accounting

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The Shareholders Or Owner Of The Company Accounting Essay

Accounting Users is divided to two, which is internal users people within the organization and external users people outside the organization.Internal users is including Managers of operations and Management .Next, external users is including investors, customers, employees, creditors, government organization, and suppliers. Example of decision by internal users is to analyze profitability by product and operating unit. The research show in accounting study online is accessed by to analyze the profitability by products and operational units (Anon,nd). Examples of decision by external users is to have a sales or purchase transactions with entities. The research show in accounting study online is accessed by to have sales or purchase transactions with the entity (Anon,nd).

Five different users for Continental Limited Financial Statements are Managers of the company, Employees of the company, Shareholders or owners of the company, suppliers or creditors, customer or debtors. Next, the five regulatory characteristics of financial statements is relevance, comparability, understandability, accuracy, reliability.

Task 2 until task 3 is to show the workings about the income statements and balance sheet.

2.0 Five different users and their needs for Continental Limited financial statements

Five different users for Continental Limited Financial Statements are Managers of the company, Employees of the company, Shareholders or owners of the company, suppliers or creditors, customer or debtors. It will show in 2.1 until 2.1.4.

2.1 Managers of the Comapany

Managers of the company, the owner of the company, these people are appointed to supervise the daily activities of the company. Maintain control of the way organizations do things, while leading, motivating and guiding people. They need to know the financial condition of the company's accounting information, as it is now and expected in the future, so that they can effectively manage the business, and to take effective control and planning decisions.

2.1.1 Employees of the Company

Employees of the company, these people are employed by the company conducts its business activities. They need accounting information on the financial position of the company, because their future career, their wages, the size of the salary income depends on it.

2.1.2Shareholders or owner of the Company

Shareholders or owner of the company, as a successful corporate shareholders, the company's boss or partner can be an enviable position. They need accounting information to assess how the company's management to effectively perform its management functions, how the profitability of the operation and management of the company's operations and profit, they may withdraw into payment from the business.

2.1.3 Suppliers or Creditors

Suppliers or creditors, a creditor of a legal nature, the provision of goods, services or capital loan debtor entity, a company or a person. They need the company's ability to repay its debt, in order to ensure that they collect from the company's accounting information.

2.1.4 Customers or Debtors

Customers or debtors, these are the people to buy the services or goods of the company credit. They need the company's ability to repay its debt, in order to ensure that they collect from the company's accounting information.

2.1.5 Five Characteristics of useful financial statements

The five regulatory characteristics of financial statements is relevance, comparability, understandability, accuracy, reliability. It will show in 2.1.6 until 2.1.10.

2.1.6 Relevance

Relevance. Relevance means that the financial statements should be a major business companies. Relevance to influence a decision-making capacity of the project. The financial information contained in the financial statements, should have an impact on the commercial enterprise operating policy and decision-making.

2.1.7 Comparability

Comparability. Comparable entities, as well as the financial statements of each entity should be comparable. Financial accounts on the basis of accounting concepts, should be the last year account and comparable companies account. The financial statements must also be in the financial statements of other entities in the same industry. Users must be able to compare the financial statements of an entity over time to identify trends in its financial position and performance. The Howtobeacapa online is accessed by Users must be able to compare the financial statement of an entity through time in order to identify trends in its financial position and performance (Anon, 2012).

2.1.8 Understandability

Understandability. Comprehensibility of the information contained in the financial statements is easy to understand its users. Is important to note that intelligibility is dependent on the user's ability to analyze or read the financial statements. The user should have the knowledge and skills to understand the information contained in the financial statements.

2.1.9 Reliability

Reliability refers to the degree of confidence data user loyalty and authenticity of the financial and accounting information. Reliability is neutral, the properties of bias and error and complete financial information. Cautious or conservative concept, also directly impact the reliability of financial information.

2.1.10 Accuracy

Accuracy. Financial accounts to provide accurate financial information to the user to decide because of inaccurate information will lead to inaccurate results generated by users.

2.2 The income statements of Continental limited for the internal use

The workings of income statements will show in 2.2.1.

2.2.1 Income statements of Continental limited for year ending 31 Dec 2010 for internal use by company and directors and management

Closing stock must be recorded at cost or net sales value which one is lower. Since cost RM65000< net sales value RM70000, the cost RM65000 should be closing stock value put in the trading account of income statements and under the current assets in balance sheet.

In the below is the working of question b:

___________________________Cash account__________________________________

RM RM

Sales (Difference) 5000 Purchase 4000

Stationery 700

Electricity 300

________ _________

5000___ 5000_

Sales in trading account of income statement= RM360000 from TB + RM5000= RM365000

Purchase in trading account of income statement= RM200000 from TB + RM4000= RM204000

Stationery as expense put in P/L account of income statement= RM 700

Electricity and water in P/L account of income statement= RM7000 from TB + RM300= RM7300

Working of question c:

Sales commission as expense put in P/L account of income statement= RM18000 paid from TB + RM1500 accrued at the end of the year= RM19500

Then, accrued sales commission RM1500 is recorded under the current liability in balance sheet.

Office Salaries as expense put in P/L account of income statement= RM28000 paid from TB- RM2000 prepaid at the end of the year= RM26000

Then, prepaid office salary RM2000 is recorded under the current asset in balance sheet

Working of question d:

____________________ Debtor account_________________________________

RM RM

Balance b/d 75000 Bad Debts 5000

Balance c/d 70000

________ _________

75000__ 75000

Balance b/d 7000

(Debtor put under current asset in balance sheet)

Bad debts account___________________________

RM RM

Debtor 5000 P/L account 5000

(Bad debts as expenses put in P/L account)

Provision for bad debts closing balance= 10% X Debtor closing balance RM70000= RM7000

__________________Provision for bad debts account____________________________

RM RM

31 Dec 2010 Closing balance c/d 7000 1 Jan 2010 Opening balance b/d 5000

Increase difference 2000

_______ ______

7000 7000

1 Jan 2011 Balance b/d 7000

Working of question e and f:

Vehicles account__________________________________

RM RM

Balance b/d 300000 Vehicles disposal a/c 50000

Balance c/d 250000

________ ______

300000 300000

Balance b/d 250000

_________________Provision for depreciation on vehicle account__________________

RM RM

Vehicle disposal account 12500 1 Jan 2010 Opening Balance b/d 60000

(Cost sold RM50000 x 5% x 5 years Depreciation as expense put in P/L

from 1 Jan 2005 to 1 Jan 2010) account 12500

(Vehicles closing balance

RM 250000 x 5%)

31 Dec 2010 Balance c/d 60000 ______

72500 72500

1 Jan 2011 Balance b/d 60000

Vehicle disposal account____________________________

RM RM

Vehicle cost sold 50000 Provision for depreciation on

Vehicles sold 12500

Proceeds from disposal of

Vehicle 35000

Difference for loss on

Disposal of vehicle 2500

________ ______

50000 50000

Provision for depreciation on premises account_________________

RM RM

Balance c/d 54000 1 Jan 2010 Opening Balance b/d40000

Depreciation as expenses put in

P/L account 14000

(Premises cost RM350000 x 4%)

_________ ______

54000 54000

Balance b/d 54000

Working for note g of question:

Taxation charge RM15300 is deducted from net profit at the bottom of income statements. It is also recorded as accrued taxation RM15300 under the current liability in balance sheet.

Working for note h of question:

Proposed divided to be deducted from net profit at the bottom of income statement= 25 x RM500000 share capital from TB= RM10000

Then, the proposed divided RM10000 is recorded under current liability in balance sheet.

Income statements of Continental Limited for year ending 31 Dec 2010 for internal use

RM RM RM

Sales 365000

Less Return inward 10000

Net sales 355000

Less Cost of sales :

Opening stock 50000

+Purchase 204000

-Return outwards 15000

+Carriage inwards 5000 194000

Less Closing Stock 65000 179000

Gross Profit 176000

Add Income : _5000_

Devidend received 181000

Less Expenses:

Stationery 700

Office electricity and water 7300

Office salaries 26000

Sales commission 19500

Bad debts 5000

Increase in provision for bad debts 2000

RM RM

Loss on disposal of vehicle 2500

Depreciation on vehicles 12500

Depreciation on premises 14000

Vehicle expenses 12000

Interest charges 3000 104500

Net profit 76500

Less taxation charge (15300)

Less Proposed dividend (10000)

Profit for the year 51200

Add Retained earnings brought forward 100000

Retained earnings carried forward 151200

2.2.2The balance sheet of Continental limited for the internal use

The working will show in 2.2.3.

2.2.3 Balance sheet of Continental limited for year ending 31 Dec 2010 for internal use by company and directors and management

Balance sheet of Continental Limited as at 31 Dec 2010 for internal use

RM RM

Fixed assets/ Non-current assets

Office premises at cost 350000

(-)Provision for depreciation on premises (154000) 296000

Vehicles at cost 250000

(-)Provision for depreciation on vehicles (60000) 190000

100000

Long-term investment 586000

Current assets

Closing stock 65000

Debtors 70000

(-)Provision for bad debts (70000) 63000

Bank 42000

Prepaid office salary 2000 172000

758000

Issued shared capital

Share capital 500000

Add Reserve

Retained earnings carried forward 151200

Shareholders’ equity 651200

Add Long-term liabilities/Non-current liabilities

Loan 55000

Add Current liabilities

Creditors 25000

Accrued sales commission 1500

Accrued taxation 15300

Proposed divided 10000 51800

758000

2.3 Income statements of Continental Limited for external reporting or publication

The working will show in 3.1.1

2.3.1 Income statements of Continental Limited for year ending 31 Dec 2010 in the accepted for external reporting or publication.

Distribution costs Administrative expenses

RM RM

Stationery 700

Office electricity and water 7300

Office salaries 26000

Sales commission 19500

Bad debts 5000

Increase in provision for bad debts 2000

Loss on disposal of vehicle 2500

Depreciation on vehicles 12500

Depreciation on premises 14000

Vehicle expenses 12000

Total _______ ________

53500_ 48000

Income statement of Continental Limited for year ending 31 Dec 2010 for external reporting

RM RM

Turnover 355000

Cost of sales (179000)

Gross profit 176000

Distribution costs 53500

Administritive expenses 48000

(101500)

Operating profit 74500

Dividend received 5000

79500

Interest charges (3000)

Profit on ordinary activities before taxation 76500

Taxation charge (15300)

Profit on ordinary activities after taxation for the year 61200

Proposed dividend (10000)

Retained profit for the year 51200

Retained profit brought forward 100000

Retained profit carried forward 151200

Balance sheet of Continental Limited for the year ending 31 Dec 2010 for external reporting

RM RM RM

Fixed Assets

Tangible Assets:

Premises 296000

Vehicles 190000

486000

Investment:

Long term investment 100000

586000

Current Assets

Stock 65000

Debtors 63000

Prepaid office salary 2000

130000

Cash at bank 42000

172000

Less Creditors: Amounts Falling Due Within One Year

Creditors 25000

Accrued sales commission 1500

Accrued taxation 15300

Proposed dividend 10000 (51800)

Net Current Assets 120200

Total Assets Less Current Liabilities 706200

Less Creditors: Amounts Falling Due After More Than One Year

Loan (55000)

651200

Capital and Reserves

Called up share capital 500000

Profit and Loss account 151200

651200

2.4 Calculate the appropriate accounting ratios for year ending 31 Dec 2010 compare them with the industry average provided to assess the profitability and liquidity of Continental Limited.

The calculation will show in 2.4.1.

2.4.1 Table of ration Calculation

Ration with formula Ration calculation for Industry

Year 2010 average

Percentage of cross 176000 / 355000 x 100 > 30%

Profit on sales = 49.57%

=Gross profit /Net

Profit x 100

Percentage of 74500 / 355000 x 100 > 18%

Operating profit on = 20.99%

Sales

= Operating / Net

Profit x 100

Return on capital (76500+3000)/ 706200 > 9%

Employed x 100% = 11.26%

Current ratio 172000 / 51800 = 3.32: 1 > 2: 1

=Current assets /

Current liabilities

Stock turnover period 365 days / stock turnover > days90

= 365 days / stock in times = 365 / 3.11=

Turnover =117.36 days

Debtors collection 63000 / 355000 x 365 days > 45 days

Period = 64.7 days

= Debtor ratio x

365 days

Creditor payment 25000 / 189000 x 365 days > 60 days

Period = 48.28 days

= creditor ratio x

365 days

working for (e)

Stock turnover = cost of sales / average stock value

= cost of sales / (opening stock + closing stock) / 2

= 179000 / (50000 + 65000) / 2

= 179000 / 57500

= 3.11 times

Working foe (f)

(Debtor / net credit sales) x 365 days

= [63000 / (365000-10000)] x 365 days

= (63000 / 355000) x 365 days

= 64.7 days

Working for (g)

(Creditor / net credit purchase) x 365 days

= (25000 / 189000) x 365 days

= 48.28 days

Profitability of Continental Limited

Percentage of gross profit on sales in the ratio calculation for year 2010 which is 49.57% higher percentage than the industry average 30%. In this way can show that, the gross profit on sales in ratio calculation for year 2010 is more effective and efficient than the industry average, because it can control its purchase cost by making the purchase at lower cost from supplier and efficient in controlling its production cost by the effective use of materials and labour to reduce its production cost rather than industry average.

Percentage of operating profit on sales in the ration calculation for year 2010 is 20.99% which more than industry average that is 18% . From the ratio comparision, the higher expenses to sales ration indicates that company is ineffective in its expenditure control causing higher expenses incurred to reduce its net profit earning. Conversely, the industry average ratio is lower expense to sales ratio indicates that company is effective in costs control causing lower expense to incurred to increase its net profit earning.

Return on capital employed (ROCE) in the industry average is 9% and the ROCE in the ratio calculation for year 2010 is 11.26 where is higher than the industry average percentages. In this ratio calculation for year 2010 showed that the higher return on capital employed indicates higher net profit generated from the capital employed in production and business activities to increase the production and sales volume as well as to increase the net profit earning. Besides that, the lower of the industry average is the lower return on capital employed for ineffective use of capital employed in production and business activities to reduce production and sales volume as well as to reduce net profit earning.

Liquidity of Continental Limited

(d.) The comparison between the ratio for year ending 31 December 2010 and the industry averages which the former is higher than the latter. Because, the current ratio of the year ending 31 December 2010 is 3:.32:1 higher than industry average which is 2;1.

(e) The stock turnover period for the ending 31 December 2010 is 117.36 days which more than the industry average because it only 90 days. Obviously, the longer stock turnover period indicates slow stock turnover in business where goods purchased are kept in stock for long time and then slowly taken out for resale so that the stock is accumulate to tie up money, causing short term problem.

(f) The calculation ratio for the year end 31 December 2010 is 64.7 days which longer than the industry average which is 45 days only. From the rati comparision, the longer debtor collection period for year end 31 December 2010 indicate that company has given longer credit time to allow debtor owning, causing longer time taken by company to collect money slowly from debtors, so that larger debtor balance is accumulated to tie up money, bringing to shortage of money for paying back liabilities and facing short term financial problem.

(g) The result ratio for year end 31 December 2010 is 48.28 days is shorten than the industry average which is 60 days. Thus, the shorter creditor payment period indicate that company has obtained shorter credit time for owning and paying to creditors so that company needs to pay creditor in time, causing smaller creditor accumulated and short term financial problem for shortage of money to pay back creditor.

Conclusion

In conclusion, I have learn the five different users are Managers of the company, employees of the company, shareholders or owner of the company, suppliers or creditors and customers or debtors. After that, I also learnt the working on how to prepare the income statement and balance sheet.

Furthermore, when I am doing this assignment, I m facing the problem of some of the question does not know how to do it. Because I does not have any foundation in Accounting before. That time, I am very worried and afraid this subject Principles of Accounting. But, luckily, our lecture Mr Chow, put a lot of effort and patient teaching us how to do the assignment, let us understand this subject. So that, I can understand and have the idea about how to do my assignment.


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