ACCOUNTING ASSIGNMENT

Accounting Assignment

Task one

Trading, Profit and Los Account

Year ended 31st December 2011

Sales

£

£

£375200

less: Cost of Goods sold

Opening Inventory

10950

Purchases

134521

Cost of goods available for sales

145471

less: ending inventory

10115

Cost of goods sold

135356

Gross profit

239844

less: Operating expenses

Motor expenses

5525

Insurance

3825

Wages and Salaries

169750

Repair and renewals

2855

Professional charges

3250

advertising

15422

Total Operating Expenses

200627

Net profit

39217

Balance Sheet

Year ended 31st December 2011

Assets

£

£

Current assets

Trade Debtors

15500

Inventory

10115

rates

6650

bank

7537

Total Current Assets

39802

Fixed Assets

Premises

294000

Fixture and Furniture

42500

Motor Vehicles

20000

Total Fixed Assets

356500

Total Assets

396302

Equity and Liabilities

Current Liabilities

Trade Creditors

25500

Total current assets

25500

Lon term liabilities

0

total liabilities

25500

Equity

Capital

360735

Drawing

-29150

Retained earning

39217

net equity

370802

Total liabilities and equity

396302

Task two

Breakeven

Variable Cost

£185513

COGS plus 25% of operating expenses

Fixed Cost

£150470

75% of operating expenses

Total Capacity

360

Provided in case

Occupied Per Week

266.4

360 x 74%

Occupied Per Year

13320

266.4 x 50

Total Sales Of The Year

£375200

Provided in Income statement

Unit Selling Price

£28.16817

375200/13320

Unit Variable Cost

£13.92738

185513/13320

Breakeven

10566.15

Break-Even Point Q = Fixed Cost / (Unit Price - Variable Unit Cost)

M.O.S

£77571

A business achieves a break-even position when its accumulated contribution margin -- sales revenues less all costs directly associated with those sales -- equals the fixed costs of running the business. This situation is known as the break-even point, when a business is covering its costs but making neither a profit nor a loss. Once this point is reached, each additional unit sale produces a profit for the business. To establish at what point it will break even, a business must accurately determine the nature and extent of its costs (Brentani, 2004, p. 64).

The above table shows the breakeven analysis of the Business Plus Inn. The breakeven point of the company is 10566 customers per year. The company currently is able to attract more customer than its breakeven point and covering all its variable and fixed expense. Moreover, BPI is also making some profit after recovering all its expenses.

Break even analysis helps with studying the relationship between returns, variable costs and fixed costs. It will help BPI with calculating the volume of production at a specified price necessary to cover all related costs. Fixed costs are business expenses, such as capital, that do not change and bear no direct relationship to the production level. Variable costs, on the other hand, are expenses that change in relation to output volume (Brigham, 2008, p. 36).

Task three

Investment appraisal

Investment appraisal "is of fundamental importance" for several reasons. The investment usually involves committing substantial resources. The decision requires an understanding of the feasibility of both strategic and tactical objectives. Understanding the relative risk depends upon an analysis of cash flows using a range of probabilities, such as different inflation rates (Charles, 2006, p.61).

Health SPA

Year

0

1

2

3

4

Investment (outflow)

-155000

Cash Inflows

£40000

£52500

£57500

£55000

Profit

£35000

£40500

£43500

£31500

Present value (cash flows)

-155000

36363.64

43388.43

43200.6

37565.74

Net Present value

£5518

Accounting rate of return

0.243

Payback Period

3.1

years

IRR

1%

Kitchen refurbishment

Investment (outflow)

-120000

Cash Inflows

£37000

£43500

£42500

£42500

Profit

£30000

£31500

£37000

£38000

Present value (cash flows)

-120000

36363.64

43388.43

43200.6

37565.74

Net Present value

£40518

Accounting rate of return

0.284

Payback Period

2.93

years

IRR

13%

Net present value

Net present value is an analysis method that discounts future dollars back to today's current value. The formula involves several pieces of information that allow a business to make informed decisions when reviewing several different projects. A few distinct advantages and disadvantages exist when a company decides to use net present value as its project selection tool (Friedlob & Schleifer, 2003, p. 45).

The NPV for two projects is shown in the above ...