Task 1 (Preparing Financial Statements)
The following trial balance has been extracted by the book - keeper, for Ralph Browns' business as at 31 December 2013.
• Depreciate premises at 2 percent per annum using the straight line method
• Depreciate machinery at 12.5 percent per annum using the straight line method
• Allowance for doubtful debts is to be 5 % of receivables
• Wages accrued are £500, and advertising prepaid is £350
Required:
Prepare Ralph Browns' Statement of Profit and Loss for the year ended 31 December 2013 and Statement of Financial Position as at that date.
Task 2 (Case Study Analysis)
Outdoor Life ltd is a Medium size company operating in the county of Berkshire, England. They manufacture and retail Bicycles and associated accessories for riders, as well as outdoor equipment like Tents, Tarp, and Sleeping Bags etc. Currently they have two plants which manufacture the bicycles and outdoor equipment and five retail stores (Four in London and one in Berkshire) which sell their own brands.
The business was started in 2007, by John Taylor and Mick Leeson (both directors of the company), both avid Cyclists and outdoor enthusiast. The business in its early years did better than was expected and as a result has grown to its existing capacity. This growth was explained by John Taylor in an article published by Nature life in its June issue of 2012,
‘The businesses growth has been as a result of us producing high quality bicycles and outdoor products which our customers seem to appreciate and like. In addition our sales in the London area have grown significantly with respect to our bikes as customers want to live healthier lifestyles, which I believe is partially explained by the London Olympics'.
In recent times, the performance of the company has not been as good as was hoped. The board of directors have concluded that the revenue of the company is not where it should be - the results for the year to 30 June 2013 fell below budget. As a consequence the board have responded by implementing a three prong strategy to turn the fortunes of the company around. They are as follows;
• Cutting prices with the hope that market share will be increased.
• Extending longer credit facilities to, other retailers who want to stock the ‘Outdoor life' Brand.
• The acquisition of additional and state of the art machinery in order to be able to manufacture better and more products.
The directors' are now reviewing the financial statements for the year ended 30 June 2014 to see whether their strategies have worked, i.e. improving the financial performance and position of the company.
Required:
Prepare a report for the Board of Directors of Outdoor Life Ltd examining the Financial Performance and Position of the company for the years ended 30th June 2013 and 2014.
Your report should focus on the Profitability, Liquidity/Efficiency and Financial Position of the company over the two years in question. In addition your report should include the Benefits and Drawbacks of using ratio analysis. The following ratios are to be calculated (to be placed in the appendix) and used to help your analysis:Assumptions:
• Credit sales are 60% of total revenue.
• Credit purchases are £70,000 in 2013 and £90,000 in 2014
The above ratios and their calculation for both years should be displayed in the Appendix of the report and serve as a basis for your comments and recommendations to the board.In terms of length, your report should be 1,250 words.
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Profitability:
- Gross Profit Percentage
- Net profit percentage
- Return on capital employed
Financial position:
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Liquidity/Efficiency:
· Current ratio
· Quick ratio
· Receivables collection period
· Payables collection period
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Students will be assessed on:
• How well they have covered the learning outcomes (1-3 listed above) in their essay.
• Knowledge, understanding and analysis
• Standards of English and Harvard Referencing (within the essay and bibliography)
• The structure, layout and editing of your essay.
Attachment:- KHALIL ACC Module Guide Principles of Finance and Accounting 2014-2015.rar