3.
4 final accounts
- Prepared at the end of the accounting year
- April to march
- Two parts
- Profit and loss account – income and profit of the organization
- Balanced sheet – assets(whatever you own) and liabilities(whatever you are
supposed to pay)
Profit and loss account (bm guide – page 59)
1: Profit making organization
Profit and loss account for (name of business) as on (date)
Revenue (sp x unit)
-Cost of goods sold (COGS)
=Gross profit
-Overheads/expenses/ indirect costs
=net profit before interest and tax
-interest
=net profit after interest but before
tax
-tax
= net profit after interest and tax
-dividends
=Retained profit
- Interest is payed before tax
Q1:
Answer:
a) Not in syllabus
b) (with working in the box – supposed to do working on side)
Profit and loss account for PP’ as on 2023 (all figures in $)
Revenue (sp x number of sales) 42000 x 8 = 3,36,000
4.20 x 42000 =
-Cost of goods sold (COGS) 1,76,400
=Gross profit = 1,59,600
-administrative expense 28400 28400+67,200=95,600
-marketing expense 67,200
=net profit before interest and tax 64000
-interest 10% of 176400 =
17640
=net profit after interest but before 46360
tax (10% of COGS)
-tax@20% 9272
= net profit after interest and tax 37,088
-dividends@10% 10% of 37088 =
3708.8
=Retained profit 33,379.2
b)ii)
GP = revenue - COGS
Gross profit margin = (GP/ sales revenue) x 100
GPM = (1,59,600/3,36,000) x 100
GPM = 47.5%
(Net profit margin = (NP/ sales revenue) x 100
NPM = (64000/3,36,000) x 100
NPM = 19.04%)
Terms and phrases for answers:
1: Ratios
GPM and NPM are profitability ratios therefore, higher the ratios the better for the company
2: GPM
If the GPM decreases the reason can be either less revenue or higher COGS
3: NPM
If the NPM is falling the reason can be decrease in revenue or increase in the
overheads(expenses)
c) The value of the fixed asset received by pp might not be sufficient to continue
production of the new pie
Q.
Return on capital employed (ROCE) = (NP before interest and tax/capital employed) x 100
Capital employed – money invested in the business
Np – operating profit
ROCE - Higher the better
Whenever questioning how a business is doing – use ROCE, GPM and NPM to assess
(ROCE on finbox)
Profitability ratios
- GPM
- NPM
- ROCE
- PGL
Balance sheet
1: Asset
Anything that has a financial value and is owned by the business
1. fixed assets (non-current assets)
assets that have a life of more than a year
Ex: machinery, building, furniture, vehicle, etc.
2. current assets (liquid assets) – revenue (day to day needs)
assets which can be converted to cash within a year
Ex: cash (pocket and bank), debtors (people who will pay me money-who have taken
credit), stocks/ inventory (all the things that are available to sell), etc.
reminder – liquid = cash (in bm)
2: Liability
what the business must pay
things I owe
obligation of business
1. Short term liabilities (current liability)
Pay within 0-1 year
Ex: overdrafts, creditors (ppl u will be paying money), short term loans, etc.
2. Long term liabilities (non-current liability)
Pay after more than 1 year
Ex: debentures, bank loans(more than a year)
Diff between debtor or creditor
Shopkeeper and supplier
In the eyes of shopkeeper – shopkeeper is the creditor because they have to pay the supplier
In eyes of supplier – supplier is the debtor because they will be receiving money from the
shopkeeper
Equity (in terms of balanced sheet)
How much money is present in the business from all 3 sources
3 sources include – coming from loan capitol + share capitol + retained profit
Equity = loan capital + share capital + retained profit
Format of balanced sheet (error in textbook)
Balance sheet for (name of business) as on (date)
Headings Values Calculation
Fixed assets
- Building - A
- Machines -
- Car -
Net fixed assets (total of all above) =
Current assets B
- Cash -
- Debtor -
- Stock -
Total current assets (total of all above) =
Current liability C
- Creditors -
- Overdrafts -
Total current liabilities =
Net current assets (B-C)
(Current Assets-Current liability)
Long term liabilities (non-current liabilities) D (value usually given in question)
Net assets (total assets – total liability) Z
(A+B) – (C+D)
Finance by
- Retained profit (retained earnings) G
- Share capital H
- Loan capital I
EQUITY (G+H+I) Z (equal to net assets)
Q1:
Balance sheet for Visionary Toys as on 2017
Fixed assets
Net fixed assets (total of all above) 27,000
Current assets
- Cash 1000
- Debtor 3500
- Stock 4500
Total current assets (total of all above) 9,000
Current liability
- Creditors 4000
- Overdrafts 2000
- Loans 1500
Total current liabilities 7,500
Net current assets 1,500
(Current Assets-Current liability)
Long term liabilities (non-current liabilities) 5,000
Net assets (total assets – total liability) 23,500
(A+B) – (C+D)
Finance by
- Retained profit (retained earnings) 10,00
- Share capital 0
13,50
0
EQUITY (retained profit + share capital) 23,500
