Financial Accounting: Consolidated Financial Position of Pee Group

This report provides a detailed analysis of Pee Group's financial accounting practices. It includes the preparation of a consolidated statement of financial position, a discussion of the relevance, reliability, and comparability of financial information, and an evaluation of the company's financial performance using ratio analysis. The report also examines the role of non-financial information in assessing future performance and discusses the fundamental principles of professional ethics for accountants. The analysis covers profitability, credit management, and growth aspects, utilizing data from provided appendices to offer a comprehensive overview of Pee Group's financial health and ethical considerations. Desklib is your go-to platform for similar assignments and study resources.

UG221 Financial
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
Question 1........................................................................................................................................3
a) Preparation of the consolidated statement of financial position for Pee group..................3
b) Discussion about the relevance, reliability and comparability and the usage of these in
making financial information useful......................................................................................5
Question 2........................................................................................................................................6
a) Discussion about the following;.........................................................................................6
Comment on the financial performance of the business using appendix 1...................6
How does non-financial information give a better indication about the future which is
discussed in appendix 2 than appendix 1......................................................................8
b) Discussion related to professional ethics which are important in accounting and give details
about the five fundamental principles of professional ethics for accountants......................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Financial accounting refers to a branch of accounting which includes the working related to
the recording, summarizing and reporting of the transactions which the business deals in. These
transactions are essential for the business to record and report to the diversified stakeholders of
the business (Acosta-González, Fernández-Rodríguez and Ganga, 2019). Financial accounting is
different from managerial accounting. This two accounting are interrelated but serve different
purposes for an organisation. Managerial accounting is concerned with catering for the wants of
business management and financial accounting is concerned with providing information related
to the business to the different stakeholders of the business and assisting them with decision
making. The following report highlights the concept of financial accounting. The principles
which are implemented by the international accounting standards board is also discussed in the
following report. A detailed interpretation of the financial ratio of an organisation.
Question 1
a) Preparation of the consolidated statement of financial position for Pee group.
Solution:
Consolidated Balance sheet of Pee Group as of 31-Dec-2020
PARTICULARS Pee Plc. Cee Plc. Pee
Group
£ £ £
Non-current assets:
Property, plant & equipment 160000 50000 210000 W1
Investment in Cee Plc NIL NIL NIL W4
Goodwill NIL NIL 20000 W3
Current assets 30000 10000 40000 W2
Total 190000 60000 270000
Non-current liabilities NIL NIL NIL
Current liabilities NIL NIL NIL
Equity:
Share Capital 100000 NIL 100000 W7
Retained earnings 158000 NIL 158000 W5
Minority Interest/Non-controlling interest 12000 NIL 12000 W6
Total 270000 NIL 270000

Working Notes:
W1 Property, Plant and equipment
Pee Plc. 160000
Cee Plc. 50000 210000
W2 Current Assets
Pee plc. 30000
Cee plc. 10000 40000
W3. Cost of Capital
Cost of Investment 60000
Share in equity capital (20000 * 80 %) -16000
Share in Pre-acquisition profits -24000
Goodwill 20000
W 4. Profit analysis of the subsidiary company
Particular Pre-acquisition profits (31-
dec-2018) (in £)
Post-acquisition profits (After
31-dec-2018) (in £)
Opening balance of retained
profits
30000 -
Post-acquisition Profits
(40000-30000)
- 10000
Total Profits 30000 10000
Pee Plc.(80 %) 24000 8000
Minority Interest (20 %) 6000 2000

W5. Calculation of Consolidated reserves and surpluses
Pee plc Profits 150000
Share in Cee Plc Post profits 8000
Total post profits 158000
W6. Calculation of Minority Interest
Share in equity capital (20000 * 20 %) 4000
Share in post profits 6000
Share in Pre Profits 2000
Total Minority Interest 12000
W7. The share capital of the holding company remains unchanged and the share capital hold by
the subsidiary company, cee plc, has been cancelled as their capital is divided amongst the Pee
plc and minorities in the ratio of 8:2 i.e., 80% and 20% respectively, that is the reason for which
in consolidated balance sheet of the group, the subsidiary company’s capital has not been taken.
b) Discussion about the relevance, reliability and comparability and the usage of these in making
financial information useful.
The accounting information is required to satisfy a certain point of characteristics. These
qualitative characteristics of the accounting are set up by the international accounting standards
board (Adwan, Alhaj-Ismail and Girardone, 2020). These characteristics of accounting are
discussed further.
The accounting information of any business is required to follow fundamental qualitative
characteristics. These are as follows:
1. Relevance: This refers to how much the accounting information which is being provided
is relevant to the users of accounting information (Aifuwa, Embele and Saidu, 2018). The
accounting information is required to include the past events which have been occurred in

the business and also some of the insights which help the users of business information to
be predictive about the possible events which may occur in future.
2. Representational faithfulness: This refers to the reliability of the accounting
information which is required by the users of accounting information. This principle
checks how accurately does the business perform and manage its accounting activities
(Akinwale, 2020). The financial information of the business is required to be complete,
neutral and free from error.
3. Timeliness: This principle refers to the timeliness of the information that is required to
be available to the users of accounting information. The timeliness of the accounting
information is required as the year when the business is operating, the information of the
same year is required to be reported to the different stakeholders as they need to make
decisions for the same.
4. Verifiability: The accounting information is required to be one that can be verified from
the different sources of finance (Awang, Rahman and Ismail, 2019). The verifiability of
the accounting information is important as the users of this information need to check
whether the information provided is correct or not.
Question 2
a) Discussion about the following;
Comment on the financial performance of the business using appendix 1
The financial performance of any business refers to how great a company is working in a
marketplace. The financial performance measure gets essential as the management and other
stakeholders of the business need to ascertain if the business is providing a good rate to return to
its different stakeholders (Baranek, 2018). Following are the required financial ratio analysis
which will help in the discussion about the financial performance of Patrick Financial Services.
Profitability: Profitability refers to the ability of the business to convert its income earned by the
business into profits for the business. The profits of the business are required to be high if the
business is focusing on growth and spreading the business in the vast business marketplace.
Following is the calculation of the net profit margin of the business to check the profitability of
the business;

Net Profit Margin = Net profit / sales revenue * 100
For the previous year, = 180 / 900 *100
= 0.2*100
= 20 %
For the Current year, = 187 / 945 * 100
= 0.197 * 100
= 19.7 %
From the above calculated net profit margin, it can be seen that the business is not
working efficiently in the market as it can be seen that the net profit margin of the business has
reduced a bit in the two-year evaluation. This lowering of the margin can be seen as due to the
major change in the current year’s turnover and increase in the operating and non-operating
expense of the business. The net profit margin of the business is somewhat the same in the two
years but the business should plan to reduce its unnecessary expenses on different factors of
production of services to the market.
Credit Management: Credit management of any business refers to the planning, organising,
directing and controlling of different activities of the business which are concerned with the
management of the credit and cash flows of the business (Del Baldo et.al., 2020). The business in
question can be seen to have a good amount of cash balances in the business for the two years
which are being discussed here. In the previous year, the business can be seen to have 20,000
average cash for the year and in the next year, they have 21000 as the average cash for the year.
The business's turnover from the debtors can also be said to be great as they have only needed 22
days in the previous year and 18 days in the current year to receive the payments from its debtors
where the industry average can be seen as 30 days. This can be said as good credit management
of the business as they have ample amount of funds in hand in the two years which can be used
up to pay back the current liabilities of the business which may arise anytime in the year.
Growth: Growth refers to the aspect in business that checks whether the business can upgrade
and spread the operations of the business in the marketplace (Dutta, Patatoukas and Wang,
2020). The profitability and the credit management of the business can be seen in good
conditions as the business can convert 20 % of its sales revenue into profit. The business has
good management of cash flows and the credit of the business. The inflation rate in these two
years can be seen as stagnant, i.e., 3 % in both years. So, from the above-mentioned data, it can

be said that the business, in general, has the opportunity to grow in the market as the business is
available with ample amount of funds and can invest these in growth aspects or see whether the
business has good investment plans which would make a good return for the business.
How does non-financial information give a better indication about the future
which is discussed in appendix 2 than appendix 1
Financial information of the business is crucial for any business to check the performance of
the business and compare how the businesses in the market are dealing in the business. The non-
financial indicators of the business are also important for any business to ascertain the
performance of the business (Giner and Mora, 2019). The financial information of the business
provides the quantitative factors of the business which can easily be compared with that of the
other businesses. The non-financial factors of the business help the business to have more in-
depth knowledge about the performance of the business while taking into consideration the
financial factors. In appendix 2, it can be seen that the internal business process of the business
shows the error rates which have occurred by the employees while performing the job. The
customer knowledge that the business knowledge and the market share the business enjoys in the
current and the previous year. The information related to the market and the customer base of the
business gives insights about where the products and services of the business are going and how
the business can bring different quality products to these customers. The non-financial
performance indicators of the business help in the following ways to better indicate the
performance of the business:
 Help with distinguishing qualities and deficiencies. A non-monetary KPI, for example, a
study survey will uncover whether the business dominates in client assistance yet have
critical stand by times before a client arrives at a delegate (Hummel and Hörisch, 2019).
These tests can distinguish a business' vital capacities as well as different regions where
they didn't know they were inadequate.
 Influence the presentation of the organization. Over-or underperformance will at last
appear in the organization's main concern, and non-monetary execution estimations might
assist them with finding it. Assuming the HR enlisting spending plan has expanded, for
instance, a business can see that it is because of the great representative turnover rate and
the significant expense (as far as time and assets) of recruiting.

 Further develop representative contribution on the most proficient method to accomplish
vital objectives. Non-monetary KPIs are specific, quantifiable, and stepping stool up to
the association's 10,000 foot view objective when accurately created. Individuals from
the group can see precisely what they need to achieve to meet their goals, as well as why
they need to run a similar report consistently or what their participation rates mean for
usefulness (Lahouel and et.al., 2019). The ordinary tasks and vital bearing are inseparably
connected.
 Are more eaasy in making up for superfluous impacts. Each association stands up to
outer dangers that are outside its ability to do anything about and can impact key
measurements like deals and expenses. Downturns, wars, and catastrophic events are
inevitable and wild. In these cases, assuming organizations just checked out monetary
KPIs, apparently the organization's exhibition was irredeemable. Non-monetary
execution estimations, then again, are fundamentally influenced quite a bit by and can
give a more far reaching picture (Pavone and Migliaccio, 2021). They are prevailing in
urgent region of their arrangement if get passing marks for corporate culture and client
bliss in the midst of an exchange war, and that should pay off over the long haul.Using
appendix 2, comment on the performance of the business.
From Appendix 2 following points can be commented on the performance of the business:
 From the Internal business processes of the business, it can be seen that the job
completion time of the business has been reduced by 3 weeks on average which is
concerning. The errors done in the jobs by the employees have also increased by 6 % in
the two-year analysis of the business. It can be said that both these factors are somewhat
dependent on each other, as, due to the decrease in the job completion time of the
business, error rates in the job have increased majorly.
 From the customer knowledge of the business, it can be seen that the number of
customers per year has reduced. The market share of the business can also be seen as
reducing and now the business only enjoys a 14 % market share. Both these factors can
be said to be affecting this much due to the rise in the fee levels of the business. The
customers are exiting the operations of the business as the market has such firms working
in the same field of the business in question and providing services at a much lesser fee.

 The growth rate of the business can be said that it is worsening. The employee retention
rate of the business has reduced from 80 % to 60 % which increases the employee
turnover of the business (Pokharel et.al., 2019). The revenue that the business is earning
from its non-core activities has decreased by 1 % when the industry average has
increased by 5 %. hence, it can clearly be said that the business other businesses in the
industry are working more efficiently and providing better non-core services to the
customers.
 From the above-mentioned points, it can be said that the overall performance of the
business is deteriorating and the business need new plans and actions to amend their
image in the industry.
b) Discussion related to professional ethics which are important in accounting and give details
about the five fundamental principles of professional ethics for accountants.
Accounting ethics is a principal standard that bookkeepers should stick to while getting
ready budget summaries for a business. It's an assortment of decides to follow that have been laid
out by government-supported organizations. To stay away from any control of the fiscal
summaries, the bookkeeper ought to stick to bookkeeping morals. Accounting ethics must be
observed by all accountants, and if they do not, they may face financial penalties.
Accounting ethics has a long history that traces all the way back to 1494. The public
authority used to set up a board to take care of the organizations' advantages, however it has
become progressively hard for them to do as such. Accordingly, certain private organizations
were able to perform the responsibility for the organizations, though under the public authority's
oversight. These private groups are obligated to observe the government's norms and standards,
and every new rule must be approved by government authorities before becoming law. By the
year 1905, the accounting system in the United States of America had transformed. The
Association of Government Accountants was created as the government began to take
accounting bodies seriously. After these accountants had learnt and grasped the subject, the
Institute of Internal Auditors was created. The Institute of Internal Auditors was established to
determine whether or not businesses are keeping accurate books of accounts. The government
was eventually given access to the study. As a result of these adjustments, we now have a
competent accounting system in place.
Following are some of the reasons why ethics are there in the accounting field:

 It's part of the job description for accountants: Bookkeeping and morals are inseparably
connected in the bookkeeping field (Sakr and Bedeir, 2019). As bookkeepers, we should
make evenhanded, fair decisions that benefit our clients. Assuming that the organization
benefits from the selling of one monetary item over another, the client might be exposed
to bias and falsehood. It is basic, as a feature of the moral code, that the data given isn't
affected by any other individual.
 The information must be kept private: Any monetary data uncovered by a bookkeeping
master during a consolidation or obtaining, for instance, would be an infringement of the
trust code. The bookkeepers' activities would similarly be thought of as dishonest. An
organization or association can't do this except if there is a lawful reason to do as such, as
per the Ethics Code.
 The employees' honesty: The organization's Ethics code ensures that all representatives
act with respectability and trustworthiness while working with clients and in other expert
commitment. Bookkeepers are additionally denied from distinguishing themselves with
any material that may be underhanded or hurtful to the client or the association, as per the
moral code.
 The bookkeeping business is constantly creating, and the occupation of bookkeepers is
adjusting as new innovation, like robotized creditor liabilities, is presented. This implies
that bookkeepers should stay up with the latest to make right decisions on client
circumstance
 Bookkeepers should follow all of the managing body's guidelines and guidelines, as per
the set of principles. This will help the firm to hold its impressive skill and assurance that
the fiscal reports precisely mirror the organization's status. Inability to follow the Ethics
code can hurt the organization's standing and maybe lead them to lawful issues.
 All organizations are legally necessary to give right monetary data on their expense forms
(Ye and Hu, 2020). To diminish their monetary weight, a few organizations might offer
inaccurate data to the assessment specialists. In the event that they are recognized, they
might come up against indictments of prevarication and robust fines. The Code of Ethics
safeguards you by guaranteeing that you supply honest data while making good on
charges.
The five fundamental principles of professional ethics for accountants are as follows:

 Integrity: In all proficient and corporate dealings, an expert bookkeeper ought to be
blunt and legitimate.
 Objectivity: Inclination, irreconcilable circumstances, or excessive impact of others
ought not be permitted to best proficient or business choices by an expert bookkeeper.
 Professional competence and due care: An expert bookkeeper has a constant
commitment to keep their expert information and ability cutting-edge to offer skilled
expert types of assistance to a client or business in view of current practice, regulation,
and methods (Ye, and Hu, 2020,). An expert bookkeeper should perform with
perseverance and stick to all relevant specialized and expert guidelines.
 Confidentiality: An expert bookkeeper ought to keep up with the secrecy of data got by
means of expert and business associations and ought not uncover such data to outsiders
without adequate and express approval except if there is a legitimate or expert
commitment to do as such. Private data acquired by means of expert and business
communications ought not be used for the expert bookkeeper's or outsiders gain.
 Professional Behaviour: An expert bookkeeper ought to observe every relevant rule and
guidelines and abstain from doing any activities that bring the calling into offensiveness.
CONCLUSION
From the above-mentioned report, it can be concluded that financial accounting is crucial for
businesses. The financial information is required to be relevant, reliable and reported at the right
time to be effective. The discussion related to the performance of the business based on its
financial and non-financial information is crucial for the business to make amends and plan for
the future. Bookkeeping Ethics is an exceptionally valuable and viable strategy for dealing with
bookkeeping in any firm. To promptly handle and apply to account, the bookkeeper needs to
have adequate preparation and be presented to different bookkeeping strategies. The five
fundamental principles of accounting make it important for accountants to follow.