analysis. Sustainability. 9(10). p.1710.
Basioudis, I. G., 2019. The Interpretation of Financial Statements. In Financial Accounting (pp.
274-308). Routledge.
Kahn, M. J. and Baum, N., 2020. Basic Accounting and Interpretation of Financial Statements.
In The Business Basics of Building and Managing a Healthcare Practice (pp. 13-18).
Springer, Cham.
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