Financial Statement Analysis Assignment Help

Financial Statement Analysis Assignment Help

This is a solution of Financial Statement Analysis Assignment Help which discuss preparations of asset register along with necessary journal entries.

Task 1:

1.1 Preparations of asset register along with necessary journal entries:

Machinery and Equipment Account:

DateParticularsAmount (Dr)DateParticularsAmount (Cr)
30.06.13Machinery4200030.06.13Depreciation6300
30.06.13Equipment4150030.06.13Depreciation9112.5

Debtor Account:

DateParticularsAmount (Dr)DateParticularsAmount (Cr)
30.06.13To balance b/d1740030.06.13By bad debts1320

Provision for doubtful debts Account:

DateParticularsAmount (Dr)DateParticularsAmount (Cr)
30.6.13By P/L870

General Journal Entries for Balance day Adjustments:

DateParticularsAmount DR(RS)Amount CR(RS)
30.06.13Depreciation A/c                                                         dr To Machinery A/c6300  6300
30.06.13Depreciation A/c                                                        dr To Equipment A/c9112.5  9112.5
30.06.13Bad debts A/c                                                            dr To debtors A/c1320  1320
30.06.13Outstanding wages A/c                                              dr To Wages A/c50  50
30.06.13Prepaid expense A/c                                                    dr To Advertising A/c150  150
30.06.13Profit and loss A/c                                                      dr To Provision for doubtful debts A/c870  870
30.06.13Annual Leave A/c                                                       dr To Wages A/c1323  1323
30.06.13Commission A/c                                                       dr To Commission accrued A/c600  600
30.06.13Stock A/c                                                                    dr To increase in stock A/c600  600
30.6.13Total20325.520325.5

1.2Preparation of financial statements and Notes to account of SCEI:

 Final General Ledger Accounts:

A/c NoParticularsAmount (Dr)Amount (Cr)
1Equity15648
2Assets394687.5
3Liabilities1567750
Net profit:222289.5

Profit and loss statement

For the year ended 30.6.13:

DateParticularsAmount (Dr)DateParticularsAmount (Cr)
30.6.13By Gross profit330732
30.6.13To rent450030.6.13By GST receivable750
30.6.13To advertising75030.6.13By commission received690
30.6.13To insurance1080030.6.13By discount received1800
30.6.13To wages1332030.6.13
30.6.13To Telephone18030.6.13
30.6.13To depreciation630030.6.13
30.6.13To depreciation9112.530.6.13
30.6.13To GST300030.6.13
30.6.13To provision for bad debt87030.6.13
30.6.13To provision for annual leave60030.6.13
30.6.13Too bad debts432030.6.13
30.6.13To condemnation5580030.6.13
30.6.13To rates150030.6.13
To discount allowed600
30.6.13To Net profit222289.5
30.6.13Total333942Total333942

Balance sheet

As on 30.6.13

LiabilitiesAmount(Rs)AssetsAmount(Rs)
Capital16308Machinery35700
Add: Net Profit222289.5Equipment32387.5
Less: Drawings660Plant186000
Outstanding expenses23250Condemnation55800
Creditors13500Prepaid Expenses150
Mortgage120000Commission Receivable690
Cash Balance600
Bank Balance65552
Debtors14808
Stock3000
Total396487.5Total396487.5

Notes on Account:

  1. Depreciation on machinery:

Since as per balance day adjustments, machinery needs to be depreciated @ 15 percent per annum the same has been calculated and subtracted from the value of the machinery. The depreciation amount remains the same as under straight line method, the amount of depreciation is fixed unlike reducing balance method (Alghalith, 2014).

  1. Depreciation on Equipment:

The depreciation under equipment is slightly different from the one provided under machinery. As under this case, the depreciation is provided as per reducing balance method, which is calculated on the yearend balance of the respected assets. As under balance day adjustments it has been said to provide 22.5 percent of deprecation to equipments, the same has been done on the yearend balance of the same and shown in the balance sheet (Bragg, 2013).

  1. Additional bad debt:

As per the record of trial balance, additional bad debts are yet to be recorded and deducted from the overall balance of the debtors. The overall balance of bad debts is 4320 out of which 60 percent, which is 2592 is considered as fully bad debt; the same has been deducted from the balance of the debtors and shown in the balance sheet (Clarke, 2015).

  1. Additional wages:

It is not to be mentioned that profit and loss statement and overall financial statements use to prepare on accrual basis, and thus this adjustments needs to be considered in order to reflect actual gross profit and overall net profit of SEIC. Talking about the accounting calculation, the additional amount has been added to the overall account of wages and is listed under outstanding expenses under liability side (Fager, 2015).

  1. Prepaid advertising:

Prepaid expenses are treated as assets as here the owner make advance payment to different parties for future transaction and dispose the future liabilities. By making advance payment, owner uses to shift the particular liability to the other side and record the same under assets. This is the only reason why the same has been recorded under assets side of balance sheet (Gleeson-White and Harcourt, 2012).

  1. Provision for bad and doubtful debts:

The same is deducted from the overall balance of debts as this portion also indicates the risk of recovering the authorized payments from the debtors. Talking about accounting calculation, apart from 522 the debtors has been deducted by extra 5 percent as risks of recovering the amount is very high and strong. Thus, the final balance of debtors has been shown after proper deduction of provision for doubtful debts (Hampton, 2015).

  1. Annual Leave:

As per the adjustments of balance daybook, it is indicated to provide 10 percent of wages under Annual leave; the same has been done and shown under profit and loss account. The same happened because of incorrect recording by the financial professionals in Trial balance.

  1. Commission revenue:

As said earlier, that the overall preparation of financial statements should be done on accrual basis, 600 of receivable commission has been recorded under profit and loss account and balance sheet so to determine appropriate net profit and balance the value of assets and liabilities.

  1. Increase in stock:

The balance of stock under trial balance shows that the same is standing with 2400. As per the instruction or adjustments of balance daybook, the same needs to be recorded only after applying an upwards increment of 600 which is done in an appropriate way (Harrison, 2012).

Other Adjustments:

 Condemnation to building is an extra ordinary item and comes under operating level of the company. On the other hand, it is the practice of the company to proportionate the value of fixed depreciation and wages into administration and sales by 80 and 20 percent. Thus, both the matters were taken into consideration and applied in the required way.

Ledger Accounts

As on 01.07.13

ParticularsAmount (Dr)ParticularsAmount (Cr)
Machinery35700Creditors13500
Equipment32387.5Capital15648
Debtors14808Mortgage120000
Cash600Outstanding Expenses23250
Bank65552Net Profit222289.5
Stock3000
Plant186000
Accrued incomes690
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Task 2:

Part 1: Calculation of depreciation and sale of Clippers assets:

Asset Account for the last quarter:

DateParticularsAmount (Dr)DateParticularsAmount (Cr)
1.4.13Gardening Equipment13171.530.6.13By Depreciation639.5
1.4.13Vehicles56276.2530.6.13By Depreciation6276.25
1.4.13Computer Equipments2266.2530.6.13By Depreciation453.25

 Calculation of depreciation of disposal asset:

ParticularsAmount (Dr)ParticularsAmount (Cr)
To balance b/d1160.78By Depreciation232.16
    

General Journal Worksheet:

DateParticularsAccountFolioDebit $Credit $
1.7.12To balance b/d  1160.78
30.6.12By Depreciation  232.16
30.6.12By sale  500
30.6.12By loss on sale  428.62

Part 2: Preparation of general journal entries:

DateParticularsAccountFolioDebit $Credit $
30.6.13To depreciation  7369
30.6.13To prepaid insurance  330
28.6.13To prepaid advertising  131.82
30.6.13To bed debt  220
28.6.13To wages  90
30.6.13To revenue  600
Total  767914112

 Adjustment under General ledger:

ParticularsAmount (Dr)Amount (Cr)
Assets: Prepaid Advertising Prepaid Insurance Depreciation      7369131.82   330  
Incomes: Revenue  600
Expenses: Bad debts Wages  220 90

Adjustments under Trial Balance:

ParticularsAmount (Dr)Amount (Cr)
Depreciation7369
Bad debts220
Wages90
Revenue600
Prepaid Advertising330
Prepaid Insurance131.82

 Part 3: Preparation of balance sheet and income statement:

Income statement

For the year ended 30 June 2013

Revenue:AmountAmountAmount
Gardening services5612756127
Landscaping services1374513745
Handyman services3169131691
Prepaid expenses461.82461.82
Accrual revenue for gardening services600600
Total102624.8
Expenses:
Advertising14321432
Gardening supplies39393939
Depreciation639.5639.5
Depreciation6276.36276.25
Depreciation453.25453.25
Insurance660660
Interest paid115115
Accounting fees662662
Maintenance of equipment12601260
Office supplies10221022
Superannuation9797
Wages and salaries35103510
Outstanding Expenses77697769
Bad debts220220
Loss on sale428.62428.62
Total27461.62
Net Profit/ Net loss before tax75163.2

Balance Sheet

For the year ended 30th June 2013

AssetsAmount $Amount $Amount $
Gardening Equipment  12532
Vehicles  50000
Computer Equipment  4041
Prepaid Expenses  461.82
Accrual revenues  600
Cash and Bank balance  28158
Total  95792.8
   
Liabilities  
B Capital  36733
B Drawings  (45690)
D Capital  36733
D Drawings  (45690)
Net Profit  75163.2
Outstanding expenses  7769
Creditors  30744.4
Total  95792.8

Calculations: Refer Appendix

Task 3:

3.1 Definition of Asset, Liability, Expense, Accounting equation, methods of depreciation, double entry book keeping principles and accruals:

Asset:

Any investment, property etc owned by any respective individual than that particular return on investment and property are the asset of the individual. On a general note, asset defines the ownership of any individual towards a particular property or investment. Relating the same in accounting performance, there are two types of assets such as fixed and variable (Higson, Nokes and Tulloch, 2014). Examples and explanation each of these two assets is given as follows:

Fixed assets:  Building and Land

Land and building are considered as fixed asset under accounting as both of this property is attached to their position permanently and never shifted from the respective original space. Thus these assets have more importance and relevance in accounting management unlike variable expenses as the lasting of these assets is comparatively more.

Variable Assets:Debtors, Bank balance, ownership of small and temporary equipment etc

The list of variable assets is never ending in accounting. These types of assets arise and dissolve on a daily basis and are very common in accounting practices. Since debtors, bank balance, cash balance etc use o fluctuate every second in business, this is the only reason why these assets are considered as variable assets. Moreover, the use of these assets is also very much required in business to perform the daily operations (Hodge, 2013).

Liabilities:

This is the adverse side of assets as the same displays the payment to be made by the owner to respective suppliers and staff from whom services had been rend. Both assets and liabilities are very much important in business to calculate the overall position and determine the level of profitability. Just like assets, liabilities are also divided into many categories such as:

Current liabilities:

Current liabilities are comprises of creditors, outstanding expenses etc which occurs almost regularly in business while dealing with many suppliers or dealers. Since it is very much important in the business to perform the day-to-day transaction, the managers and financial auditing team need to take the products on credit from suppliers or retain the wages, which should be paid to the labours. Thus, the occurrence of current liability is very common and ordinary (Lechter, 2011).

Non-current liabilities:

These types of liabilities are generally carried from years to years and are considered to be off long term. Examples of non-current liabilities are bonds payable, long-term borrowings or leases, product warranties in case the same is provided.

Expense:

The above term does not have any introduction, as the same is very much common in both commercial and non-commercial life. Without expense, there can be no income. Every business manufactures product or deliver services with the help of necessary operations, which is not possible without expense. It is the responsibility of the owners to pay appropriate amount of attention towards different operations and allocate the expenses in a proper way so to recover good income in the coming period (Liapis and Kantianis, 2015). The occurrence of expense is very much regular in accenting and without expense, it would become impossible for the financial planning professionals to present the necessary profit and loss and calculate the overall position of the organization. In addition, expenses are also divided into two categories such as:

Fixed Expense:

This expense remains the same and does not with the level of outcome. Examples of some fixed expenses are rent, electricity etc. Moreover, the owner should try to decrease the overall figure of fixed expense in order to derive good income and profit.

Variable Expenses:

This type of expenses fluctuates with the level of outcome and comprises of raw materials, labour, wages etc. In fund accounting both of these expenses are divided into the categories of trading and profit and loss statement and helps to determine gross and net profit of the company (Rai, 2013).

Accounting Equation:

This equation helps in the preparation of financial statements as it provides the base of double entry system. The main purpose of this equation is to display that assets are acquired either through debts or by shareholders money. Accounting equation is very much necessary and required for every business to calculate the necessary ratios and find the actual position of the business. The concept of accounting equation is described under:

Asset = Liabilities + Shareholders Equity

Also the overall presentation of balance sheet is nothing but clear display of this equitation as both assets and liabilities sides are balanced and remain same at the end of financial year (Rana, 2010). Another presentation of accounting equation is shown as under:

Liabilities = Assets – Shareholders Equity and Shareholders’ Equity = Assets – Liabilities

Moreover, in order to follow double entry book keeping system while preparing the financial statements it is very much important for each and every organization to understand the importance and requirement of this accounting equation.

Example of accounting equation is as follows:

LiabilitiesAmountAssetsAmount
Shareholders’ Equity750000Plant and Machinery100000
Creditors75000Stock50000
Total150000Total150000

Methods of calculating depreciation:

Generally there are five types of methods through which depreciation can be calculated however in corporate world; only two types of methods are used such as Straight line method and Reducing balance method. The basic meaning of providing depreciation is deduction in the value of assets for each financial year because of wear and tear of the same (Stockwell, 2011).

Straight Line Method:

Calculating depreciation through this method is very easy and simple. However, in order to imply this method it is very much important for the owner to predict the life of the assets and then divide the same with the cost of the asset.  The depreciation under this method remains constant every year as rate of depreciation remains the same.

Example: Machinery Acquired for 10000, life is 5 years.

Machinery Account

ParticularsAmount (Dr)ParticularsAmount (Cr)
To balance b/d10000By depreciation2000
To balance b/d8000By depreciation2000
To balance b/d6000By depreciation2000
To balance b/d4000By depreciation2000
To balance b/d2000By depreciation2000

Reducing Balance Method:

Under this method, depreciation is calculated on the carried forward balance of the asset every year. Practically reducing balance method is more useful than straight line method as depreciation is provided as per the ratio of usage (Stott and Truman, 2010).

Example: Machinery acquired 10000 rat of depreciation 10 percent

Machinery Account

ParticularsAmount (Dr)ParticularsAmount (Cr)
To balance b/d10000By depreciation2000
To balance b/d8000By depreciation800
To balance b/d7200By depreciation720
To balance b/d6480By depreciation648
To balance b/d5832By depreciation583.2

Prepayments and Accruals:

The overall preparation of financial statements and other statements have to follow certain accounting standards and laws which clearly state that the same have to prepared on accrual basis. Since we all know that the overall structure of financial statements is comprises of assets and liabilities or income and expenses, by following accrual basis of accounting, companies would be able to record all the upcoming liabilities and expense and thus would be aware about the same. On the other hand, recording of prepayments is equally necessary, as it would decrease the level of liability of the companies in the coming period.  Prepayments are assets of the company and accounting treatment is equal to that of outstanding expenses (Suntheim, n.d.2012).

Double entry book keeping principles:

As stated in the name, this principle indicates that each and every transaction should have tow effects on the accounts unlike single entry system. By following this principle, it would be easy for the financial professionals to prepare the necessary accounts and simultaneously it would be equally good for the investors and shareholders to understand the presented financial statements. The main principle of double entry book keeping system is debit the receiver and credits the giver and based on these two factors debit and credit effect are analysed in the financial statements. Some examples are as follows:

P Ltd purchased machinery through loan

Debit effect – Asset Acquired

Credit effect- Loan Liability

Journal Entry:

Asset A/c                                          dr To Loanxxx xxxx

M Ltd Pay 5000 to his creditor R Ltd

Debit Effect- Cash Expense

Credit Effect- Asset Decreased by 5000

Journal Entry:

R ltd A/c                                              dr To Cash5000 5000

3.2 Relevant journal entries and Necessary Accounts:

DateParticularsAmount (Dr)Amount (Cr)
1 Jan 2013Computer A/c                                  dr Land and building A/c                    dr Stock Control A/c                            dr To Capital  3000 220000 20000        243000
2 Aug 2013Purchases A/c                                 dr To creditor A/c2000    2000
3 Aug 2013Computer A/c                                 dr To Cash1500  1500
31 Aug 2013Drawings A/c                                dr To Bank1200    1200
31 Aug 2013Bank Loan A/c                               dr To Cash20000  20000
30 Aug 2013Stock A/c                                       dr To Cash To Creditors2000  1000 1000
xxxStock A/c                                       dr To Advertising2000  2000

                                                   General Ledger Account:

DateParticularsAmount (Dr)DateParticularsAmount (Cr)
1.7.13To bank10001.7.13By bank2000
2.7.13To purchases20002.7.13By creditors1000
Total3000Total3000

Profit and Loss Account:   

DateParticularsAmount (Dr)DateParticularsAmount (Cr)
XxxTo cost of sales15000XxxBy sales20000
XxxTo wages2000Xxx
XxxTo Gross Profit3000Xxx
XxxXxxBy Gross Profit3000
XxxTo advertising1000Xxx
XxxTo rent2000Xxx
XxxTo promotions1000Xxx
XxxTo other expenses500XxxBy Net Loss1500
Total4500Total4500

                                                      Balance Sheet

Assets:AmountAmount
Debtors1500015000
Stock1500015000
Cash at bank1500015000
Total45000
Liabilities:
Capital2050020500
Less: Net Loss(1500)1500
Creditors60006000
Loan from Bank2000020000
Total45000

3.3 Regulations and code of practices, which are relevant in the financial service industry:

Following is the list of regulation and codes of practices, which are very much necessary while working under financial risk industry:

Code of practices:

  • Consent from stakeholders while structuring organizations rules
  • Availability of appropriate provisions and standards for different issues, matters etc
  • Proper control and track of departments after regular intervals
  • Ethical behaviour from each and every professionals

Regulations:

  • Appropriate standards should be implied in each and every department
  • Proper disclosure is required in Notes on Account in case of any accounting or material change
  • Do not use the concept of window dressing for more than 2 years
  • Auditor should be appointed to check the financial statements of the organizations
  • Mandatory to prepare the financial statements every year
  • Double Entry book keeping should be followed and accounts are prepared in T format

3.4 Explanation of two types of balance day adjustments:

Two types of balance day adjustments are accrual day adjustments and deferral day adjustments (Whitehead, 2014).

Accrual adjustments:

Under this type of adjustments assets and revenue of respective organization increases or enhances. Examples are as follows:

  • Interest accrued but not recorded of $250
  • Commission accord but not recorded of $500

Since it is very much important for each and every company to follow the accrual basis of accounting, the same is only possible by adjusting the transaction listed under balance day book.

Deferral adjustments:

It is totally different for accrual adjustments as here the overall value of asset or income decrease or lower down. Examples are as follows:

  • Commission paid $750
  • Interest paid &100

Deferral adjustments hold equivalent importance when it comes to preparation of financial statements and other necessary accounts. Otherwise double entry book keeping principles would be breached.[ Also Read this Communication Theories Assignment]

Moreover, list of some other adjustments are depreciation Estimation and Accounting Error correction (Joong-Hyun Lee, 2010).

References

Books:

  • Bragg, S. (2013). Accounting best practices. Hoboken, N.J.: John Wiley & Sons p.787
  • Clarke, E. (2015). Accounting. South Melbourne, Vic.: Thomson p.545
  • Harrison, I. (2012). Introducing accounting for AS. London: Hodder Education p.333
  • Higson, C., Nokes, S. and Tulloch, D. (2014). The information audit and information asset register. London: Rivington p.987

Journals:

  • Alghalith, M. (2014). Alternative theory of asset pricing. J Asset Manag, 10(2), pp.73-74.
  • Fager, C. (2015). Professional liability and potential liability. Neurosurgery, 16(6), pp.866???72.
  • Gleeson-White, J. and Harcourt, G. (2012). Double Entry Book Keeping: A Conversation. The Economic and Labour Relations Review, 23(3), pp.89-104.
  • Hampton, C. (2015). Estimating and Reporting Structural Equation Models with Behavioral Accounting Data. Behavioral Research in Accounting, 27(2), pp.1-34.
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