Accounting Fundamentals Assessment 1: Ratio Analysis Report

This document presents a comprehensive analysis of Accounting Fundamentals Assessment 1. The assessment begins with an analysis of financial ratios, comparing key metrics such as return on assets, return on equity, earnings per share, gross profit margin, asset turnover, stock holding ratio, debtor collection period, current ratio, gearing ratio, and interest coverage ratio between 2018 and 2019, highlighting trends and implications. The assessment then identifies and describes the three main groups of users of company accounts: internal users, external users, and the government, emphasizing their respective interests in financial information. Furthermore, the assignment explores the advantages and disadvantages of the financial reporting regime, focusing on the benefits of standardized accounting practices and the drawbacks of implementation costs and auditing requirements. Finally, it outlines the limitations of financial statements, particularly the reliance on historical cost and the exclusion of non-monetary factors. References to relevant academic sources are also included to support the analysis.

ACCOUNTING
FUNDAMENTALS
ASSESSMENT 1

Table of Contents
MAIN BODY...................................................................................................................................2
2a) Situation revealed by the ratios.............................................................................................2
3a) the three different group of users of company accounts are as follows-...............................3
3b) advantages and disadvantages of the financial reporting regime- .......................................3
3c) Limitation of financial statements are as follows-................................................................4
REFERENCES................................................................................................................................5

MAIN BODY
2b) Situation revealed by the ratios
For the year 2018 it was 21% and in 2019 it is 17% and this suggests that earlier the company
was getting more return as compared to the current year.
In the year 2018 it was 23% and in 2019 it was 14% which suggest that return for equity
shareholders has decreased.
Earnings per share is the earning which person is receiving on their investment and this was 1.06
in 2018 and 0.72 in 2019. This illustrates that earlier the company and the shareholder were
getting more return.
The gross profit margin in the year 2018 was 38% and in 2019 was also 38% which suggest that
in both the year the profitability of the company was same that is constant.
The asset turnover in the year 2018 was 6.06 and in 2019 it was 5.37 and this suggests that the
asset turnover of the company has reduced which is not good for the company.
The stock holding ratio in the year 2019 was less and this states that the inventory holding period
of stock is less.
The debtor collection period of the year 2019 was less than compared to the last year that is
2018. It means that the debtor takes time to be converted in cash.
The current ratio states that in the year 2018 the ratio was 1.97 and in 2019 it was 1.89 which
suggest that the company need to improve its working over the current asst so that the current
asset is enough to pay off all its current liabilities.
The gearing ratio of 2018 was 45% and in 2019 it was 31% and this suggests that the company
need to improve its gearing ratio and for this it needs to work in the improving of the gearing
ratio.
The interest coverage ratio for 2018 was 42.42 and this states that the company is getting the
return on the rate of 42.42
3a) the three different group of users of company accounts are as follows-
Internal users- this is a type of group which works within the company and are directly
responsible for the working and the profitability of the company (Voss, 2019). These people
include the internal stakeholders like employees, owners, management of the company and

others. All these people are interested in the financial information provided by the company as
the bonus of employees, decision to be taken by management all depends on the financial
information.
External users- these are the users which are external to the company but then also are interested
within the financial position of the company. These people generally includes suppliers,
consumer, competitors and other external people (Xu and Xu, 2018).
Government- this is another group of people who are interested in the financial position and the
company. This is majorly because of the reason that the government has to charge tax and for
this they require their financial information.
3b) advantages and disadvantages of the financial reporting regime-
advantages
the major advantage of using the financial reporting regime is that this creates a single set of
accounting standard all over the globe. Thus, this assist both user and preparer to use all the same
standard and principles for accounting (Matuszyk and Rymkiewicz, 2018).
Another major benefit is that this reduces the time and effort of the people in understanding and
making the accounts. Thus, the preparer has to follow all the same standards and the users also
know that all the standards and principles are same.
Disadvantages
this increases the cost of implementation for the small business as they cannot bear the expenses
of maintaining the account as per the standard.
Another drawback is that this requires high auditing of accounts and this is majorly because of
the reason that if the auditing is not effective then it might be possible that accounting standards
are not followed.
3c) Limitation of financial statements are as follows-
the major limitation of the financial statement is that this is based over the historical cost and the
original cost and the statements are not prepared on the basis of the present economic condition.
Another major limitation is that under this preparation the impact of the non- monetary factors
are ignored and because of this real value or true position is not revealed (Socoliuc, 2018).

REFERENCES
Matuszyk, I. and Rymkiewicz, B., 2018. Integrated Reporting as a Tool for Communicating with
Stakeholders–Advantages and Disadvantages. In E3S Web of Conferences (Vol. 35, p.
06004). EDP Sciences.
Socoliuc, M., 2018. FAIR VALUE VERSUS HISTORIC COST: ADVANTAGES AND
DISADVANTAGES. Ecoforum Journal. 7(2).
Voss, G., 2019. Information and Strategic Aspects of Financial Statements in the Assessment of
their Users. Folia Oeconomica Stetinensia, 19(2). pp.176-187.
Xu, H.J. and Xu, H., 2018, November. Educating Users on the Key Factors that Contribute to the
Usefulness of Financial Statement Analysis. In 3rd Annual International Conference on
Education and Development (ICED 2018). Atlantis Press.