Compare and contrast liquidity and profitability. Your comparison should detail why profits and cash amounts are likely to be different in the financial statements

Module Learning Outcomes
(from module syllabus)

⦁ LO 1 explain the nature, behaviour, and purpose of cost accounting, and apply cost accounting concepts, techniques, and methods to business transactions;

⦁ LO 2 review the basic principles of accounting, including the use of appropriate software;

⦁ LO 3 prepare financial statements from initial data, dealing with both routine and non-routine transactions, and analyse financial statements with confidence.

TASK DESCRIPTION

Refer to the next two pages for the tasks that should be done and submitted as one file for this assessment component. Also, ensure that you follow the general submission guidelines below.

⦁ The following list of balances has been extracted from the books of Sandrolia Ltd.
£
Accounts payable 25,680
Accounts receivable 30,700
Carriage inwards 1,840
Computer equipment at cost 4,500
Carriage outwards 3,280
Drawings 26,000
Electricity 2,480
Loan interest 300
Provisions for doubtful debt 450
Insurance 3,360
Motor vehicles at cost 53,900
Capital 48,000
Opening inventory 13,200
Accumulated depreciation – motor vehicles 15,000
Accumulated depreciation – computer equipment 2,640
Petty cash
Bank overdraft 50
2,880
Wages 67,440
Purchases 126,800
Rent 23,760
Sales 256,400
Telephone 1,440
Long-term Loan 8,000

The following information is also available:
⦁ The value of inventory as at 31st December 2019 was £14,400
⦁ Motor vehicles are to be depreciated at 30% on reducing balance basis and computer equipment at 20% on cost.
⦁ A telephone bill for £180 for the last three months to 31st December 2019 did not arrive early, so this is yet to be reflected in the books
⦁ Of the insurance payments, £640 is for the year ending 31st December 2020.
⦁ Unpaid taxes amount to £1,500
Required:
⦁ Complete the Journal entries required to reflect the above additional information
⦁ Draw up an updated Trial balance
⦁ Complete the financial statements: Statement of Profit or Loss and Statement of Financial position, for Sandrolia Ltd for the year ending 31st December 2019.
(35 marks)

⦁ A primary objective of financial reporting is to keep the users of financial statements informed about the state of a business overtime. To achieve transparent and uniform reporting, accounting standards and concepts have been long established and serve as a guide in preparing financial statement.

Present a critical assessment of the relevance of financial statements to users (maximum word limit :1000 words)
(15 Marks)
⦁ Given below are the balances taken from Ricardo’s ledger accounts on 31st December 2017.
£
Fittings 7,300
Accumulated depreciation – fittings at 01/01/2017 2,500
Buildings 30,000
Accumulated depreciation – buildings at 01/01/2017 6,000
Inventory at 01/01/2017 15,000
Trade receivables 10,000
Allowance for doubtful debts 01/01/2017 800
Cash in hand 50
Cash at bank 1,250
Trade payables 18,000
Capital 19,050
Drawings 4,750
Purchases 80,000
Revenue 120,000
Wages 12,000
Advertising
Rates 4,000
1,800
Bank charges 200

The following information is also available:
⦁ The value of inventory as at 31st December 2017 was £21,000
⦁ Fittings are to be depreciated at 8% on reducing balance basis and buildings have a 30-year life and depreciated at cost.
⦁ Of the rates payments, £360 is for the next accounting period
⦁ Ricardo has just been notified that a debt of £600 is irrecoverable. As the economy is in recession it is expected that debtors may struggle to pay so an allowance of 3% is required against the remaining receivables.
⦁ Ricardo has just taken £250 from the bank for his personal use.
Required:
⦁ Complete the Journal entries required to reflect the above additional information
⦁ Draw up an updated Trial balance

⦁ Complete the financial statements: Statement of Profit or Loss and Statement of

Financial position, for Ricardo for the year ending 31st December 2017.
(35 marks)

⦁ Compare and contrast liquidity and profitability. Your comparison should detail why profits and cash amounts are likely to be different in the financial statements (maximum word limit :1000 words)

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