UG221 Financial Accounting Individual Assessment

This report covers the consolidated statement of financial position for Pee Group, meaning of relevance, reliability, comparability and their role in making financial information useful, and financial performance of Patrick Financial services using financial data. It also explains why non-financial information is better than financial information for predicting future success of business.

UG221 FINANCIAL
ACCOUNTING
INDIVIDUAL
ASSESSMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Question 1........................................................................................................................................3
A. Consolidated statement of financial position for Pee Group as at 31st December 2020.........3
B. Discussion of the meaning of Relevance, Reliability, Comparability and role in making
financial information useful.........................................................................................................5
Question 2........................................................................................................................................7
(a).................................................................................................................................................7
(i) Comment on financial performance of Patrick Financial services using financial data.........7
(ii) Explanation of why non-financial information is better than financial information for
predicting future success of business...........................................................................................8
(iii) Comment on performance of Patrick Financial service using non-financial data................9
b.................................................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Financial accounting is a part of corporate world which involve process of recording,
analysing, summarizing, reporting and communicating the day-to-day transaction of a business.
This basically provides an accurate and reliable information of the company to the users and
stakeholders. The report will firstly calculate the consolidated financial statement of Pee Plc who
purchases 80% share capital of Cee Ltd. Further, the report will discuss the meaning of
relevance, reliability and comparability and how this all make the financial information more
useful for stakeholders as per IASB Framework. The report will also comment on the financial
performance of Patrick Financial services based on both financial and non-financial information.
In addition, the report will also discuss why non-financial information is better than financial
data for estimating future success of the business. Lastly, the report will cover importance and
five fundamental principles of professional ethics for accountants.
MAIN BODY
Question 1
A. Consolidated statement of financial position for Pee Group as at 31st December 2020
Particulars Amount
Non – current assets
Property plant & equipment (160000 + 50000) 210000
Goodwill 20000
230000
Current assets (30000 + 10000) 40000
TOTAL ASSETS 270000
Equity & liabilities
Ordinary shares at £ 1 each 100000
Retained profits 158000
Non – controlling interest 12000

TOTAL OF EQUITY & LIABILITIES 270000
Working notes:
1. Calculation of Net assets for the Subsidiary Co. i.e., Cee plc
Particulars At acquisition (as at
31st December 2018)
At Reporting date
(31st December
2020)
Post - acquisition
Equity shares 20000 20000
Retained earnings 30000 40000 10000
Fair value of net
assets of subsidiary
50000 60000 10000
2. Calculation of Non – controlling interest on the date of acquisition
= fair value of net assets on 31st December 2018 that is, at acquisition × % share of NCI = 50000
* 20% = 10000
Goodwill = (Consideration paid by Pee plc to Cee plc on acquisition of 80% controlling interest
+ fair value at acquisition of NCI) – Fair value of net assets as at 31st December 2018
Goodwill = (60000 + 10000) – 50000 = 20000
Calculation of NCI on the reporting date as at 31st December 2020
NCI on reporting date (31st December 2020) = NCI at acquisition that is, on 31st December 2018
+ NCI’s share in the post - acquisition profit
= 10000 + 20% * 10000 = 12000.
Retained earnings of the group to be shown in the consolidated statement of financial
position as at 31st December 2020
Parent’s (Pee Ltd.) retained earnings as at the reporting date (31 December 2020) + Subsidiary’s
(Cee Ltd.) proportionate share of post - acquisition profit

= 150000 + 80% * 10000 = 158000.
Thus, in this way the consolidated statement of financial position can be prepared for the group
where there are certain terms which must be well understood by the accountant or financial
manager such as non – controlling interest and consolidated statement of financial position. The
latter must be prepared when one company acquires controlling interest in another entity, like in
the given case Pee plc has acquired 80% interest in Cee plc. Post – acquisition, Cee plc has
become the subsidiary company of Pee plc whereas the Pee plc has become a parent company of
Cee plc.
Non-controlling interest: It refers to the company that is having ownership stake less than 50%
of its outstanding shares and doesn’t have kind of eligibility in decision making activities and
thus, have no voting rights in the company (Asuquo and Udoayang, 2020). According to
generally accepted accounting principles (GAAP), the NCI must be placed in the balance sheet
among other items of equity to indicate the portion of total equity held by someone else. The
treatment of NCI is done on the basis of IAS 27.
Consolidated statement of financial position: It refers to the combined financial statement of
the group indicating the assets and liabilities held with both the parent and the subsidiary in a
single statement of financial position as per the IAS 27. By adding together, the assets and
liabilities after making necessary adjustments arising on consolidation, a single statement for Pee
plc and Cee plc has been prepared here. It is prepared to show the overall financial performance
and position of the group at the end of financial period (Gardi, 2021).
Accordingly, consolidated statement of financial position has been prepared for the group by
considering the individual financial position of Pee plc and Cee plc as at the reporting date (31st
December 2020).
B. Discussion of the meaning of Relevance, Reliability, Comparability and role in making
financial information useful
Relevance can be defined as something being understandable and should not be outdated, so that
it can be used in decision making (Malik and et.al., 2021). In the context of accounting
information provided by financial statement to its users, it is necessary on the part of accountant
and financial management team to ensure they have complied with the principle of relevance, so

that the financial information can regarded as an utmost relevant piece of information to be used
in decision making by external and internal users. There must be a considerable relevancy
ensured by the accountant to make the information within the financial statement useful for the
investors and other decisions makers associated with the company.
To ensure better understandability of financial information, a standardized format must
be used while preparing financial statements of the company, so that better comparison can be
done among financial outcomes of different years & different companies as well (Gardi, 2021).
Relevancy can be ensured by avoiding the inclusion of outdated information as it doesn’t provide
useful insight into the current financial position of a concern. Also, the information should be
able to meet the decision-making requirements of the business.
Reliability can be defined as a trustworthiness offered by the financial statement of the company
within the information it provides. In other words, whether information obtained through
company’s financial statements are trustful enough to be used in making decisions by investors
and creditors or not. It is ensured upon company’s financial statements when they get verified by
some authorized body. In the absence of considerable reliability, financial reporting becomes
useless (Schroeder, Clark and Cathey, 2019). Reliability could be confirmed when the three
attributes such as verifiability, neutrality and faithfulness in representation of financial
statements are present. Verifiability can be ensured when auditors or other parties render at the
similar outcomes on evaluation and measurement of business financial performance. On getting
clarification that the financial statements are indicating true and fair view of the company’s
financial position, faithfulness in representation can be ensured. At last, consideration to
unfavourable events and absence of biasness while preparing financial statement ensures
neutrality information. In this way, reliability offered by financial statement makes it useful for
decision making purpose.
Comparability is another characteristic of financial information obtained through company’s
financial statement which enhances its usefulness (Jayasekara, Perera and Ajward, 2018). To
make financial statements of different period comparable, it is necessary that similar principles
and techniques of measurements has been followed. In the absence of comparability, investors
are not able to compare financial statement of different years and also with the competitors of the
company and makes it useless for decision making. Therefore, financial information must be

comparable with that of different accounting period and company’s competitors in order to use it
for decision making and analytical purposes.
Question 2
(a)
(i) Comment on financial performance of Patrick Financial services using financial data
The financial performance of Patrick Financial service company based on three most
important criteria are as follows:
Profitability:
As per appendix 1 i.e., financial information of business, it can be interpretate that the
overall performance of the company in the current year was same as compared to previous year
based on profitability criteria. It is because in the previous year the net profit margin of company
was 20% i.e., (180/ 900* 100), while on the other hand the net profit margin of business in the
current year is also 20% i.e., (187/ 945* 100). This means that Patrick Financial services has the
ability to manage its profitability position in the market and take competitive advantage. The
reason behind the same profit margin of company in both the year might be that they can control
its cost of sales and increase sales revenue (Raimo and et.al., 2020). The net profit of company in
the previous year is 180 which has increased to 187 in the current year is one of the reasons
behind better profitability performance of business.
Growth:
The sales growth percentage of Patrick company in the current year is 5% i.e., (945 –
900)/ 900* 100 as compared to previous year. On the same side, the net profit growth percentage
of company in current year is 3.88% i.e., (187 – 180) 180* 100 as compared to previous year net
profit. Not only that the average cash balance of company in the current year is higher than the
previous year. So, on this basis, it can be interpretate that the overall growth of the Patrick
company in increasing over the period of time. It might be because of highly expertise staffs and
financial management team of the company (Raucci and Tarquinio, 2020).
Credit Management:

On the basis of the information provided in appendix 1, it is identified that the credit
management performance of Patrick company in the current year is better than previous year. It
is because in the previous year average time in which the company receives its payment from
debtors or average receivables was 22 days. But the same average receivable days of company in
the current year has reduced to 18 days. This means that now Patrick company able to receive its
debtor’s dues in 18 days only which is quite lower than past year and industry average of 30
days. This further indicate that the overall performance of company in term of credit
management is improving day by day (Peña and Jorge, 2019). The company have the capacity to
receive its payment on time or earlier than industry average which basically make them more
competitive firm in this dynamic & complex environment.
So, in this way, it has concluded that the performance of Patrick Financial service in term of
profitability, growth and credit management is better and higher in the current year as compared
to previous year based on financial information provided in appendix 1.
(ii) Explanation of why non-financial information is better than financial information for
predicting future success of business
Basically, despite of financial and non-financial data everything that a business does
definitely has financial impact over company. For example, financial data includes cost of
production, advertisement expenses, sales revenue which is possible to quantify them in figures.
But on the other hand, example of non-financial data includes environmental impact, relationship
with suppliers, workplace diversity, social responsibility etc. which is impossible to quantify in
figures but may have financial impacts. In order to predict the future success of business in more
accurate and reliable way, it is important for the businesses to use non-financial information
more as compared to financial information. It is because of following reason:
 Measuring and predicting future sales revenue of business will rise or fall is simple but
predicting customers loyalty, employee’s commitment or environmental impact is quite
difficult. Thus, non-financial information is better in predicting the future success of
business.

 The non-financial information help Patrick to identify that whether customers are loyal
towards the company or not. It is because customers are the one who ultimately buy the
products and services of company. The impact of which the decision of management gets
improved via implementing strategy to improve customers loyalty (Szadziewska,
Spigarska and Majerowska, 2018).
 Non-financial information also helps the company in lowering the risk of problems as it
provides the company with the information that whether the company meet the
requirement of current legislation or not. For example, handling harassment or workplace
bullying with legislation compliance.
 The non-financial information such as relationship of company with its supplier help the
company in improving its credit management and predicting whether they will get raw
material from supplier in future or not. This will help in improving operation of business.
 This also provides the information to the company that whether the local community see
them as environment friend or environment spoiler. It is because without the support of
local community and fulfilling social responsibility, future existence and success is
impossible.
 The non-financial data also helps the company in following industry standards, best
practices and identifying morale of employees (Szadziewska, Spigarska and Majerowska,
2018). If the company failed to follow and analyse the same, predicting future success in
reliable and accurate way is not possible.
Thus, it is crucial for the company that they should use more non-financial information for
predicting business future success.
(iii) Comment on performance of Patrick Financial service using non-financial data
In appendix 2, the performance of Patrick company is provided in balance scorecard
format which is a non-financial information. The performance of Patrick financial services
company based on following non-financial criteria is as follows:
Internal business processes:
The error rates in jobs done in the current year is higher than the previous year rate i.e.,
16% from 10%. This means that the number of jobs in which mistakes made by staffs as a

proportion to client serviced has increased in current year. While on the other hand, the average
job completion time in the previous year was 10 weeks which has reduced to 7 weeks in current
year. This indicates that the time completion of work by employees has increased but it leads to
compromises with quality (Lombardi, 2021). It means the quality management of products are
getting poor while maintaining time management of production. In simple term, the internal
process of Patrick business is poor in current year.
Customer knowledge:
The customer knowledge data of Patrick company state that the number of customers and
market share of company in current year is lower than previous year while the average fees level
has increased. This means that the performance of Patrick financial service is getting worse year
by year. It is because customers are not loyal towards the business which has leads decrease in
the market share of business to 14%. The fees payable by company has also increased to 775 in
current year which means the company are not complying rules and laws (Hassan and et.al.,
2021).
Learning and Growth:
The revenue of the business from the non-core work has decreased from previous years and
the employee’s retention rate has also decreased. This means that the capability of Patrick
business to retain its employees with themselves is poor and not only that they do not provide
self-development to its staffs. The employees also leave the company because of partiality,
harassment and bullying etc. While on the other hand, the industry average of proportion of
revenue from non-core work in accounting practice has increases but Patrick company has
decreases. This means that the learning and growth performance of business is poor (Al-Dmour,
Abbod and Al-Balqa, 2018).
On the basis of above comment and interpretation over performance of Patrick business via
using non-financial data, it has concluded that the overall performance of Patrick financial
service is poor and worst in current year as compared to previous year. The company need to put
their focus on non-financial data and analyse whether they are following accounting practices or
not, whether employees are happy or satisfied or not, whether customers are getting higher

quality service or not etc. This will help the company in not only managing its operations but
also increasing its market share in the market (Lombardi, 2021). It is because the non-financial
information is as important as financial information and sometime it is more important for
company to disclose its business, economic, sustainable and social information to its
stakeholders.
b.
Professional ethics in accounting refers to the principles that are aimed to govern the behaviour
of accountant where there are various rules meant for providing directions on how to act
different situations. In the presence of professional ethics, accounting professionals complied
with the regulations and laws that are meant for governing their bodies of work and jurisdictions.
The reasons behind why professional ethics are important in accounting are as follows:
 To ensure neutrality and unbiasedness while preparing financial statements and
communicating trustful and reliable accounting information, professional ethics are
important (Asuquo and Udoayang, 2020).
 Keeping various information related to an organisation confidential and restricting its
disclosure to only those to whom it is necessary.
 To ensure honesty and integrity in work and professional relationships, professional
ethics are necessary as it prevents accountant to be indulged in any kind of damaging or
misleading information to the organisation.
 To hold necessary knowledge, expertise and skills necessary to carry the requirements of
the profession and not to imply of having knowledge of areas to which the accountant is
not familiar with (Aifuwa, Embele and Saidu, 2018).
Five fundamental principles of professional ethics for accountant
There are five principles applicable on the profession of accountant which they must complied
with in their every professional conduct, such as the following:
Integrity: An accountant is required to be honest and straightforward in all kind of relationships
whether it is business or professional one.

Objectivity: While carrying out the accounting activities of the company, it is necessary on the
part of accountant to not allow the element of conflict of interests, biasness and undue influence
to affect their duties and responsibilities.
Professional competence & due care: It is necessary for an accountant to hold that level of
knowledge and skills required to provide competent professional services to their client by
adapting themselves to current developments, techniques and legislations associated with their
professional practice (Nguyen, Tran and Dang, 2020). Also, accountant must act in a diligent
manner and within the applicable professional standards while providing services.
Confidentiality: Whatever information does the accountant receive during the course of their
professional relationship, they must keep it confidential and do not disclose the same to any third
party unless there is a legal right or professional duty to do so. Also, they must not use such
information for any of their personal advantage.
Professional behaviour: All applicable laws and regulations must be complied by the
accountant and action discrediting their profession must be avoided.
CONCLUSION
From the above report it has been concluded that relevance, reliability and comparability
are all major characteristics of financial information to make it useful for decision making. Also,
both financial and non-financial information should be taken into consideration while evaluating
current performance and predicting future performances. At last, it has been evaluated that how
professional ethics are very important to be followed by accountant along with the discussion of
fundamental principles of professional ethics applicable on accountant.

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