BUSINESS ACCOUNTING

Business Accounting



Business Accounting

Introduction

The paper attempts to design a business case incorporating various aspects of financial management in a holistic context. It includes the analysis of ratios for the business, which deals in souvenirs. The paper is meant to provide a comprehensive financial report as a business case that will be delivered to the bank in order to attain loan for the execution of expansion plan. The paper also mentions the amount of loan that would be required by analysing the forecasted financials statements and the working capital requirements. The report will comprise of four major parts that include ratio analysis, cash flow forecasting, loan requirement amount and loan repayment schedule. However, in order to analyse the credit standing of the organization, the latest financials have to be redrafted incorporating the given trial balance.

Ratio Analysis

The financial planning process is an essential part of decision making as it encompasses various aspects of strategies, goals, objectives and operations. An organization must take into account the methods that ensure that the organizational goals, its performance and operations are aligned. The financial objectives are clear that the organization is producing goods to earn profits. The organization will go for expansion in order to generate profits. Before the ratio analysis is conducted, the trial balance has to be adjusted in accordance with the additional information provided (Crawford, 2002, pp 188). The adjusted trial balance is provided below:

Initial Trial Balance as at 31 March 2012 (Adjusted)

Vehicles

100,000

Provision for Depreciation - Vehicles

51,200

Furniture and Fittings

40,000

Provision for Depreciation - F & F

16,000

Capital

99,967

Opening Inventory

14,500

Sales

334,145

Sales Returns

350

Purchases

245,265

Purchases Returns

265

Rent and Rates

25,000

Selling Expenses

4,650

Telephone

360

Wages

18,364

General Expenses

6,295

Provision for Doubtful Debts

510

Receivables

25,350

Payables

28,900

Bank

8,305

Cash

300

Drawings

16,000

Depreciation Expense

23,200

Prepayments (Rent)

2,500

Accruals (Telephone)

240

Bad Debt Expense

305

530,984

530,984

Income Statement for the Year 31st March 2012

Sales

 

334,145

Less: Sales Returns

350

 

Total Sales

 

333,795

 

 

 

Less: Cost of Goods Sold

 

 

Opening Inventory

 

14,500

Add: Purchases

 

245265

Less: Purchase Returns

265

 

Total Purchases

 

245000

Less: Closing Inventory

21,075

 

Cost of Goods Sold

 

238,425

 

 

 

Less: Expenses

 

 

Selling Expenses

4650

 

Telephone

360

 

Wages

18364

 

General Expenses

6295

 

Depreciation Expense

23200

 

Accruals Expense (Telephone)

240

 

Rent and Rates

25000

 

Bad Debt Expense

305

 

Total Expenses

78414

 

 

 

 

Net Profit

 

16,956

Statement of Financial Position as at 31 March 2011

 

 

£

£

£

Non-current assets

 

Cost

Depreciation

Net Book Value

Vehicles

 

100,000

36,000

64,000

Fixtures and Fittings

 

30,000

8,000

22,000

 

 

 

 

86,000

Current assets

 

 

 

 

Inventories

 

14,500

 

 

Trade receivables

17,248

 

 

17600

- provision of 2%

 

1,800

 

 

Bank

 

514

 

 

Cash

 

230

34,292

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

Trade payables

 

19,950

 

 

Accruals

 

375

 

 

 

 

 

20,325

 

Net current assets

 

 

 

13,967

 

 

 

 

 

Net assets

 

 

 

99,967

 

 

 

 

 

Equity

 

 

 

 

Capital

 

 

 

96,398

Profit

 

 

 

15,569

Drawings

 

 

 

12,000

Total equity

 

 

 

99,967

Statement of Financial Position as at 31 March 2012

 

 

£

£

£

Non-current assets

 

Cost

Depreciation

Net Book Value

Vehicles

 

100,000

51,200

48,800

Fixtures and Fittings

 

40,000

16,000

24,000

 

 

 

 

72,800

Current assets

 

 

 

 

Inventories

 

21,075

 

 

Trade receivables

24,843

 

 

25,350

- provision of 2%

 

2,043

 

 

Bank

 

8305

 

 

Cash

 

733

57263

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

Trade payables

 

28,900

 

 

Accruals

 

240

 

 

 

 

 

29,140

 

Net current assets

 

 

 

28,123

 

 

 

 

 

Net assets

 

 

 

100,923

 

 

 

 

 

Equity

 

 

 

 

Capital

 

 

 

99,967

Profit

 

 

 

16,956

Drawings

 

 

 

16,000

Total equity

 

 

 

100,923

Ratios for the data

Current Ratio:

= Total Current Assets/Total Current Liabilities

= 57,530/29,140 = 1:1.97

Acid Test Ratio:

= (Total Current Assets - Inventory)/Total Current Liabilities

= (57,530 - 21,075)/29,140 = 1:1.25

ROCE (Return on Capital Employed)

= Net Sales Revenue/Total Employed Capital

= 333,795/99,967 = 0.3338 or 33.38%

Inventory Turnover

= Cost of Goods Sold/Average Inventory

= 238,425/ (21,075 + 14,500)/2)

= 238,425/17787 = 13.4 times

Cash flow Forecasting

Year 1

Year 2

Year 3

Cash Received

(000)

(000)

(000)

Cash from Operations

Cash Sales

£ 215

£ 260

£ 330

Cash from Receivables

£ 230

£ 371

£ 465

Subtotal Cash from Operations

£ 446

£ 631

£ 795

Additional Cash Received

New Current Borrowing

£ 36

£ 0.0

£ 0.0

Sales of Long-term Assets

£ 0.0

£ 0.0

£ 0.0

Subtotal Cash Received

£ 482

£ 631

£ 795

Expenditures from Operations

Cash Spending

£ 150

£ 150

£ 150

Bill Payments

£ 206

£ 277

£ 280

Subtotal Spent on Operations

£ 356

£ 427

£ 430

Additional Cash Spent

Principal Repayment of Current Borrowing

£ 0.0

£ 0.0

£ 0.0

Long-term Liabilities Principal Repayment

£ 10

£ 10

£ 10

Purchase Other Current Assets

£ 0.0

£ 0.0

£ 0.0

Purchase Long-term Assets

£ 9

£ 9

£ 9

Dividends

£ ...