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Unfolding Understanding Financial Statements

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UNDERSTANDING FINANCIAL STATEMENTS INTRODUCTION 1 QUESTION 1 Features of Alchmists's financial statements 1 a) Secure long term debt and hired administrator to oversee and co-ordinate the contract 1 b) Linkage between three primary financial statements 1 c) Fashionable and out of fashion products2 QUESTION 2 Interpretation of SOCI 2 a) Revenue 2 b) Gross profit (GP)5 c) Other SOCI's costs 5 d) Net profit (NP) 6 QUESTION 3 Interpretation

Unfolding Understanding Financial Statements

   Added on 2020-01-23

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UNDERSTANDINGFINANCIALSTATEMENTS
Unfolding Understanding Financial Statements_1
Table of ContentsINTRODUCTION......................................................................................................................1QUESTION 1 Features of Alchmists's financial statements......................................................1a) Secure long term debt and hired administrator to oversee and co-ordinate the contract...1b) Linkage between three primary financial statements........................................................1c) Fashionable and out of fashion products...........................................................................2QUESTION 2 Interpretation of SOCI........................................................................................2a) Revenue.............................................................................................................................2b) Gross profit (GP)...............................................................................................................5c) Other SOCI's costs.............................................................................................................5d) Net profit (NP)..................................................................................................................6QUESTION 3 Interpretation of Alchimist's SOFP....................................................................7a) Non-current assets.............................................................................................................7b) Redstone proposed investment..........................................................................................8QUESTION 4 Interpretation of SOCF.......................................................................................8a) Three reasons for negative cash flow from operating activities........................................8b) Two ratios from SOCF......................................................................................................8QUESTION 5 Professional report..............................................................................................9CONCLUSION..........................................................................................................................9REFERENCES.........................................................................................................................10Illustration IndexIllustration 1: Movement in total revenues.................................................................................3Illustration 2: Revenue movement of retail operations .............................................................4Illustration 3: Segmental revenues in the year 2015..................................................................4Illustration 4: Trend line for distribution and transportation costs.............................................6Illustration 5: Trend line for Royalties.......................................................................................6
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INTRODUCTIONAlchimist Ltd, is a small sized private limited company that manufactures and sell itsown branded perfumes, lotions and candles to the public and to other large retail companies.In the year 2015, it developed on-line stores and hotel chain contracts to enlarge its revenuesand profitability as well. The present report will helps us to determine the financialperformance of the firm through evaluation and examination of its financial statements. QUESTION 1 FEATURES OF ALCHMISTS'S FINANCIALSTATEMENTSa) Secure long term debt and hired administrator to oversee and co-ordinate the contract(1). Relationship of the description with SOCI and SOFP1st description is related to SOFP because in this, it has been said that Alchimist isable to secure long term bank funding. While, other description is linked with SOCI becauseadministrator has been hired to oversee and co-ordinate the contract with the company'smanagement.(2). Allocation of both the transactions1st Statement can be related to the long term borrowings of £412 which tells that firmis able to take additional borrowings through bank. While, 2nd description is related to theadministration expenses in SOCI. It comprises employee expenses that are providing serviceswithin and outside UK. b) Linkage between three primary financial statementsAlchimist's SOCI feeds into the SOFPFrom the SOCI, Alchimist's net profit of £405 and £227 has been transferred intoSOFP as retained earnings. With this, total invested share capital has been affected. Alchimist's SOFP feeds into the SOCFFrom the SOFP, difference between current assets such as receivables, inventoriesand difference in current liabilities such as payables has been recorded in Alchimist's SOCFunder operating activities (Khan and Bradbury, 2014). Moreover, purchase and sales of fixedassets such as PPE and investment in new product development has been reported a investingactivities. However, purchase and sales of debt and equity has been recorded into financingactivities. Alchimist's SOCI feeds into the SOCF
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From the SOCI, payment in terms of income tax, interest and dividend has beenrecorded into SOCF under operating activities. Moreover, non cash affecting transactionsalso have been adjusted in operating activities of SOCF such as depreciation worth £52 and£40 in 2014 and 2015.c) Fashionable and out of fashion productsIAS 2 for inventory valuationAccording to IAS 2, inventory should be recognized at costs or net realisable value,which ever is lower (Brochet, Jagolinzer and Riedl, 2013.). Recognition criteria in the regulatory frameworkAs per this, inventory costs accumulates purchasing cost, conversion cost and otherexpenses incurred in bringing goods to their selling conditions. However, net realisable valuerefers to expected revenues that can be earned through selling the inventory. Impact of out of fashion products on SOCI and SOFPProducts that had gone out of fashion will be recognised at net realisable value.Hence, it will reduce Alchimist's profit in SOCI and closing inventory in SOFP results inlowering current assets. QUESTION 2 INTERPRETATION OF SOCIa) RevenueMovement in total revenues:Year Revenue Absolute Percentage 20143700000--20156000000230000062.16%Column chart:
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