Accounting Fundamentals 1 Report: Financial Performance Analysis

This report delves into the core concepts of accounting fundamentals, applying them to analyze the financial performance of Eccles plc and Chocco plc. The analysis begins with the preparation of an income statement and a statement of financial position for Eccles plc, followed by an interpretation of these financial statements. The report then transitions to a detailed assessment of Chocco Plc's financial performance, utilizing various financial ratios such as profitability, liquidity, efficiency, and investment ratios. These ratios are calculated for both 2018 and 2019, providing a comparative analysis of the company's performance over time. The report concludes with a summary of the findings, highlighting the importance of accounting principles and ratio analysis in formulating effective business strategies and managing financial resources. The report also includes references to academic resources used in the analysis.

Accounting
Fundamentals
1

Contents
Accounting Fundamentals...............................................................................................................1
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Income statement of Eccles plc...................................................................................................3
Financial statement of Eccles plc................................................................................................4
Interpretation................................................................................................................................5
TASK2.............................................................................................................................................5
Assessment of financial performance of Chocco Plc..................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10
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INTRODUCTION
Accounting fundaments are concept and rules on which the overall field of account has been
based. This report is prepare to solve problem of Eccles Plc & Chocco Plc by preparing financial
statement and analysing their financial performance.
TASK 1
Income statement of Eccles plc
Income statement
For the year ended on 31st December 2018
Particulars Amount(£)
Sales 826,650.00
Add: Goods sold on 31st 980.00 827,630.00
Cost of goods sold
-
578,650.00
Add: goods sold at 31st
-
980.00
Gross Profit 248,000.00
Less: Expenses
Administrative expenses 30,000.00
Directors Remuneration 5,000.00
Distribution cost 28,000.00
Add: commission not recorded 3,000.00 66,000.00
Operating Profit 182,000.00
Interest paid 2,000.00
Net income before tax 180,000.00
Less: Tax 68,000.00
Net income 112,000.00
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Financial statement of Eccles plc
Statement of Financial Position
as on 31st December, 2018
Particulars Amount(£)
Non-Current Assets
Plant & Equipment 632,730.00
Current Assets
Stock 330,600.00
Less: Goods sold at
31st
-
980.00
Debtors 170,125.00
Add: goods sold at
31st 980.00
Cash and bank 12,900.00 513,625.00
Total Assets 1,146,355.00
Current Liabilities
Trade creditors 171,355.00
Sales commission 3,000.00
Tax 68,000.00
-
242,355.00
Noncurrent Liabilities
4% Debentures 100,000.00
-
100,000.00
Net Assets 804,000.00
Equity
£1 Ordinary shares 310,000.00
10% Preference
shares 300,000.00
Retained earnings 132,000.00
Add: Net income 112,000.00
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Less: Ordinary
Dividend
-
20,000.00
Preference dividend
-
30,000.00 194,000.00
804,000.00
Interpretation
Financial statement helps in providing brief information regarding essential work
performance and business activities. Thus every business organization needs to formulate
statement of finance (Bennoun, Houari, and Tounsi, 2016).
Income statement use in identifying all the expenses incurred and profit organization able to
generate. In the case of Eccles plc, this organization, gerante 248000 gross profit a d after all the
essential operating expense, they able to earn 112000 net profit. Value of liabilities and assets
become similar due to applying al the GAAP rule in ethical way. Organization also follow
international financial standard through which they can adjust all the relevant items
TASK2
Computation of ratio
Business organization to analysis their financial performance calculate ratio.
Profitability ratio
Gross margin
Particular 2018 2019
Gross profit 3345 3503
sales 6441 6738
Gross profit ratio =
GP/Sales*100
51.9% 52.0 %
Net profit ratio:
Particular 2018 2019
Net profit 366 431
sales 6441 6738
5

Net profit ratio =
NP/sales*100
5.68 % 6.40 %
Operating profit ratio
Particular 2018 2019
Operating profit 699 805
sales 6441 6738
Operating profit ratio =
OP/sales*100
10.85 % 11.95 %
Liquidity ratio
Particular 2018 2019
Current assets 2355 2303
current liabilities 3046 2511
Current ratio = Current
assets/current liabilities
(Liang, and Yan, 2019).
0.77 times .92 times
Quick ratio
Particular 2018 2019
Quick assets 1696 1595
Current liabilities 3046 2511
Quick ratio = 0.56 times .64 times
Efficiency ratios:
Stock turnover
Particular 2018 2019
Cost of goods sold 3096 3235
Stock. 659 708
6

Stock turnover = Cost of
goods sold/stock
4.70 times 4.57 times
Receivable turnover
Particular 2018 2019
sales 6441 6738
Receivables 1287 1259
Receivable turnover = Sales /
Receivables
5.00 times 5.35 times
Assets turnover ratio
Particular 2018 2019
sales 6441 6738
Total assets 10087 9736
Assets turnover ratio = Net
sales/total assets
0.64 times 0.69 times
Investment ratios:
Return on capital employed
Particular 2018 2019
Operating profit 699 805
Capital employed = Total
assets - Current liabilities
7041 7225
ROCE % Operating profit \
Capital employed
0.10
0.11
Return on equity ratio
Particular 2018 2019
Net income 6,441 6,738
Shareholder equity 2,912 3,088
ROE = Net income / 2.21 2.08
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Sharholder’sequity
Dividend pay-out ratio
Particular 2018 2019
Total dividend £242m 255m
Net income 6,441 6,738
Dividend pay-out ratio =
Total dividend \ Net income*
100
37.51
37.84
Earnings per share
Particular 2018 2019
Net profit 366 431
£4.00) £5.12
EPS = Net profit /price of
equity share
Assessment of financial performance of Chocco Plc
Manager of Chocco Plc for recognize their financial year performance, calculate,
profitability, efficiency, liquidity and investment ratio. By computation of all theses ratio it has
been observed that as compare to 2018 , performance rate of Chocco Plc has been increases in
2019. As they are able to generate more net as well s gross margin which directly impact on
liquidity condition of this organization. The rate of earning money and distributing dividend also
increase . Which showcase that management department of Chocco Plc formulate effective
business strategies for enacting their business performance (Stoumpos, and Kanatzidis, 2015).
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CONCLUSION
From the above analysis it has been concluded that with the use of accounting fundament
principle and tools , managers able to formulate balance sheet by fulfilling all the required
principal of GAAP and they also use ratio which help in comparison and analyse of financial
performance . It helps in formulating effective business strategies for managing finance resource
of organization.
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REFERENCES
Books and journal
Bennoun, M., Houari, M. S. A. and Tounsi, A., 2016. A novel five-variable refined plate theory
for vibration analysis of functionally graded sandwich plates. Mechanics of Advanced
Materials and Structures, 23(4), pp.423-431.
Liang, M. and Yan, X., 2019. Nanozymes: from new concepts, mechanisms, and standards to
applications. Accounts of chemical research, 52(8), pp.2190-2200.
Stoumpos, C .C. and Kanatzidis, M .G., 2015. The renaissance of halide perovskites and their
evolution as emerging semiconductors. Accounts of chemical research, 48(10), pp.2791-
2802.
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