This study provides a comprehensive account of the basic accounting and managerial accounting structures, principles and strategies used in the field of accounting and finance. It covers topics such as financial reports, income statements, balance sheets, financial analysis methods, and more.
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UGB 163 – INTRODUCTION TO ACCOUNTING AND FINANCE ASSESSMENT
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Contents INTRODUCTION...........................................................................................................................................3 MAIN BODY.................................................................................................................................................3 Part A – Collins Colman Limited............................................................................................................3 Part B – Parks mead Limited.................................................................................................................10 Part C – Skipsey Clifford Plc.................................................................................................................15 CONCLUSION.............................................................................................................................................21 REFERENCES..............................................................................................................................................22
INTRODUCTION Accounting and finance principles are closely interrelated but separate domains. Accounting deals mainly with the acknowledgment of sales that can be calculated in quantitative value (Ainsworth and Deines, 2019). Although the field of finance refers to the analysis of the company'sownersintheformofpapers. Thesetwocomponentssuggestthatsufficient statements are reported in an appropriate way and transmitted to the various management. They allow funds to be procured and distributed in a reasonable way on the part of managers are accountable for making rational decisions about them. The purpose of this study is to provide a comprehensive account of the basic accounting and managerial accounting structures, principles and strategies used. For this reason, the principle of preparing of financial reports including such income statements, balance sheets, expenditure calculation, break-even point, protection margins in terms of amount and profit is ignored. In addition various financial analysis methods used as a financial planning method in capital money management actions, alongside advantages and budget constraints, are studied. MAIN BODY Part A – Collins Colman Limited A corporation tries to calculate the net profit received over a particular time span for a company and determine whether or not it is likely to expand or step in the path that is in line with its vision and purpose (Helfaya,2019). For this purpose, the Income Statement is available to receive in the interaction of the company's value after getting tax, value, amortization and other expenditure into account. Thus, supplying the managers as well as shareholders in a single company like Collins Colman Limited with an analysis of organizational productivity. It is seen as under: Statement of Income for the year ended 31st December 2019 Particulars£Particulars£ To Opening Stock-By Revenue3759600 To Purchases1630000By Closing Stock4273600
To Wages2143010 ToGrossProfit(Balancing figure)260190 Total1033200Total1033200 To Electricity Bill Payments59270By Gross Profit b/d260190 To Van Running Expenses40320 To Irrecoverable Debts1800 To Rent paid to owner6108000 To Rates76930 To Depreciation on Van11000 To Net Profit for the year82870 Total260190Total260190 Working Notes: 1. Purchases: Particulars£ Credit Purchases583200 Cash Purchases incurred46800 Total Purchases made during the year630000 2. Wages:
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Particulars£ Total Wages paid during the year140400 Add: Wages owed for the last week of the year2610 Total Wage Expenses143010 3. Revenue for the year ended December 31, 2019: Particulars£ Credit Sales604800 Cash Sales154800 Total Sales made during the year759600 4. Determining Closing Stock Value: Particulars£ Stock available as on 01.01.2019- Add: Total Purchases made during the year1630000 Less: Cost of Goods Sold (=£291,600+£64,800)(356400) Stock available as on 31.12.2019273600 5. Electrical Bills Payments: Particulars£
Bills paid during the year6840 Add: Wages owed for the quarter as on 31.12.20192430 Total Wage Expenses9270 6. Rent paid: Particulars£ Total Rent paid to the owner of the premise135000 Less: Rent payments made in advance27000 Total Rent Paid108000 7. Rates: Particulars£ Payments for the period 01.01.2019 to 31.03.192880 Payments for the period 01.04.2019 to 31.03.2019 (=5400*9/12)4050 Total Rates for the year6930 Statement of Financial Position as at 31 December 2019 Another part of financial statements that explains the financial situation of an organization at a particular time is a description of the balance sheet (Jamil and Seman, 2019). It allows for standardization with the financial condition of the organization in past years with respect to the
current periods and between those firms working in the same sector. The preceding statement shows Collins Colman Limited’s financial status: ASSETS (I)£ Current Assets Advance Rent27000 Advance Rates1350 Accounts Receivables177400 Closing Stock Value273600 Total Current Assets (A)379350 Non Current Assets Delivery Van261000 Total Non-Current Assets (B)61000 Assets (I) [= (A) + (B)]440350 LIABILITIES AND SHAREHOLDER'S EQUITY (II) CurrentLiabilities Owed Wages2610 Owed Electricity Expenses2430
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Accounts Payables3111600 Bank Overdraft424840 Total Liabilities (C)141480 Owners Equity (D) Capital216000 Add: Net Profit for the year82870298870 Shareholder's Equity and Liabilities (II) [=(C)+(D)]440350 Working Notes: 1. Accounts Receivables as on 31.12.2019: Particulars(£)(£) Credit Sales604800 Less: Cash recived from accounts receivables525600 Irrecoverable debt1800527400 Closing Balance77400 2.Depreciation Charged on Delivery Van using Straight-Line Method: Particulars(£)
Cost of Delivery Van Purchased on 01.01.201972000 Less: Depreciation on Van ((72000-6000)/6)*11000 Cost of Van as on 31.12.201961000 *-It is important to note that salvage value of van is £6000 with an expected useful life of 6 years. 3. Accounts Payable: Particular(£) Goods purchase on credit583200 Less: Account Payables repaid during the year471600 Closing balance of Accounts Payables111600 4. Cash and Cash Equivalents at the end of the year: Cash/Bank Account Particular(£)Particular(£) To Capital Account216000By Purchases46800 To Cash recived from receivables525600By Cash paid to Creditors471600 To Cash Sales154800By Delivery Van Expenses40320 To Balance C/d (Overdraft)24840By Wage Payments140400 By Electricity Bill Expenses6840
By Rates8280 By Rent135000 By Delivery Van Purchased72000 Total921240Total921240 Part B – Parks mead Limited (a)Contribution: Particulars(£' per unit)Actual (£)Budgeted (£) Units Produced7800060000.00 Total Sales (A)40.0031200002400000 Material15.751228500945000 Labor8.85690300531000 Variable Overhead5.55432900333000 Total Variable Costs (B)23517001809000 Contribution [(C) = (A)-(B)]768300591000 Contributionperunit[(D)=(C)/Units Produced]9.859.85
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(b)BEP and Margin of safety: Break-even Point (BEP): (i) In units ofmicrowaves: ParticularsActualBudgeted Fixed Costs: Production177000177000 Selling142800142800 Total (£)319800319800 Contribution per unit (£)9.859.85 BEP (=Fixed Costs/Contribution per unit)32467.0132467.01 (ii) In (£): ParticularsActualBudgeted Selling price for each microwave (£)40.0040.00 Contribution per microwave sold (£)9.859.85 ContributionMargin(=(Contributionperunit/Selling price)*100)24.63%24.63% Total Fixed Costs (=£177000+£142800)319800319800 BEP (£)1298680.21298680.20
0 Margin of Safety (MOS): (a) In units ofmicrowaves: ParticularsActualBudgeted Units produced to be sold (given)78000.0060000.00 Break Even Point (as calculated in b(i))32467.0132467.01 Margin of Safety45532.9927532.99 (b) In (£): ParticularsActualBudgeted Wardrobes sold (£)31200002400000 BEP (£)1298680.201298680.20 MOS (microwavesSold- BEP)1821319.801101319.80 (c)Profit when 54000 microwaves sold @ £40 per unit: Particulars(£) per unitAmount (£) Number ofmicrowaveproduced and sold54000 Total Sales (A)40.003120000.00
Material15.75850500.00 Labor8.85477900.00 Variable Overhead5.55299700.00 Total Variable Cost (B)1628100.00 Contribution [(C)=(A) -(B)]1491900.00 Fixed Costs (given) (D): Production-related177000.00 Sales-related142800.00 Profit (E)=(D)-(C)1172100.00 (d)Strategy for Parks mead Limited: Given Information: The Corporation needs to know whether or not something is possible to spend £ 135,000 on ads and promotions, as the average sale price of microwave will increase for 8% by doing so. Thus, per microwave created and distributed, the current sale price is £ 43.20 (= £ 40 + 0.08 * £ 40). It will also lead to a 15 percent rise in the volume of revenue, bringing the amount of microwaves made and distributed from just 54,000 units to 62,100 (= 54,000 + 0.15 * 54,000) microwaves. Particulars(£) per unitAmount (£) Number of microwaves produced and sold62100 Total Sales (A)43.203369600.00 Material15.75978075.00
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Labor8.85549585.00 Variable Overhead5.55344655.00 Total Variable Cost (B)1872315.00 Contribution [(C)=(A) -(B)]1497285.00 Fixed Costs (given) (D): Production177000.00 Selling142800.00 Marketing and Advertising Expenses135000.00 Profit (E)=(D)-(C)1042485.00 (e)Assumption of BEP: Break-even Analysis may be described as the methodology commonly used by a given organization to reach the point through which the entity will be able to receive profits necessary to cover its manufacturing costs (Giner,Merello. and Pardo,2019). As a consequence, the accountant, when carrying out a break-even review, takes into account the differing pricing ranges in relation to the differing amounts of the same commodity ordered. This helps managers to assess the specific amount of revenue that will have maximum coverage of the overall fixed costs of the company. It is necessary to remember that Overall Fixed Costs are those items charged independent of the amount generated and marketed by the company. The assessment of this expense factor thus helps the manager within the company to conduct informed decision-making activities. It is determined using the formula below:
Some of the key hypotheses based on which Break-even Research is carried out have been described as follows: It is possible to bifurcate overall costs into revenues and expenses only. Semi-Variable expensesare not taken into account. The commodity price remains constant. Unit Volume Sold = Unit Volume Made. Fixed costs remain constant, independent of the number of manufactured units. Increment thresholds for contingent costs remain stable. Advances in infrastructure or changes in the effectiveness of labor are not taken into consideration. It can be claimed by evaluating certain conclusions that BEP Analysis is postulated on premises that foster similarity (Beard, Schweiger, and Surendran, 2019). As a consequence, regardless of their scale, design and sophistication, various organizations may conduct such an operation. Part C – Skipsey Clifford Plc. (a)Calculation of payback period, ARR and NPV: Payback Period Initial Investment8000000 Net Annual Cash inflow2120000 Payback Period3.7735849057 Accounting Rate of Return Purchase Cost of New Machine8000000
Expected annual Cash inflow3400000 Depreciation1400000 Accounting Rate of Return0.09 Net Present Value YearCash Inflow Cash Outflow NetCash Inflows Discounting Factor PV of Net Cash Inflows 13400000128000021200000.9171944954.128 23400000128000021200000.8421784361.586 33400000128000021200000.7721637028.978 43400000128000021200000.7081501861.447 53400000128000021200000.6501377854.539 Salvage Value10000000.650649931.386 SumofPVofNetCash Inflows£8,895,992 NPV£895,992 Recommendations: As per the above calculations, it is apparent that a good choice for Skipsey Clifford Plc will be to buy new equipment worth £ 8,000,000. This is demonstrated by the three strategies of investment assessment that claim that: The payback time is generally years and 8 months for the stated project. Although the equipment must be operated for at least 5 years, such estimate is shorter than the usable life of the equipment. Thus, making it sustainable for the enterprise.
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The rate of return for accounting is equivalent to WACC (Weighted Capital Cost), i.e. 9%. Therefore the minimal equity investment condition is also met by this project. NPV is optimistic, after taking into consideration the recover benefit as well as the original expenditure. The administration of Skipsey Clifford Plc is therefore advised to conduct the project evaluated using the above-mentioned Evaluating Strategies investment. (b)Report merits and limitations of various investment appraising techniques: INVESTMENT APPRAISAL TECHNIQUES Each company has undertaken certain forms of capital budgeting practices in order to further its goals of increasing and achieving success in current and future cycles of its investments that create value to the corporation. For this function, an organization's financial planner may perform certain forms of investment assessment procedures, which may justifiably encourage theirjudgments.Asaconsequence,inthesenseofthisarticle,themajormeritsand shortcomings of such methods are being mentioned: Pay-Back Period:This approach helps the financial planner to calculate the precise amount of time it will take for his original expenditure to be needed for a given project (Oduro-Ofrikyi, 2019). As a consequence, the payback period is the duration over which the total cash inflows from a project are proportionate to the number of original spending spent on it. It is computed as below: PBP = Initial Outlay/ Net Cash Inflows Merits: Clear predictor of the prospects of capital blockages as a prolonged duration will prolong the return of initial expenditure. This approach is more effective where there is a lot of doubt about the potential annual cash flows of a company or in other sectors where technology changes happen regularly.
Limitations: It appears to ignore money's time worth, which a key element from the viewpoint of capital is budgeting. A smaller PBP too would not ensure the project's viability. Accounting Rate of Return: This approach is known to be a financial ratio that is commonly used in budgeting for money. It seeks to have a return on the basis of the net sales produced by the project being introduced. ARR is determined in the following manner: ARR= Average Net Profit/ Average Investment Merits: Thedefinitionofnetearningsreceivedafterinfluencetheamountand depreciation is considered. Thus a good picture of the feasibility of the project is given. Facilitates contrast based on the measured standard values of one or more ventures. Limitations: •It lacks the time factor that is important when choosing alternate uses of energy. •The cash inflows that constitute the backbone for accounting income are not taken into consideration. Net Present Value: Net Present Value, amongst the most capital budgeting valuation methods, is characterized as the worth of all potential net cash inflows which have been reduced to the current (Falcone and Sica, 2019). It is computed as below: NPV = Σ(Present Value of all future cash flows) – Initial Investment Merits: It lacks the time factor that is important when choosing alternate uses of energy. The cash inflows that constitute the backbone for accounting income are not
taken into consideration. Limitations: The result of sunken costs is not undertaken. Using this approach, it is hard to determine the appropriate rate of return. (c)Key merits and demerits of using Budgets as a strategy planning tool BUDGETS: A STRATEGIC PLANNING TOOL It is the duty of a company to define, schedule, coordinate, handle and monitor resources in order to sustain its viability and competitive market position while sacrificing on efficiency and customer satisfaction (Chang, Pan and Shi, 2020). A corporate organisation tries to devise budgets for this aim. A budget may be described as the process in which a financial schedule is developed that involves projections of revenues and expenses to be obtained within a given future timeframe. In this article, different types of budgets were evaluated, largely on the basis of their advantages and disadvantages. It is enumerated in the following way:1.Activity Based Budgets: This form of budget entails the planning, after taking into consideration of operating expenses, of a financial schedule and is primarily aimed at assessing the profitability of operational operations. Last year's plan though does not form the foundation for the present year. Merits: It weeds out needless processes, thus helping to be an efficient cost saver (Kwilinski, 2019). The question of bottlenecks is significantly reduced when the budget is activity- based. Limitations: It is a dynamic mechanism that involves a thorough understanding of the
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company's diverse operating operations. The activity-based budget focuses mainly on meeting short-term targets that can be harmful to long-term business. 2.Zero Based Budgets: This form of budget, which entails the creation of a financial schedule for a given year is based, in the most portion, on spending for the New Year and is posited on the basis of appropriate spending which is expected to be sustained (Coles and Li, 2019). Hence the plan is set from start for any time taking null as the basis. Merits: Inside the organization that uses this budget as an option of strategy formulation mechanism, precision and productivity are improved. Redundant practices are duly recognized and successfully reduced. Limitations: When the manager has to start each new cycle from start, it is also very way. The method of planning will turn out to be costly for management. 1.Incremental Budgets: This form of budget includes, as the name implies, making changes to a current financial schedule. Thus it was posited in the previous year with the grounds of statistics and figures. Merits: •It is really straightforward to execute. •Time and cost-effective, since there are few adjustments that need to be made to the company's established financial schedule (Marriott and Teoh, 2019). Limitations: •This can lead to a shortage of creativity being created, as it also contributes to budgetary slack. •Owing to the simpler accessibility of the budget, excessive spending can become a normal occurrence.
CONCLUSION It can be inferred from the aforementioned article that financial management play a key role in deciding how a company's fiscal tools are used to boost profitability and overall operating efficiency within a specific sector. Costing may be used by managers to assess the contribution of capital per unit as well as sales. It also helps us to consider the break-even points and guarantee that the distribution of capital does not lead to a loss of current income on a commodity sold per unit. Investment Evaluating Strategies and Budget management, on the other hand, allow fundamental analysis and the company's strategic planning efforts to be coordinated with other relevant processes. This encourages the boss to make critical choices in an educated manner.
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