Introduction to Accounting and Finance - Sample Assignment

INTRODUCTION TO
ACCOUNTING AND
FINANCE
ASSESSMENT

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A: YARNSHAW LIMITED.................................................................................................1
(a) Profit and Loss Statement - ...................................................................................................1
(b) statement of balance sheet: ....................................................................................................3
PART-B: RECKTURK PLC...........................................................................................................6
(b). Calculation of the Break-even Point and Margin of Safety for the both unit of production
when selling price is £40 - ..........................................................................................................6
(c). Find out the Profit of company when Unit Production is 54,000 wardrobes at £40 per unit
- ...................................................................................................................................................8
(d) Analysation of the strategy for Reckturk Plc -.......................................................................9
(e) Discussing the Assumptions that used regarding the Break-even Model: .........................10
PART-C: ROSEVILLE PLC.........................................................................................................11
(a). Recommendation of acceptance or rejection of Capital Budgeting Projects using
Investment Appraisal techniques...............................................................................................11
(b). Report on key merits and limitations of various investment appraising techniques - ........12
(c). Report on identification of key merits and demerits of using Budgets as a strategy
planning tool -............................................................................................................................14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Introduction to accounting and finance provides a introductory yet comprehensive
overview of the financial accounting, financial management and management accounting. This
provides accounting and finance function to the business in order to making the decision by
measuring the financial data and information (Nowak, 2016). Accounting is main field of the
business in which business activities and transactions are identified in the monetary terms and
recorded in the books of accounts. Whereas finance is related to the presented of the final
accounts to the management and investor by using the financial information and data. It enables
to management of the financial resources and its disbursement in a appropriate manner and
management of the company can make the better decision regarding the future to sustain the
business in long run. This particular report of the accounting and finance covers the various
topic such as accounting standard and principle that is used in the financial accounting. It also
includes the preparation of the income statement and balance sheet of the mentioned company.
It further includes cost techniques like break even point, margin of safety and the investment
appraisal or capital budgeting tools. In addition to advantage and limitation of the budget as
strategies techniques that is analysed by management.
PART A: YARNSHAW LIMITED
(a) Profit and Loss Statement -
This is the particular sheet that is prepared by the administration by recording the
business transactions and activities. It shows the revenue and expenses in order to compute the
net profit for a specific time of period. Income statement is prepared in order to ascertain the net
profit by taking the certain information regarding the revenue, sales, depreciation, tax etc. In the
same sense the company, income statement of the Yarnshaw Ltd are as under:
Income statements for the company Yarnshaw Ltd:
Statement of profit and loss for the year ended December 31, 2018
Particulars Amount (£) Particulars Amount (£)
To Opening Stock NA By Revenue 759600
To Purchases 630000 By Closing Stock 273600
To Wages 143010
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To Gross Profit (c/d) 260190
1033200 1033200
To Electricity Bill Payments 9270 By Gross Profit b/d 260190
To Van Expenses 40320
To Irrecoverable Debts 1800
To Rent paid 108000
To Rates 6930
To Depreciation on Van 11000
To Net Profit 82870
Total 260190 Total 260190
Working Notes for the income statement :
1. calculation of total Purchases:
Particulars Amount (£)
Credit Purchases 583200
Add: Cash Purchases 46800
Total Purchases 630000
2. total Wages:
Particulars Amount (£)
Total Wages paid 140400
Wages owed for the last week of the year 2610
Wage 143010
3. total sales Revenue for the year:
Particulars Amount (£)
Credit Sales 604800
Cash Sales 154800
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Total Sales for the year 759600
4. computation of the amount of Closing Stock :
Particulars Amount (£)
Opening stock -
Add: Total Purchases made during the year 630000
Less: Cost of Goods Sold (=£291,600+£64,800) (356400)
Closing stock 273600
5. Electrical Bills Payments:
Particulars Amount (£)
Electric Bills during the year 6840
Add: Wages owed for the quarter as on 31.12.2018 2430
Total Electric bill paid during the year 9270
6. Total rent paid:
Particulars Amount (£)
Total Rent paid by owner for premise 135000
Less: Rent payments in advance 27000
Rent Paid 108000
7. Amount of Rates ( tax on business premises ):
Particulars Amount (£)
Total Payments of rates for the period 01.01.2018 to 31.03.18 2880
Payments for the period 01.04.2018 to 31.03.2019 (=5400*9/12) 4050
Total Rates for the year 6930
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(b) statement of balance sheet:
The balance sheet comprises of the assets and liabilities of the business organisation for a
particular date. By helping this particular statements a business organisation can states the
financial position in the market. This statements provides a comparison of the financial position
of the business by evaluating the data with past year (Sabauri and Kharabadze, 2015). The
statement of the financial position of the company are as follows:
Balance sheet for the company Yarnshaw Ltd:
Statement of Financial Position for the year ended December 31, 2018
Particular
Amount
(£)
ASSETS -
Current Assets:
Rent in advance 27000
Advance Rates 1350
Accounts Receivables 77400
Closing Stock 273600
Current Assets (A) 379350
Non Current Assets:
Delivery Van 61000
Non-Current Assets (B) 61000
Total assets (A+ B) 440350
EQUITY AND LIABILITIES -
Current Liabilities:
Outstanding Wages 2610
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Outstanding Electricity Expenses 2430
Accounts Payables 111600
Bank Overdraft 24840
Total current Liabilities 141480
Non current liabilities NA
Total liabilities (C) 141480
Shareholder's Equity (D)
Capital 216000
Add: Net Profit for the year 82870 298870
Total Equity and Liabilities (C + D) 440350
Working Notes for the balance sheet:
1. Total amount of Accounts Receivables :
Particulars Amount (£) Amount (£)
Credit Sales 604800
Less:
Cash recived from accounts receivables 525600
Irrecoverable debt 1800 527400
Net amount of A / R 77400
2. Depreciation on Delivery van as per the SLM method:
Particulars Amount (£)
Amount of Delivery Van bought on 01.01.2018 72000
Less: Depreciation on Van 11000
Cost of Van as on 31.12.2018 61000
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Depreciation on delivery as per SLM :
= cost of the assets – salvage value / useful life of the assets
= 72000 – 6000 / 6 = 11000
3. Total amount of the Accounts Payable:
Particular Amount (£)
Total amount of credit purchase 583200
Less: Amount paid during the year to debtors 471600
Accounts Payables 111600
4. closing balance of Cash and Cash Equivalents:
Cash / Bank Account
Particular
Amount
(£) Particular Amount (£)
To Capital Account 216000 By Purchases 46800
To Cash recived from account
receivables 525600 By Cash paid to suppliers 471600
To Sales in cash 154800 By Expenses of Delivery van 40320
To Balance C/d (Overdraft) 24840 By Wages paid 140400
By Electricity Bill Expenses 6840
By Rates 8280
By Rent 135000
By Purchase of Delivery Van 72000
921240 921240
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PART-B: RECKTURK PLC
(a ) Computation of the contribution per unit for wardrobe made towards covering fixed costs
when selling price is £ 40 per unit -
Particulars
Cost per
unit
Actual
production
(£)
Budgeted
production
(£)
Total Units Produced 78000 60000
Total Sales (A) 40.00 3120000 2400000
Material 15.75 1228500 945000
Labour 8.85 690300 531000
Variable Overhead 5.55 432900 333000
Total Variable Costs (B) 2351700 1809000
Contribution [(C) = (A)-(B)] 768300 591000
Contribution per unit [(D) = (C)/Units Produced] 9.85 9.85
Thus, the contribution is 9.85 £ per unit by considering the selling price is 40 in the both cases as
actual and budgeted.
(b). Calculation of the Break-even Point and Margin of Safety for the both unit of production
when selling price is £40 -
Break-even Point (BEP):
(i) In units of Wardrobe:
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(ii) In (£)
Margin of Safety (MoS):
(a) In units of Wardrobe:
Particulars Actual Budgeted
Total sales (given) 78000.00 60000.00
Break Even Point (as calculated in b(i)) 32467.01 32467.01
Margin of Safety 45532.99 27532.99
(b) In (£):
Particulars Actual Budgeted
Wardrobes sold (£) 3120000 2400000
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Break even point (£) 1298680.20 1298680.20
MoS (=Wardrobes Sold- BEP) 1821319.80 1101319.80
(c). Find out the Profit of company when Unit Production is 54,000 wardrobes at £40 per unit -
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(d) Analysation of the strategy for Reckturk Plc -
The particular business wants to spend the total; amount of £135,000 on the marketing
expenses and advertising of the business, it may enhance the overall sales by 8 %. so the new
selling price would be 43.2 after increment in it. It also enhance the level of the sales by
adversing the business items. It can be increased by 15 % and total unit become 62100 after
increment by 15 % as 54000 * 15 % + 54000 is equals to 62100. In the particular scenario the
sales and profit -
Particulars Cost per unit Amount (£)
Number of Wardrobes sold 62100
Total Sales (A) 43.20 3369600
Material 15.75 978075
Labour 8.85 549585
Overhead 5.55 344655
Total Variable Cost (B) 1872315
Contribution [(C)=(A) -(B)] 1497285
Fixed Costs for (D):
Production 177000
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Selling 142800
Marketing and Advertising Expenses 135000
Profit (E)=(D)-(C) 1042485
(e) Discussing the Assumptions that used regarding the Break-even Model:
Break even analysis is costing tools that used by production and manufacturing industry
to find out the profit portion which covers the total cost of the business organisation. This is the
particular point at which total variable and fix cost are equal with profit of the budgeted sales
(IA, H., 2017) . It determine the level of sales and production where the total cost of variable and
fix are covered. To achieve this point it is required to earn the sales revenue and profit to cover
the cost. This analysation enables to ascertain the level of the production as per the budgeted
requirement of the goods and services. It is require to cover the total fix cost of the production
level at initial stages of the manufacture. After the determination of the overall cost of the
production, the business management can make the suitable decision on the production level. It
is calculated as:
Formula of Break-even Point: In Units :
Break-even Point = Fixed Costs / contribution per unit In Sales value:
Break-even Point = Fixed Costs / Contribution Margin
here,
Contribution per unit = Revenue earned per unit - Variable Cost incurred per unit
Contribution Margin (%) = Contribution (£) / Total Sales
Assumption that has been made regarding the break even point is structured as follows:
 Total cost is calculated as by adding the fix cost and variable cost of production.
 Price of the product must be certain or unchanged during the production.
 Total unit that produced must be sold within the period of time.
 Fix cost remain unchanged during the overall production time period.
 Variable cost at different level must be constant (Ghose, 2015).
 Increment in the labour efficiency does not taken place into account.
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As per the analysis of the assumption of the BEP analysation, it is suggested that recognisation
the total cost for the certain production level. In result to it, business concern can attempt such
an action regardless of their size, creation and complexness.
PART-C: ROSEVILLE PLC
(a). Recommendation of acceptance or rejection of Capital Budgeting Projects using Investment
Appraisal techniques
Calculation of the pay back period:
Pay back Period
Initial cost of investment 8000000
Annual Cash inflow 2120000
Pay back Period 3.78
Calculation of the Accounting rate of return:
Accounting Rate of Return
Purchase Cost of New Machine 8000000
Expected annual Cash inflow 3400000
Depreciation 1400000
Accounting Rate of Return 9.00%
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Calculation of the net present value:
Net Present Value
Year
Cash
Inflow
Cash
Outflow
Net Cash
Inflows
Discounting
Factor
PV of Net
Cash Inflows
1 3400000 1280000 2120000 0.917 1944954.128
2 3400000 1280000 2120000 0.842 1784361.586
3 3400000 1280000 2120000 0.772 1637028.978
4 3400000 1280000 2120000 0.708 1501861.447
5 3400000 1280000 2120000 0.650 1377854.539
Salvage Value 1000000 0.650
Net Cash Inflows £8,895,992
NPV £895,992
Recommendations:
After considering the investment value of the company Roseville PLC worth £8,000,000.
The investment appraisal techniques for this machinery are stated that:
 Payback Period is 3 years and 8 months for the new purchase of the machinery. The life
of the machine is uncertain but it provide the benefit at least for 5 years. So this project is
feasible for the particular company.
 Accounting rate of return is 9 % for this particular projects. It is equal to its cost of
Weighted Cost of Capital. It provides the good return on the investment. So it fulfilled
the project objectives (Crisan and Oprean, 2015).
 NPV for the project is positive. It consider the salvage value into account to compute the
net cash flow. So it is feasible projects to invest in it.
So it is suggested to the Roseville PLC for the project to invest in it. This cab be provided
good benefit in the future.
(b). Report on key merits and limitations of various investment appraising techniques -
INVESTMENT APPRAISAL TECHNIQUES
In the business organisation there are certain decision regarding the capital investment
of the investment appraisal that needs to make by the management of the company. These are
linked with the long term decision-making system and provide the benefit in the future terms.
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For the same purpose, the financial management of the business organisation make the
investment decision by analysing the investment appraising tools. These tools facilitate to the
business management to get better decision for the different kind of projects. The key merit and
disadvantage of the method are as under:
Pay-Back Period: This tools is assist to management of business regarding accurate period of
time in which the invested amount is covered. The initial investment of the projects includes the
cost of investment that is covered in certain period of time. The main formula of the PBP is as
under:
Pay back period = Cost of the projects / net cash inflow for year.
Advantage:
 It is clear indicator of capital outlook as longer time period. It means that recovery of
initial investment funds would be delayed (Misund, Osmundsen and Sikveland, 2015).
 This particular tool is suitable when there are uncertainty in the investment projects to
find out the future annual cash in flow.
Limitation:
 It excludes the financial system of time value of money.
 This is the process that does not make the guarantee of the profitability for the projects
in the future.
Accounting Rate of Return: It is also called as financial ratio that is used in the capital
budgeting tools in order to make the investment decision. The main purpose of the ARR is
provides the information regarding the net income for the projects.
The formula of the ARR is as under:
ARR= Average Profit/ Average Investment
Advantage:
 This is the concept of the net earning for the that included the tax and
depreciation. It provides a clear profitability to investment appraisal.
 It is beneficial to management in comparing the data of different projects(Xin, .
and Yan, 2015) .
Limitation:
 It ignores the time value of money concepts in selection of the investment
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appraisal projects.
 It does not into account the cash flow generated by the projects as it takes the
average value of the projects.
Net Present Value: This is the most preferred tool of the investment that is based on the most
appropriate investment appraising tools and future cash flow is calculated on the present factor.
The formula of the NPV as under:
NPV = Σ(Present Value of all future cash flows) – cost of the Investment
Advantage:
 It considers the concepts of time Value of Money, thus, precedence cash inflows
written record.
 It is based on the reinvestment, thus, following conventionality (Course, 2019).
Limitation:
 It does not pioneer the consequence of sunk costs.
 It is challenging to determine the necessary rate of return using this method
acting.
(c). Report on identification of key merits and demerits of using Budgets as a strategy planning
tool -
BUDGETS: A STRATEGICAL PROVISION TOOL
Budget can be outlined as the process that includes the fiscal plan is created that enlist
estimations of revenues and financial outgo which are to be attained within a qualify
approaching period of the time. Zero based budget- It can be define as a kind of budget in
which previous year's budgeted information is not considered. This is so because it is prepared
from a zero base by taking all activities under the budget after proper justification. It consists a
wide range of advantages and disadvantages which are as follows such as:Advantage-
One of the key advantage of this budget is that it is helpful for making budgets more accurate
reliable and accurate because in it each financial activity has its justification.
Disadvantage-
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Its main disadvantage is that it is higher time consuming as well as higher costly.
Cash budget- It has been defined as a kind of budget in that future need of cash is estimated as
well as by help of this companies can make their plan. In broad sense, under this budget amount
cash that is needed into multipal operations is assessed. As well as managers of companies can
aware about financial position for future perspective. Though, it has some advantages and
disadvantages that are as follows:
Advantage-
Its importance is that on the basis of this companies can make their financial plan and other
strategies because under it cash need is estimated.
Disadvantage-
One of the key drawback of this budget is that sometimes wrong estimation of cash need can
lead to loss of companies financial resources.
Flexible budget- This is a type of budget which can be modify as per the change in sales and
volume. It is suitable for those financial activities that can be changed in future. Its advantages
and disadvantages are explained below that are as followings:
Advantage-
This is beneficial because companies can make change in it as accordance of sales and volume
variation.
Disadvantage-
Its disadvantage is that due to this chances of fraud and cheats raises.
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