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BM414 Importance of Finance and Accounting

Brief :

Topic-FINAL DECISION MAKING

Learning outcomes-

LO1 What terms are used in financial statements and also explain its structure

LO2 Make use of the management accounting techniques for planning, control and decision making within the organisation

LO3 produce the calculations for important accounting ratios and also elaborate its importance for the users of financial statements

LO4 What role is played by finance and accounting in the organisation. Explain this from the perspective of reporting and decision making

Scenario-

A UK based company, Alpha limited is a manufacturing unit that was initiated in 1954. company has certain plans with respect to expansion of its operations by covering other parts of UK in upcoming 10 years. Below are the attached financial statements.

Task-1

Functions of accounting and finance is important to any organisation. You are required to do a critical evaluation of its roles. Make sure that the evaluation includes examples also.

Task-2

Provide the calculations of the ratios that are required and also provide the comments on performance of company from the perspective of potential investors

  • Return on capital employed
  • Net profit margin
  • Current ratio
  • Average Receivable days/ Debtor’s collection period
  • Average Payable days/ Creditors collection period

The summarised financial statements-

 

For the year ended 31 Dec. 2017

For the year ended 31 Dec. 2018

 

£000

£000

£000

£000

Sales revenue

 

2,400

 

3,000

Cost of sales

       

Opening inventory

600

 

225

 

Purchases

1,350

 

2,400

 
 

1,950

 

2,625

 

Less: Closing inventory    

(225)

(1,725)

(450)

(2,250)

Gross profit

 

675

 

750

Operating expenses

 

(300)

 

(337.50)

Finance cost

 

(75)

 

(150)

Net profit

 

300

 

262.50

Statement of financial position

As at year to 31 Dec. 2017

As at year to 31 Dec. 2018

 

£000

£000

£000

£000

Non-current assets

 

1,477.50

 

3,000

Current assets

       

Inventory

225

 

375

 

Receivables – trade

450

 

600

 

Prepayments

45

 

52.50

 

Cash

37.50

757.50

7.50

1,035

   

2,235

 

4,035

Issued share capital

 

450

 

450

Share premium account

 

150

 

150

Retained earnings

 

562.50

 

825

   

1,162.50

 

1,425

Non-current liabilities  

       

10% loan notes

 

750

 

1,500

Current liabilities

       

Payables – trade

285

 

1,050

 

Accruals

37.50

322.50

60

1,110

   

2,235

 

4,035

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