Financial Statements Analysis of Violet Chan's Consultancy

This assignment focuses on analyzing the financial performance and position of Violet Chan's Consultancy Pty ltd. It requires students to interpret the provided income statement and balance sheet as of June 30, 2016. Calculations for various financial ratios, such as return on assets, current ratio, asset turnover, debt-to-equity ratio, debt ratio, and equity ratio are also needed. The analysis aims to provide insights into the company's profitability, liquidity, efficiency, and solvency.

Running Head: Principles of accounting
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Project report: Principles of accounting

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Contents
Introduction.......................................................................................................................3
Company performance......................................................................................................3
Transaction in the company..............................................................................................3
Ratio analysis....................................................................................................................4
Conclusion........................................................................................................................5
References.........................................................................................................................7
Appendix...........................................................................................................................8

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Introduction:
This report has been prepared to investigate the numbers of the Violet Chan’s
consultancy Pty ltd. Before preparing this report, the activities and transaction of the
company has been evaluated and for that preparation of journal entries, ledger account, trail
balance, profit and loss account, balance sheet and calculation of ratio analysis has been
done. This report depict that the performance of the company is not impressive and the
company is required to manage and maintain various expenses and required to make change
into the assets, equity and debt level to enhance the profitability, liquidity and debt position
of the company. In this report, the comparative study has also been done to found and analyze
the changes into financial performance of the company from last year.
Company performance:
According to the last year’s balance sheet of the company, it has been analyzed that
the performance of the company was bit better than current year as the company was able to
make at least the profit. But according to the current situation of the company, the company
has faced the situation of net loss. The current scenario of capital structure and the debt
equity, debt assets and equity ratio was almost similar as last year (Assessment, 2013). No
extra changes have been done by the company to manage and change the level of the
company, according to the performance of the company, it has been analyzed that the
company is required to make various changes into its activities and performance to manage
the profits. Owner is investing various capitals into the company but this amount is not used
by the company in a proper manner and that is why the excess problems are faced by the
company. Further, the level of the total assets, debt and equity has been analyzed and it has
been found that the level of total assets has been enhanced whereas the level of debt has been
reduced and the level of total equity of the company has also been enhanced from financial
year 2015 in financial year 2016. The average performance of the company expresses that the
company has not managed a good level of equity (Whittington, 2008). The company is
suggested to reduce the level of total assets to maintain the business in a good manner.
Transaction in the company:
Various transaction of the company has been studied in the month of June. The main
transaction was contributing more money into the account which was not required by the
company. The owner has contributed $ 17,000 more into the capital of the company. Further,

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a new computer has also been bought by the company on credit and the payment has not been
made by the company (Lee, 2006). Company has paid various monthly expenses in cash such
as salary, wages, rent, advertisement, telephone bill etc. Company has bought furniture on
credit basis and later on the entire amount has been paid by the company to its creditors.
Company has also depreciated the old and new furniture and the old and new computer
according to the SLM depreciation method (assumption). Thus through these analysis, it has
been found that the company has not made any special transaction to manage the level of
equity, assets, debt of the company. And company has also not made any extra effort to
enhance the revenue of the company, only $ 200 has been spent by the company on
advertisement. According to the evaluation of all of these, it has been found that the average
performance of the company expresses that the company has not managed a good level of
equity (Glasson, Therivel & Chadwick, 2013). The company is suggested to reduce the level
of total assets to maintain the business in a good manner.
Ratio analysis:
Ratio analysis study has been performed over the Violet Chan’s consultancy Pty ltd.
The study of ratio analysis of the company depict that the return on assets of the company is -
2.29% which depict that the performance of the company is not well and the company is
facing various losses in the market (Dye & Sunder, 2001). Through this analysis, it has been
found that the net profit of the company is $ -1146 and the total assets of the company is $
50,054. Further, it has been investigated that the current ratio of the company is 9.72:1 which
depict that the current assets of the company is 9.72 times more than the current liabilities of
the company.
The current ratio of the company depict that the liquidity position of the company has
been worst and it express that the company is required to reduce the level of current assets of
the company to manage the liquidity position of the company. The current assets of the
company are $ 40,854 and the current liabilities of the company are $ 4,200 which express
that the company must reduce the level of the current assets of the company (Laux & Leuz,
2009)..
Further, the assets turnover ratio of the company has been analyzed and it has been
found that the ratio of the company is 0.1208 which express that the total sales are 0.12 times
of the total assets of the company. The total sales of the company are $ 6,050 and the total

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assets of the company are $ 50,054. According to this analysis, it is suggested top the
company to reduce the level of current assets. Company is not required to manage and
maintain this much of assets as the less level of total assets would also be sufficient for the
company and the current level would enhance the cost of the company only (Whittington,
2008).
More, the debt to equity ratio of the company has been analyzed. Through this ratio, it
has been found that the debt- equity relation of the company is 0.0915:1 which express that
the debt of the company is 0.09 times of the total equity of the company. The total debt of the
company is $4,200 whereas the total equity of the company is $ 45,854 which express that
the capital structure of the company is not at all good (Daly & Farley, 2011). Company is
required to reduce the level of equity which could be done through withdrawing the amount
from the capital account of the company to maintain an optimal capital structure on the
company .( Schroeder, Clark & Cathey, 2001)
More, the debt to assets ratio of the company has been analyzed. Through this ratio, it
has been found that the debt- asset relation of the company is 0.083:1 which express that the
debt of the company is 0.08 times of the total assets of the company. The total debt of the
company is $4,200 whereas the total assets of the company are $ 50,054 which express that
the company has not managed a good level of debt and equity (Arewa, 2006). The company
is suggested to reduce the level of total assets to maintain the business in a good manner.
More, the equity to assets ratio of the company has been analyzed. Through this ratio,
it has been found that the equity- asset relation of the company is 0.92:1 which express that
the equity of the company is 0.92 times of the total assets of the company. The total equity of
the company is $45,854 whereas the total assets of the company are $ 50,054 which express
that the company has not managed a good level of equity. The company is suggested to
reduce the level of total assets to maintain the business in a good manner.
Conclusion:
Through this report, calculation of ratio analysis, preparation of journal entries, ledger
account, trail balance, profit and loss account, balance sheet etc, it has been analyzed that the
company is required to manage the level of the assets and equity to maintain the business in a
good manner. The company is suggested to look over the activities and transaction of
competitive business and make a good decision accordingly. Through this case study, it has

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been found that this company is not able to manage the capital structure in a good manner
and the turnover of the company is also not good. The comparative study of financial year
2015 and financial year 2016 depict that any extra efforts have not been made by the
company to manage the performance and profitability position of the company. So the
company is suggested to enhance the expenditure on advertisement and promotion and reduce
the level of total assets and total equity.

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References:
Arewa, O.B., (2006). Measuring &representing the knowledge economy: accounting for
economic reality under the intangibles paradigm. Buff. L. Rev., 54, p.1.
Assessment, W.S.B.P., (2013). Conceptual Framework.
Daly, H. E., &Farley, J., (2011). Ecological economics: principles &applications. Isl&press.
Dye, R.A. &Sunder, S.,(2001). Why not allow FASB &IASB standards to compete in the
US?. Accounting horizons, 15(3), pp.257-271.
Glasson, J., Therivel, R., &Chadwick, A., (2013). Introduction to environmental impact
assessment. Routledge.
Laux, C. &Leuz, C., (2009). The crisis of fair-value accounting: Making sense of the recent
debate. Accounting, organizations &society, 34(6), pp.826-834.
Lee, T.A., (2006). The FASB &accounting for economic reality. Accounting &the Public
Interest, 6(1), pp.1-21.
Schroeder, R.G., Clark, M.W. &Cathey, J.M., (2001). Accounting theory &analysis. Chapel
Hill: University of North Carolina.
Whittington, G., (2008) (B). Fair value &the IASB/FASB conceptual framework project: an
alternative view. Abacus, 44(2), pp.139-168.
Whittington, G., (2008). Fair value &the IASB/FASB conceptual framework project: an
alternative view. Abacus, 44(2), pp.139-168.

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Appendix:
Journal entries
In the books of Violet Chan's Consultancy Pty ltd
Date Account Dr Cr
2016
Jun-
01 Cash A/c Dr 15000
To capital 15000
(Being cash has been contributed.)
Jun-
04 Computer a/c Dr. 1200
To creditors 1200
(Being new computer has been bought.)
Jun-
05 Cash A/c Dr. 500
To service revenue 500
(Being services has been rendered.)
Jun-
06 Rent A/c Dr. 400
To Cash 400
(Rent amount has been paid.)
Jun-
08 Cash a/c Dr. 2000
To capital a/c 2000
(Aunt Kate has contributed into the business.)
Jun-
09 Debtor a/c Dr. 500
To service revenue 500
(Bill has been made.)
Jun-
10 Furniture A/c Dr. 3400
To creditors 3400
(Furniture has been purchased.)
Jun-
11 Salary A/c Dr. 1500

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To cash 1500
(Salary amount has been paid.)
Jun-
15 Telephone expenses a/c Dr. 65
To Cash 65
(Telephone expenses have been paid.)
Jun-
16 Cleaning bill a/c Dr. 231
To Cash 231
(Cleaning expenses have been paid.)
Jun-
20 Rent a/c Dr. 400
To cash 400
(Rent amount has been paid.)
Jun-
23 Cash A/c Dr. 250
To consultancy revenue 250
(Consultancy amount has been received.)
Jun-
24 Debtors A/c Dr. 4800
To service revenue 4800
(Services have been rendered on credit.)
Jun-
26 Salary a/c Dr. 1500
To cash 1500
(Salary amount has been paid.)
Jun-
28 Creditors a/c Dr. 3400
To cash 3400
(Furniture amount has been paid.)
Jun-
30 Advertisement a/c Dr. 200
To cash 200
(Advertisement amount has been paid.)
Jun-
30 Depreciation A/c Dr. 170

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To Computer 170
(Depreciation has been charged.)
Jun-
30 Depreciation A/c Dr. 130
To Furniture 130
(Depreciation has been charged.)
Dr Cash Cr
Date Account Amount Date Account Amount
2016 2016
Jun-01 To Balance b/d 24000
Jun-
06 By Rent 400
Jun-01 To capital 15000
Jun-
11 By Salary 1500
Jun-08 To capital 2000
Jun-
15 By Telephone expenses 65
Jun-05 To service revenue 500
Jun-
16 By Cleaning bill 231
Jun-23
To consultancy
revenue 250
Jun-
20 By Rent A/c 400
Jun-
26 By Salary 1500
Jun-
28 By creditors 3400
Jun-
30 By advertisement 200
Jun-
30 Balance c/d 34054
41750 41750
Dr Computer a/c Cr
Date Account Amount Date Account Amount
2016 2016
Jun-01 To Balance b/d 8000
Jun-
31
Accumulated
depreciation 2170
Jun-04 To creditors 1200
Jun-
31 By Balance c/d 7030
9200 9200
Dr Furniture a/c Cr
Date Account Amount Date Account Amount

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2016 2016
Jun-01 To Balance b/d 5000
Jun-
31
Accumulated
depreciation 1630
Jun-04 To creditors 3400
Jun-
31 By Balance c/d 6770
8400 8400
Dr Salary a/c Cr
Date Account Amount Date Account Amount
2016 2016
Jun-
31 By balance c/d 3000
Feb-04 To cash 1500
Jun-26 To cash 1500
3000 3000
Dr telephone expenses a/c Cr
Date Account Amount Date Account Amount
2016 2016
Jun-15 To cash 65
Jun-
31 By P&L a/c 65
65 65
Dr Cleaning expenses a/c Cr
Date Account Amount Date Account Amount
2016 2016
Jun-15 To cash 65
Jun-
31 By P&L a/c 65
65 65
Dr Capital a/c Cr
Date Account Amount Date Account Amount
2016 2016
Jun-31 To balance c/d 47000
Jun-
01 By balance c/d 30000
Jun-
01 By cash 15000
Jun- To cash 2000

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08
47000 47000
Dr Creditors a/c Cr
Date Account Amount Date Account Amount
2016 2016
Jun-28 To cash 3400
Jun-
01 By balance b/d 3000
Jun-31 To balance c/d 4200
Jun-
04 By computers 1200
Jun-
10 By furniture 3400
7600 7600
Dr Debtors a/c Cr
Date Account Amount Date Account Amount
2016 2016
Jun-01 To Balance b/d 3500
Jun-
31
Accumulated
depreciation 2000
Jun-04
To service
revenue 500
Jun-
31 By Balance c/d 6800
Jun-16
To service
revenue 4800
8800 8800
Dr Accumulated Depreciation a/c Cr
Date Account Amount Date Account Amount
2016 2016
Jun-01 To Balance b/d 3500
Jun-
31 By balance c/d 3800

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Jun-31 To furniture 170
Jun-31 To Computer 130
3800 3800
Dr Rent a/c Cr
Date Account Amount Date Account Amount
2016 2016
Jun-
31 By P&L a/c 800
Jun-06 To cash 400
Jun-20 To cash 400
800 800
Dr Advertisement a/c Cr
Date Account Amount Date Account Amount
2016 2016
Jun-15 To cash 200
Jun-
31 By P&L a/c 200
200 200

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Dr Consultancy revenue a/c Cr
Date Account Amount Date Account Amount
2016 2016
Jun-01 By Balance c/d 250
Jun-
23 By cash 250
250 250
Dr Service revenue a/c Cr
Date Account Amount Date Account Amount
2016 2016
Jun-31 To P&L a/c 5800
Jun-
05 By cash 500
Jun-
23 By Debtors 500
Jun-
24 By Debtors 4800
5800 5800
Trial Balance
In the books of Violet Chan's Consultancy Pty ltd
Account Debit Credit
Cash 34054
Accounts receivable 6800
Computer - at cost 8000
Computer - accum dep 2170
Furniture - at cost 5000
Furniture - Accum dep 1630
accounts payable 4200

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Capital 47000
Service revenue 5800
Consulting fees 250
Depreciation 300
Telephone 65
Advertising 200
Office cleaning 65
Wages and salaries 3000
Rent 800
Suspense a/c 2766
Total 58284 61050
Profit and loss a/c
In the books of Violet Chan's Consultancy Pty ltd
Income
Consulting fees 250
Service revenue 5800
6050
Expenses
Rent 800
Depreciation 300
Salary 3000
Telephone expenses 65
Cleaning expenses 65
Advertisement 200
Sundry expenses 2766
7196
Net profit -1146
Balance sheet
In the books of Violet Chan's Consultancy Pty ltd
As on 30 June 2016
Assets
Cash 34054

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Accounts receivable 6800
Total current assets 40854
Computer-at cost 8000
Computer- accum dep -2170
Furniture 5000
Furniture- accum dep -1630
Total fixed assets 9200
Total assets 50054
Liability
Accounts payable 4200
Total liability 4200
Net assets (total assets- total liab) 45854
Equity
Capital 47000
Retained earnings -1146
Total equity 45854
Calculation of ratio analysis
Description Formula
Violet Chan's
Consultancy
Pty ltd
2016
Return on assets Net profit/Assets -2.29%
Current ratio
Current assets/current
liabilities 9.727142857
Asset turnover
ratio Total sales/ Total assets 0.120869461
Debt to Equity
Ratio Debt/ Equity 0.091595063
Debt ratio Debt/ Total assets 0.083909378
Equity ratio Equity/ Total assets 0.916090622