Business Accounting: Financial Statement Preparation & Ratio Analysis

This assignment solution covers various aspects of business accounting, including the calculation of missing figures using the accounting equation, journal entries, ledger postings, and the preparation of a trial balance. It also includes the preparation of an income statement and balance sheet, along with notes on inventory valuation, goods taken for personal use, electricity owing, depreciation, and debtors' allowances. Further, it discusses the difference between capital and revenue expenditure. The solution also covers the preparation of purchase and sales ledger control accounts and calculates various financial ratios to analyze business performance. Finally, it includes payback period and net present value calculations for investment appraisal and discusses the reasons for companies employing accountants, the need for external auditors for limited liability companies, and the benefits of non-accountants studying accounting. Desklib is a platform where students can find a wide array of assignments and study tools to help them excel in their academic pursuits.

BUSINESS
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question 1....................................................................................................................................3
Question 2 All the transaction are summarized into ledger.........................................................3
Question 3....................................................................................................................................6
Question 4....................................................................................................................................6
Question 5....................................................................................................................................8
Question 6....................................................................................................................................9
Question 7..................................................................................................................................10
Question 8..................................................................................................................................12
Question 9..................................................................................................................................13
Question: 10...............................................................................................................................15
CONCLUSION..............................................................................................................................16
REFERENCES................................................................................................................................1

MAIN BODY
Question 1
1. Calculation of missing figures
1 Assets liabilities capital
€ € €
20000 0 20000
15000 5000 10000
16400 7550 8850
14100 3850 10250
25380 18430 6950
All the missing figure is calculated with the help of accounting equation that is Total
assets = total liabilities + capital. In the above table highlighted part is the missing number.
2. journal entries
Dual aspect of accounting
(a) bank Dr 8000
capital Cr 8000
[being business started}
(b) Computer Dr 4000
Bank Cr 4000
[being computer purchased]
(c) bank Dr 3000
Loan Cr 3000
[being loan obtain]
(d) van Dr 6000
Bank Cr 6000
[being van purchased]
(e) cash Dr 250
Abela Cr 250

[being cash received]
Question 2
All the transaction are summarized into ledger
Bank A/C
DATE PARTICULAR AMOUNT DATE PARTICULAR AMOUNT
01/01/21 To capital 25000 02/01/21 By rent 2000
By balance c/f 23000
25000 25000
01/02/21 To balance b/d 23000
Capital A/C
DATE PARTICULAR AMOUNT DATE
PARTICULA
R AMOUNT
31/01/21 To balance c/f 25000 01/01/21 By bank 25000
25000 25000
01/02/21 To balance b/d 25000
Rent A/c
DATE PARTICULAR AMOUNT DATE PARTICULAR AMOUNT
02/01/21 To Bank 2000 31/01/21 By balance c/f 2000
2000 2000
01/02/21 To balance b/d 2000
Linda A/C
DATE PARTICULAR AMOUNT DATE PARTICULAR AMOUNT
30/01/21 To purchase return 2000 03/01/21 By purchase 5000
31/01/21 To balance C/f 3000
5000 5000

01/02/21 By balance b/d 3000
Motor car A/c
DATE PARTICULAR AMOUNT DATE PARTICULAR AMOUNT
04/01/21 To Savoy motor 4000 31/01/21 By balance c/f 4000
4000 4000
01/02/21 To balance b/d 4000
Savoy motor A/c
DATE PARTICULAR AMOUNT DATE PARTICULAR AMOUNT
31/01/21 To balance C/f 4000 04/01/21 By Motor car 4000
4000 4000
01/02/21 By balance b/d 4000
Purchase A/c
DATE PARTICULAR AMOUNT DATE
PARTICULA
R AMOUNT
03/01/21 To Linda 5000 31/01/21 By balance c/f 8000
05/01/21 To Sydney 3000
8000 8000
01/02/21 To balance b/d 8000
Sydney A/c
DATE PARTICULAR AMOUNT DATE PARTICULAR AMOUNT
31/01/21 To balance C/f 3000 05/01/21 By purchase 3000
3000 3000

01/02/21 By balance b/d 3000
Cash A/c
DATE PARTICULAR AMOUNT DATE
PARTICULA
R AMOUNT
10/01/21 To sales 6000 31/01/21 By balance c/f 6000
6000 6000
01/02/21 To balance b/d 6000
Sales A/c
DATE PARTICULAR AMOUNT DATE
PARTICULA
R AMOUNT
31/01/21 By balance c/f 14000 10/01/21 By cash 6000
18/01/21 By Ann 8000
14000 14000
01/02/21 To balance b/d 14000
Ann A/c
DATE PARTICULAR AMOUNT DATE PARTICULAR AMOUNT
18/01/21 To sales 8000 31/01/21 By balance c/f 8000
8000 8000
01/02/21 To balance b/d 8000
Purchase Return A/c
DATE PARTICULAR AMOUNT DATE
PARTICULA
R AMOUNT
31/10/21 To balance C/f 2000 30/01/21 By Linda 2000

2000 2000
01/02/21 By balance b/d 2000
Question 3
Trial balance as at 31 December 2020
particular Debit Credit
capital 139200
Purchases 108600
sales 146400
Machinery 135800
Drawings 9400
Bank overdraft 6200
Sales return 800
Purchase return 300
Wages and salaries 9800
Water and electricity 1800
Motor vehicles 25900
Trade receivables 15900
Trade payable 19600
Rent payable 3700
Suspense account 7400
Total 315400 315400
Question 4
Income statement
sales 204000
(-) sales return -3600
(-) carriage outward -3724
Net sales 196676
Cost of sales

Opening inventory 18000
Purchases 120000
(-) purchase return -4440
(+) carriage inward 5000
(+) Wages 36800
(-) closing stock -20000 155360
Gross profit 41316
(-) expenses
Discount allowed -5020
electricity -7000
Rent -7500
Sundry expenses -1143
Bad debts -125
Depreciation on furniture and fitting -900
Depreciation office furniture -200 21888
(+) income
Discount receivable 3160 3160
Net profit 22588
Balance sheet
Non current assets
Fixture and fitting 9000
(-) depreciation 900 8100
Office furniture 2000
(-) depreciation 200 1800
Current assets
Trade receivable 2500
(-) bad debts -125 2375
Rent prepaid 500 500
Bank 2496 2496

Stock 18000 18000
Total assets 33271
Equities and liabilities
capital 30000
(-)Drawings -22527
(+)Net profit 22588 30061
Current liabilities
Trade payable 2660
Electricity owing 550 3210
Total liabilities 33271
Notes:
1) inventory as on 31 December is valued as closing stock which is shown in balance sheet
as an inventory and less while calculating cost of sales in income statement.
2) Goods take out for personal use which has two effect one is reduces from inventory and
another is added in drawing. So amount of drawing will be increased.
3) Electricity owing is liabilities which is outstanding. It's effect will be shown in income
statement as an expenses and in balance sheet as an outstanding expense.
4) Depreciation will be changed on fixed assets @ 10% and it's effect will be included in
income statement as depreciation on expense side on the other note it will be reduces
from assets in balance sheet.
5) 5% debtors allowances will be created. It will be shown in income statement as an
expense. This amount will be reduces from debtors account.
Question 5
Question Transaction Capital amount Revenue amount

expenditure expenditure
a
€30,000 cost for building
an extension to the factory,
which includes €1,000 for
repairs to the existing
factory Cost of building 29000 repair 1000
b
A plot of land has been
bought for €20,000, the
legal costs are €750. Purchase land 20750
c
The business’ own
employees are used to
install a new air
conditioning system:
wages €1,000, materials
€1,500. Wages + material 2500
d
Own employees used to
repair and redecorate the
premises: wages €500,
materials €750.
Wages +
material 1250
e
Purchase of a new machine
€10,000, payment for
installation and setting up
€250. machinery 10250
Capital expenditure is incurred by company to acquire assets or improve the existing assets.
Revenue expenditure is incurred in order to meet day to day operating expenses.
Question 6
(a) Purchase ledger control account
Purchase ledger control account

dr cr
particular amount particular amount
Balance b/d 250 Balance b/d 22200
cash 53800 purchase 65500
Purchase return 950 Balance c/d 550
Discount received 1750
Sales ledger 350
Balance c/d 31150
88250 88250
(b) Sales ledger control account
Sales ledger control account
Dr cr
particular amount particular amount
To balance b/d 32600 By balance b/d 450
Credit sales 99600 Cash/ cheque from debtors 54200
Dishonoured cheque 200 Discount allowed 2200
Balance c/d 300 Purchase ledger 350
Bad debts 3200
Sales return 1800
Balance c/d 70500
132700 132700
Balance b/d 70500 Balance b/d 300
Question 7
(a) Financial ratios
no ratio formula calculation
1 Gross profit ratio (gross profit *100)/ net 30.00%

sales
Gross profit 105000
Net sales 350000
2 Net profit percentage
(net profit *100)/ net
sales 13.10%
Net profit 45850
Net sales 350000
3 Current ratio
Current 'Assets'/
current 'Liabilities' 1.87:1
Current assets 88000
Current liabilities 47150
4 Liquid ratio
Liquid assets / current
liabilities 0.46:1
Liquid assets
Current assets –
inventory 21500
Current liabilities 47150
5 Inventory turnover ratio
Cost of goods sold/
inventory 3.68 times
Cost of goods sold 245000
inventory 66500
6 Non current assets to sales Net sales x 100 / non 218.75%