Financial Analysis of ABC Real Estate
Added on 2020-06-06
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Records and Finances in RealEstateTask 3
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................11. Variance analysis.....................................................................................................................1Calculation of variance on income...........................................................................................1Explaining the possible causes of negative variance................................................................12. Preparation of financial statements..........................................................................................2Profit and loss statement...........................................................................................................2Statement of financial position.................................................................................................33. Calculation of financial ratios..................................................................................................44. Reporting the financial position of the firm.............................................................................4Liquidity analysis.....................................................................................................................4Profitability analysis.................................................................................................................5Leverage analysis.....................................................................................................................5CONCLUSION................................................................................................................................6REFERENCES................................................................................................................................7
INTRODUCTIONFinancial statement comprises of both income statement and balance sheet that depictsthe carried performance of the business in terms of its effectiveness and assesses financialstrength. It is necessary to prepare such statements to examine the productivity of the businessesand make efficient business related decisions. The current investigation paper has aimed toconstruct the profit and loss account and balance sheet of ABC Real Estate Company. Intowhich, their carried performance will be evaluated using the method of ratio analysis. Moreover,the report will also perform the analysis of variances through a comparative evaluation of theiractual and budgeted data set along with their reasons. It is with a prime goal of improving thebusiness performance for a long-term success. 1. Variance analysisCalculation of variance on incomeVariance is the difference between standard and actual result and are generally categorizein two distinct types called favorable and unfavorable. The favorable variance indicates higheractual income or less spending while the unfavorable variance shows over-running cost andlower actual revenue (Horngren and et.al., 2013). With reference to ABC Real Estate, itsvariance computation for the month of July is as computed below:Revenue for ABC Real Estate for July 20XXJulyBudget JulyActual Variance Variance%Sales commissions 700006700030004.29%Property management commission35003750-250-7.14%Letting fees 500525-25-5.00%1
Auction fees 2000170030015.00%7600017007430097.76%Explaining the possible causes of negative varianceAs per the computed variance, it is clear that ABC Real Estate’s sales commission andauction fees reports a positive variance because the firm has paid lower charges than theirexpected targets and thereby saved a cost of $3,000 and $300 respectively. However, on otherside, the variance report has also shown certain negative results for two financial componentsnamely, property management commission and letting fees worth $250 and $25 respectively. Itmay be due to a higher demand of commission by the property manager. Moreover, it might bepossible that a high commission has been demanded due to lack of talented and experiencedpeople.As a result,to which, ABC Real Estate has paid higher cost than their set budgetary targetby 7.14%. Another adverse variance is for the letting fees charge by the letting agents. It hasclearly presented that the agents have charged too much letting fees that what the firm hadexpected or projected in their budget. Moreover, poor negotiation with the agent is suspected tobe a cause behind the inability of minimizing the letting charges by the company and this hasexceeded the actual cost, above the set budgetary target. 2. Preparation of financial statementsProfit and loss statementP&L statement encompasses a list of revenue and income that are the result of currentyear and are related to trading activities or daily operations. It consists of both direct and indirectrevenues and expenses that help the firm to determine their profit performance. In thisstatement, all the activities and transactions are recorded by following the accrual concept ofaccounting, in which, every transaction is recorded at the time of their occurrence. It is withoutconsidering the fact of originally paying or receiving in cash (Hoskin, Fizzell and Cherry, 2014).This means that the current year’s transactions or activities will be recorded in the current yearregardless their cash impact. Profit and loss statement – ABC Real Estate for period ending 30 April 20XX2
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