Comprehensive Accounting and Financial Performance Report

This report provides an analysis of a company's financial performance, focusing on ratio analysis to assess liquidity, efficiency, and debt-to-equity ratios. Part A of the report examines liquidity and efficiency ratios, including current and quick ratios, and inventory turnover, highlighting improvements in inventory realization and accounts receivable collection. Part B discusses the recognition of software sales under IAS 38. Part C compares two companies, XYZ and ABC, from the perspectives of a banker, investor, and business owner, concluding that XYZ is the more favorable choice due to its lower debt and higher capital, leading to greater financial stability and flexibility. The report references relevant academic sources to support its findings.

Running Head: ACCOUNTING FOR BUSINESS 1
ACCOUNTING FOR BUSINESS

Running Head: ACCOUNTING FOR BUSINESS
Table of Contents
PART A......................................................................................................................................3
Ratio Analysis........................................................................................................................3
PART B......................................................................................................................................3
Part C..........................................................................................................................................3
References..................................................................................................................................5
References..................................................................................................................................6

Running Head: ACCOUNTING FOR BUSINESS
PART A
Ratio Analysis
Ratio analysis is one of the tools that are used to determine the financial performance
of the entity. The ratio analysis is done on the basis of the various categories in order to
determine the liquidity, financial capacity, efficiency and the profitability. In this report the
liquidity and the efficiency of the Big Bang Private Limited have been assessed. The liquidity
section is one where the current as well as the quick ratio has been assessed.
The current ratio of the Big Bang Limited is the year 2018 and the same has been
reduced to 2.08. This is probably because of the liabilities that have been increased and the
cash is not much realized against the liabilities. This can also be due to the payment of the
accounts payable but yet again so realization form cash. Further it can also be indicated that
the current ratio is within the benchmark and that the company can improve if it gets rid from
the obsolete technology.
The quick ratio on the other hand has been 0.89 in the year 2019 and the same has
been reduced to 0.84. The most and the basic reason is that the quick ratio, which is also
known as the acid test ratio is the one which will again determine how well the company is
able to pay back the liabilities with the help of the cash realized through the sale of the
inventory. The ratio has been low and the company needs to improve the same.
The efficiency ratio indicates the times in which the inventory has been realized in the
cash. The efficiency ratio also explains the fact that inventory turnover ratio of the Big Bang
Private Limited is 113.3 days in comparison to the previous year being 166.4 days. Form this
scenario the company has improved a lot and it can be said that the inventory is realized at
the earliest of the stage now. The accounts receivables in comparison to the year 2017 have

Running Head: ACCOUNTING FOR BUSINESS
been realized faster at 16 days and then 10 days respectively. This is a positive side of the
company and hence the overall position of the company is outstanding (Easton & Sommers,
2018).
PART B
As per the IAS 38 the recognition of the sale of the software is done in the different manner
and the items that shall be recognised as the sale are from the sale of the software that is
$2500000 and for each sale the amount shall be recognized immediately unlike before the
new rules emerged. The Green company if foregoes the entire item than the sale amount will
only be from the sale of the software such as $2500000. The other items will not be
accounted for the recognition of the sales (André, Dionysiou & Tsalavoutas, 2018).
Part C
The most favourable application form the point of view of the banker and the investor is
company XYZ company as the debt to equity ratio of the XYZ company will be probably
more successful in repaying the loan capacity as it has low debt compared to the ABC
company which is already having debt of $31200 and the company will have more financial
leverage which definitely creates uncertainty for the company. Hence, the XYZ Company is
favourable in that case.
The business that is favourable from the point of view of the businessman will be again XYZ
company has it has been mentioned that the company will acquire the liabilities as well. The
other expenses on the land and the office equipment can be easily done as the liability factor
associated with the XYZ Company is altogether low. Further the capital already invested in
the business on case of the XYZ Company is $34200, whereas the same for the ABC
Company is $8400 which eventually demands the more capital.

Running Head: ACCOUNTING FOR BUSINESS
If the agreed owners are ready to pay for the liabilities than also the case would have been
same as the buyer would have to invest little in the fixed assets as it has the capital already
and at the same time there will no liability. In terms of the cash in hand the ABC Company
has $2400 and the XYZ Company has the $2000 in the cash. This accounts for minimal
amount of the cash variance. Hence the company XYZ is suitable in the entire three situations
as it shows a correct alignment between the assets as well as the liabilities incurred by the
company. So even if the owners are not ready to pay for the liabilities the case would be
appropriate in the movement of the XYZ Company (Garg, Garg and Gupta, 2018).

Running Head: ACCOUNTING FOR BUSINESS
References
André, P., Dionysiou, D., & Tsalavoutas, I. (2018). Mandated disclosures under IAS 36
Impairment of Assets and IAS 38 Intangible Assets: value relevance and impact on analysts’
forecasts. Applied Economics, 50(7), 707-725.
Easton, M., & Sommers, Z. (2018). Financial Statement Analysis & Valuation, 5e.
Garg, S., Garg, K.K. and Gupta, S., 2018. Liquidity Analysis to Ascertain Short-Term
Solvency-A Case Study of Ntpc. International Journal of Research, 5(01), pp.2090-2105.

Running Head: ACCOUNTING FOR BUSINESS