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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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