Formulation of Income Statement and Balance Sheet | Calculation of Financial Ratios | Desklib

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Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Formulation of income statement and balance sheet...................................................................1
TASK 2............................................................................................................................................3
Calculation of financial ratios along with comparison and contrasting of them for year 2018
and 2019.......................................................................................................................................3
CONCLUSION................................................................................................................................5
REFRENCES...................................................................................................................................7

INTRODUCTION
Accounting and finance are two different types of terms that are required to be focused
by businesses while planning to attain all the financial goals and objectives. The process of
recording information of all the business transactions in books of company is known as
accounting. Apart from this, the funding required for carrying out operations of business is
known as finance. Present report is focused with assessment of various key aspects of both the
terms so that importance of them for a business could be determined (Conley, Gonçalves and
Hansen, 2018). This assignment is segregated in two tasks. First task is based upon formulation
of final accounts for Betelgeuse Hotels. Second task of the report is based upon calculation of
ratios for Summerlea Plc. This assignment covers various topics such as formulation of income
statement, balance sheet etc. Apart form this, calculation of different financial ratios including
profitability, efficiency, liquidity and capital structure are also covered in this project.
TASK 1
Formulation of income statement and balance sheet
Income statement: It is a financial statement which is generated by companies for the
purpose of keeping track record of all the transactions that are made during the year. All the
revenues, incomes, expenses, gains and losses are recorded in it so that profitability of the
enterprise could be estimated. While planning to meet all the long as well as short term goals of
the organisation it is very important for businesses to be focused with proper formulation of
income statement as it can helps to evaluate ability of business to generate profits. In order to
formulate it the accounting professionals of the companies are required to evaluate trial balance
as it records all the accounts mentioned in financial statements (McLaney and Atrill, 2016). By
using closing balance of different accounts from trial balance of Betelgeuse Hotels income
statement is generated. It is as follows:
Income statement
As on 31st December 2019
For Betelgeuse Hotels
Income statement
Particulars Amount Particulars Amount
Opening stock 225 Revenues 7500
Purchase 5475 Closing stock 240
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Gross profit (B.F.) 2040
7740 7740
Administration exp:
315
Gross profit 2040
Add: utility bills: 47 362 Interest received 26
Interest paid 375
Dep on property 40
Irrecoverable debts 5
Provision for debts 2
Net profit (B.F.) 1282
2066 2066
Balance sheet: It is also a financial statement which is generated by businesses for the
purpose of analysing actual financial position of business. With the help of it, efficiency,
liquidity etc. could be analysed in context of business. If the companies will not be paying
attention towards proper formulation of it then it may result in negative implications upon mind
set of different stakeholders. These are employees, customers, shareholders, investors etc.
Detailed information regarding all the assets, liabilities and equities are are mentioned in it so
that the internal as well as external parties can evaluate actual position of business (Floyd and
List, 2016). A balance sheet for Betelgeuse Hotels is formulated below on the basis of closing
balance of trial balance:
Balance Sheet
As on 31st December 2019
For Betelgeuse Hotels
Liabilities Amount Assets Amount
Share capital 4200 Closing stock 240
Share premium 1210 Property: 16500
Retained profits 3296 Less: Dep- 40 16460
Net profit 1282 Trade receivables: 205
Long term loan 4950 Less: Provision- 2
Trade payables 450 Less: irrecoverable debts- 5 198
Accumulated dep. 1688 Cash at bank 225
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