ACC10032122 Examination: Comprehensive Financial Analysis Report

This document presents a comprehensive solution to a financial accounting examination paper (ACC10032122). It includes an analysis of a company's profitability based on different product lines, evaluating the impact of dropping a product (cheesecake) on overall profit, and considering non-numeric factors in production decisions. The solution also involves creating a cash flow statement, income statement, and statement of financial position for a business, along with recommendations for improving its financial performance. Key financial ratios, such as net profit margin and current ratio, are calculated and interpreted to assess the business's profitability and liquidity. The analysis concludes that the business is running profitably and has a strong ability to meet its current liabilities.

Examination Answer Book – ACC10032122
2ndResit
Examination Module Number Total number of answer
books submitted
Module Title (as on Examination Paper) Total number of
questions attempted
Student Number Date:
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For Examiner’s Use Only
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1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Total
%
Examiner’s signature
Page 1 of 10

1a
1b
b. Dropping sales of
Cheese Cake
£
Contribution from Strawberry
cake 180000
Contribution from Mixed Fruits 150000
Contribution from Mixed Nut 150000
Total contribution 480000
Minus Fixed Costs 40000
Profit 440000
1c
With the evaluation of the results of A and B it can be stated that dropping of cheesecake from the
production will make a very minor changes. This is particularly because of the reason that when the
cheesecake was produced at that time the total profit was 445000. On the other hand on evaluation of the
Page 2 of 10
a.
£ £ £ £ £
Strawberry
Cakes
Mixed
Fruits
Cake
Mixed
Nuts
Cake
Cheeses
Cake Total
Total costs
70,000 60,0
00
50,0
00
40,000 220,00
0
Variable costs 60000 50000 40000 30000 180000
Fixed Costs 10000 10000 10000 10000 40000
Sales
240,000 200,0
00
190,0
00
35,000 665,00
0
Minus Variable Costs 60000 50000 40000 30000 180000
Contribution 180000
15000
0
15000
0 5000 485000
Minus Fixed Costs 40000
Profit 445000

data after dropping the sales of cheesecake the profit was 440000. There is only a variation of 5000
reduction of the profit which is not good for the company. On the basis of the financial information and
analysis it is recommended to the company that they must not drop of the sales and production of
cheesecake. This is particularly because when the sales are dropped then the profit of the company has
reduced to 440000 which was earlier 445000. On the other hand it is recommended to the company that
they must start promoting the product cheesecake so that the sales of the company might increase.
1d
Page 3 of 10

Other than numeric factors there are certain other factors as well which needs to be undertaken at time of
deciding for the production units. This is pertaining to the fact that other than financial parameters other
factors also affect production system. The major factor which needs to be undertaken at time of deciding
the future of cheesecake production is to evaluate the raw material which is required by the product. In
case the raw materials are easily available when the time for action will be low. Hence this can improve
the production efficiency of cheese cake.
In addition to this another crucial factor which needs to be undertaken while deciding for the future of
cheesecake production is the customer segment. In case the consumers do not like the cheesecake then it
is useless to produce the product. This is the most important factor to be analysed by company because in
case the consumer segment is not large then the product will definitely incur loss.
Along with this another crucial factor meet while deciding the future of the cheesecake production is team
marketing strategy of the product is top in case the marketing of the product is not good then this will
definitely affect the sales of the products. Hence before deciding anything based on the financial aspects
of the company must also evaluate the non financial aspect as well relating to the production of the
cheesecake product.
Along with this another factor to be considered is the fixed cost. This is particularly because of the reason
that in case the fixed cost will be reduced then there a possibility that the cheesecake might start
producing profit. This is particularly because of the reason that in case both the variable cost and fixed
cost will be reduced letter then the profit can be generated.
2a
Page 4 of 10

a. Title? Cash flow Statement
Month? January Februar
y March April May June Total
£ £ £ £ £ £ £
Cash in
Capital 150000 0 0 0 0 0 150000
Cash sales
(150000
*50%)
= 75000
(160000
*50%)
= 80000
(180000
*50%)
= 90000
(280000
*50%)
=
140000
(280000*
50%)
=140000
(360000*
50%)
=
180000 705000
Credit sales 0 0
150000*
50%)
=75000
160000
*50%)
=
80000
180000*
50%)
=90000
280000*
50%
140000 385000
Total in 225000 80000 165000 220000 230000 320000 1240000
Cash out
Fittings 90000 0 0 0 0 0 90000
Wages 30000 30000 30000 30000 30000 30000 180000
Rent 36000 36000 36000 36000 36000 36000 216000
Other 20000 20000 20000 20000 20000 20000 120000
Drawings 1000 1000 1000 1000 1000 1000 6000
Purchases 0 60000 70000 80000 120000 130000 460000
Total out 177000 147000 157000 167000 207000 217000 1072000
Net Cash
flow 48000 -67000 8000 53000 23000 103000 168000
Balances
Opening 150000 198000 131000 139000 192000 215000
Closing 198000 131000 139000 192000 215000 318000
Page 5 of 10

2b
Complete the statement.
Income Statement for
………………………………………………………………….
£ £
Sales 1410000
Minus Cost of Sales
Opening Inventory 0
Add Purchases 570000
Minus Closing Inventory 60000 510000
Gross Profit 900000
Minus Expenses
Wages 180000
Rent 252000
Other Expenses 120000
Depreciation 12000
564000
Net
Profit 336000
Page 6 of 10

2c
Statement of Financial Position for
……………………………………………………….
£ £ £
Non-Current Assets Cost Depreciation Net Book Value
Shop Fixtures 90000 12000 78000
Current Assets
Inventory 60000 - 60000
Trade Receivables 320000 - 320000
Bank 150000 - 150000
530000
Total Assets 608000
Current Liabilities
Trade Payables 110000
Accruals 36000
Total Liabilities 146000
Net Assets 462000
Financed by:
Capital 150000
Add Net Profit 336000
Minus drawings -6000
480000
Page 7 of 10

2d
Page 8 of 10

With an analysis of the cash flow statement for the six months it is clear that it project is viable. The
reason underlying this part is that initially the company is suffering a loss but gradually the company as
improves the performance and by the end of last month that is June the cash flows a good and effective.
This means that the working of the company has improved. Also with analysing the net cash flow it can be
stated that the company will on good amount of profit in case it is continued.
Some of the recommendations to the company are that they must try to improve the marketing of the
product and services of the company. This is particularly necessary because of the reason that in case the
marketing will be good then it will improve the working efficiency of the company and as a result of this
profits will increase more.
In addition to this it is also recommended to the company that they must try to reduce the expenses under
the head of others. This is necessary because it is a fixed expense and the company can try to reduce it. In
case they will reduce the expenses then this will increase the net cash flow of the company which in turn
will increase the profit.
Page 9 of 10

2e
Net Profit Margin = Net profit/ Net sales* 100
= 336000/ 1410000* 100 = 23.83%
Current ratio = Current assets/ current liabilities
= 530000 / 146000 = 3.63
On the basis of above calculations, it is identified and interpretate that the business of Rishi is running in
profitability and liquidity. The company is able to generate income from its sales because they are
maintaining its profit on time. The ideal current ratio state by the standards is 2 and the current ratio of the
Rishi business is 3.63 which indicate that they have the capability to pay of its liabilities to its current
liabilities with the use of only current assets. On the basis of this ratio, it is indicated that the performance
of the business is much better thy are moving towards the success. But, it is also advisable to the company
that they have to improve the same by allowing discount facility to debtors for the early payment of their
dues.
Page 10 of 10