Accounting Principles

Assignment Brief – BTEC (RQF)

Higher National Diploma in Business

Unit Number and Title Unit: 5 Accounting Principles

Academic Year 2023

Unit Assessor Waqar Randhawa

Assignment Title Accounting in Context and Budgetary Report

Issue Date

Submission Date

IV Name Malik Abdullah

Date 25/05/2023

L01 and L04

Summary

i. The Role of Accounting in Complex Operating Environments

ii. A Critical Evaluation of the Accounting Function in Informing Decision Making
and Meeting Stakeholder and Societal Needs and Expectations
iii. The Main Branches of Accounting and Job Skillsets and Competencies
iv. Accounting Systems and the Role of Technology in Modern-Day Accounting
v. Ethics, Regulation, and Compliance: Constraints or Threats to Organizations

 The Role of Accounting in Complex Operating Environments

Maintaining financial records:

Accounting is the cornerstone of an organization's ability to maintain financial records. It
entails accurately and reliably consistently documenting, categorising, and summarising
financial transactions. Businesses can improve their decision-making and strategy
planning by keeping thorough records that provide insights into their financial
performance (Horngren et al., 2020).

Financial Reporting and Compliance:

Businesses are required to abide by a variety of financial reporting standards and laws in
complicated operational contexts. In accordance with the relevant accounting principles
(such as Generally Accepted Accounting Principles and International Financial Reporting
Standards), accounting provides a framework for creating and presenting financial
statements. These reports make it possible for stakeholders to evaluate an organization's
financial performance and health, including creditors, investors, and governing bodies
(Nobes & Parker, 2019).

Budgeting forecasting:
For managing resources, establishing goals, and assessing performance, effective
budgeting and forecasting are crucial. Accounting assists organisations in creating
budgets by examining previous financial data, taking into account market trends, and
matching goals with available resources. Accounting assists companies to take well-
informed decisions about investments, cost management, and strategic objectives by
delivering reliable financial information.
 Internal control and Risk Management:
A complex operational environment raises the risk of fraud, mistakes, and poor
management. Internal control systems are established by accounting to protect assets,
thwart fraud, and guarantee adherence to rules and laws. Businesses can reduce risks,
improve operational efficiency, and promote a culture of accountability by putting
internal controls in place.

Performance Evaluation and Decision-Making:

Accounting gives managers insightful information about a company's financial health,
enabling them to evaluate profitability, liquidity, and efficiency. Accounting aids in
identifying strengths, shortcomings, and areas for improvement using financial analysis
techniques like ratio analysis and trend analysis. Decision-making procedures including
pricing tactics, investment prospects, and resource allocation are guided by this
information.

Conclusion:
In complex operating contexts, accounting plays a crucial role in the effective
administration of financial resources, regulatory compliance, and well-informed decision-
making. Accounting enables businesses to meet the demands of today's business
environment by maintaining accurate records, delivering financial transparency, and
assessing performance.

 A Critical Evaluation of the Accounting Function in Informing Decision Making

and Meeting Stakeholder and Societal Needs and Expectations

Introduction:
The accounting function will be critically assessed in terms of how well it informs
decision-making and satisfies stakeholder and societal expectations. Accounting is
important for giving stakeholders access to financial data, enabling decision-making, and
addressing broader societal issues. However, it is crucial to evaluate if accounting
practises sufficiently satisfies these demands.

Decision Making and Accounting:

For organisational decision-making, accounting data is essential. It offers pertinent

financial information that managers can use to gauge performance, examine investment
possibilities, and develop well-informed strategic plans. It's crucial to understand that
accounting data has its limitations. The majority of traditional financial reporting
concentrates on past data and might not include all non-financial aspects that influence
decision-making (Malmi & Granlund, 2019). Organisations should therefore think about
using non-financial measurements to improve decision-making and produce a more
complete picture of performance, such as environmental and social indicators.

Stakeholder Expectations and Needs:

Accounting must satisfy the demands and expectations of a variety of stakeholders,

including shareholders, creditors, employees, clients, and the general public. Financial
reports are used by stakeholders to evaluate the strength, stability, and future prospects of
an organization's finances. The question of whether conventional accounting methods
effectively satisfy stakeholders' informational needs is still up for dispute. Some claim
that non-financial data should be included in order to present a more complete picture of
an organization's value creation, such as environmental, social, and governance (ESG)
measures (Adams, 2017). For the accounting function to continue to be relevant and
dependable, it is essential to recognise and respond to these changing stakeholder needs.
Societal expectations and needs:
 In addition, accounting has a bigger part to play in fulfilling societal demands and
expectations. Sustainability and corporate social responsibility are becoming more and
more important. It is expected of organisations to report not only their financial
performance but also their social and environmental implications. This calls for the
incorporation of sustainability accounting practises, which go above and beyond financial
metrics to evaluate an organization's performance in terms of its impact on the
environment and on society (Schaltegger et al., 2017). Organisations can express their
efforts in addressing social concerns by using sustainability reporting frameworks as the
Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board
(SASB).

Conclusion:

There are constant discussions concerning accounting's constraints and users' evolving
expectations, despite the fact that accounting is essential for informing decision-making
and satisfying stakeholder and societal needs. Accounting should think about including
non-financial indicators and expanding the scope beyond conventional financial reporting
to improve decision-making processes. It is necessary to acknowledge the significance of
sustainability and incorporate pertinent reporting frameworks in order to satisfy
stakeholder and societal expectations. We can make sure that the accounting function
remains responsive and contributes effectively to decision making and social needs by
critically examining and evolving accounting practises.

 The Main Branches of Accounting and Job Skillsets and Competencies

Introduction:
The primary areas of accounting will be examined, along with the accompanying skill
sets and competences needed for each area. Accounting includes a number of specialised
professions, each with its own demands and focus. For prospective accountants and
professionals looking to advance their accounting careers, understanding these branches
and the abilities they require is crucial.
Financial Accounting:
Financial accounting is the practise of preparing and disclosing financial accounts to
external parties, including creditors, investors, and regulatory bodies. To ensure accurate
and honest financial reporting, professionals in financial accounting need to have a solid
grasp of generally accepted accounting principles (GAAP) or international financial
reporting standards (IFRS) (Weygandt et al., 2019). Preparing financial statements,
analysing transactions, and implementing accounting rules are essential abilities

Managerial Accounting:
The goal of managerial accounting is to enhance internal decision-making by providing
financial information and analysis. Budgeting, cost analysis, performance evaluation, and
strategy planning are essential skills for managerial accounting experts. They are essential
in helping managers allocate resources, analyse the profitability of projects, and gauge
overall business success (Garrison et al., 2020). In this field, it's crucial to have strong
analytical and problem-solving abilities.

Auditing:

The objective of auditing is to provide an opinion on the fairness and conformity of

financial statements through an impartial assessment. Auditors assess internal controls
within organisations and guarantee the correctness and dependability of financial
information. Attention to detail, analytical thinking, risk assessment, and familiarity with
auditing standards and processes are among the skills needed in auditing (Arens et al.,
2020). Auditor skills must include professional scepticism and ethical conduct.

Tax Accounting:
Accounting for taxes focuses on preparing and providing advice to both people and
organisations on tax-related issues. Tax accountants are required to have a thorough
knowledge of tax laws, rules, and reporting obligations. They aid clients in managing tax
compliance, maximising tax strategies, and assuring compliance with applicable tax
 legislation. Key capabilities in tax accounting include having strong analytical abilities,
paying close attention to detail, and understanding tax laws (Pope et al., 2019).

Forensic Accounting:
To find and stop fraud, financial wrongdoing, and illegal actions, forensic accounting
integrates accounting, auditing, and investigation expertise. Analystic skill, familiarity
with legal and regulatory frameworks, and the capacity to gather and analyse financial
evidence are requirements for forensic accounting professionals. In addition to supporting
legal processes and serving as expert witnesses in court, they are essential in the
investigation of financial irregularities (Singleton et al., 2018).

Conclusion:

There are several fields of accounting, each needing specialised knowledge and abilities.
While managerial accounting focuses on delivering financial information for internal
decision making, financial accounting needs skill in financial reporting and compliance.
While tax accounting needs expertise in tax laws and regulations, auditing demands
meticulousness and knowledge of auditing standards. To find financial malfeasance,
forensic accounting combines accounting and investigation expertise. Accounting
professionals can flourish in their chosen industry and significantly impact organisations
by comprehending the branches and acquiring the necessary skill sets.

 Accounting Systems and the Role of Technology in Modern-Day Accounting

Introduction:
I will be telling you about how accounting systems and how technology has changed how
accounting is done today. For effective and precise financial administration within
organisations, accounting systems are essential. The technological environment of
accounting has significantly changed, resulting in higher automation, improved data
analytics, and improved decision-making abilities.
Accounting Systems:

The software and procedures used to record, process, and report financial transactions are
all included in accounting systems. Organisations can expedite their accounting processes
with the use of these technologies, which also ensure accurate and timely financial
information. General ledger, accounts receivable, accounts payable, and financial
reporting modules are the primary elements of an accounting system. Organisations can
effectively manage financial operations, produce financial statements, and track
transactions thanks to these platforms.

Technology's Place in Contemporary Accounting:

Technology has transformed accounting procedures, allowing for more intelligent and
effective financial management. Technology's primary functions in contemporary
accounting are:

1. Efficiency and automation:

The automation of repetitive accounting operations including data input, reconciliations,

and financial calculations is made possible by technology. As a result, accountants are
more effective, make fewer mistakes, and have more time to devote to value-added tasks
like financial analysis and decision-making (Romney et al., 2020). Automated processes
also provide real-time reporting and quicker financial closing cycles.

2. Analytics of Data and Business Insights:

Large volumes of financial data can be collected, stored, and analysed thanks to
technology. To obtain deeper insights into financial performance, spot trends, and make
data-driven decisions, accountants can make use of data analytics technologies.
Predictive modelling and data visualisation are two examples of advanced analytics tools
 that improve predicting accuracy and offer useful business knowledge (Hilton et al.,
2021).

3. Cloud Computing and Remote Access:

Accounting software built on the cloud enables collaboration, convenient access, and safe
data storage from any location at any time. Remote work options for accountants make it
easier to create flexible schedules and increase public access to financial data.
Additionally, cloud computing improves data security and lowers the possibility of data
loss or system failure.

4. Arrangement with Other Systems:

Systems for customer relationship management (CRM) or enterprise resource planning

(ERP) can interact with modern accounting software. Integration increases overall
organisational efficiency by streamlining data flows, removing redundant data entry, and
guaranteeing data consistency across several departments (Warren et al., 2021).

Conclusion:
Technology and accounting systems are crucial components of contemporary accounting
practises. These systems interact with other business systems, automate repetitive
operations, and offer strong data analytics capabilities. Utilising technology in accounting
improves productivity, precision, and decision-making skills. To take advantage of
technology's full potential in their accounting practises, accountants need to stay current
on the newest tools and trends.

 Ethics, Regulation, and Compliance: Constraints or Threats to Organizations

Introduction
I will be telling you about ethical, governmental, and compliance concerns and examine
how much they limit or endanger organisations. To ensure openness, accountability, and
ethical business practises, legal frameworks, and compliance standards are essential.
However, organizations can see these aspects as limiting or dangerous.

Organisational Ethics:

The moral principles and ideals that direct people and organisations in their conduct and
decision-making are referred to as ethics. Building trust, upholding reputation, and
encouraging long-term sustainability all depend on ethical behaviour. Businesses that put
an emphasis on ethical behaviour are more likely to draw clients, investors, and skilled
workers (Ferrell et al. 2019, p. 23). However, as it places restrictions on activities and
decision-making procedures, adherence to ethical norms may occasionally be seen as a
constraint.

Norms and Compliance:

Governments and regulatory agencies build regulatory frameworks to control

organisational behaviour and guarantee legal compliance. Compliance means following
these rules and submitting required reports. Aiming to protect stakeholders, prevent
fraud, ensure fair competition, and address social issues, regulations and compliance
standards must be met. Although regulations have a valuable purpose, because of the
expenses, administrative burden, and potential restrictions they may entail, organisations
may view them as limitations (Ferrell et al. 2019, p. 189).

Constraints of Ethics, Regulation, and Compliance:

There are numerous ways in which ethics, legislation, and compliance might be seen as
limitations on organisations:
nce might be seen as limitations on organisations:

1. Restricting practices
Certain commercial practises or tactics that organisations would normally pursue may be
constrained by ethical considerations, laws, and compliance obligations. For instance,
ethical standards may limit marketing strategies, environmental laws may place
restrictions on particular businesses, or compliance mandates may raise administrative
costs.

2. Financial Consequences:

Costs associated with adhering to laws, rules, and reporting obligations are frequently
incurred by organisations. Particularly for small organisations, compliance costs
including setting up control systems, performing audits, and paying compliance officers
can put a strain on organisational resources. Organisations may see these financial effects
as limitations.

Threats of Ethics, Regulation, and Compliance:

If not effectively managed, ethics, regulation, and compliance not only place restrictions
on organisations but also represent serious hazards to them:

1. Reputational damage:

Regulation and ethical standards violations can seriously harm a company's reputation.
An organization's reputation, brand image, and long-term performance can be greatly
impacted by negative press, lost customer trust, and legal repercussions.

2. Financial and Legal Repercussions:

Legal actions, fines, penalties, and lawsuits may follow from breaking the law or acting
unethically. In extreme circumstances, businesses may experience financial losses, harm
to shareholder value, or even closure.
Conclusion:

Organisations are constrained and threatened by ethics, law, and compliance. They may
constrain company practices and cost money, but they are essential for promoting ethical
business practices, preserving stakeholder confidence, and reducing legal and
reputational concerns. Ethics, rules, and compliance should be viewed by organisations as
crucial elements of sound governance and strategic risk management. Organisations may
establish a sustainable and resilient business environment by embracing ethical practises
and proactively addressing regulatory and compliance obligations.

Bibliography:

Horngren, C., Sundem, G., Elliott, J., & Philbrick, D. (2020). Introduction to Financial
Accounting. Pearson.
Nobes, C., & Parker, R. (2019). Comparative International Accounting. Pearson.
Adams, C. A. (2017). The International Integrated Reporting Council: A call to action.
Critical Perspectives on Accounting, 43, 29-41.
Malmi, T., & Granlund, M. (2019). Management accounting and integrated thinking: Key
issues and future directions. Journal of Management Accounting Research, 31(1), 137-
144.
Schaltegger, S., Lüdeke-Freund, F., & Hansen, E. G. (2017). Business cases for
sustainability: The role of accounting and accountability. Accounting, Auditing &
Accountability Journal, 30(7), 1497-1507.
Arens, A. A., Elder, R. J., Beasley, M. S., & Hogan, C. E. (2020). Auditing and
Assurance Services. Pearson.
Garrison, R. H., Noreen, E. W., Brewer, P. C., & Chesley, R. B. (2020). Managerial
Accounting. McGraw-Hill Education.
Pope, T., Anderson, K., & Kramer, J. (2019). Prentice Hall's Federal Taxation:
Individuals. Pearson.
Singleton, T. W., Singleton, A. J., Bologna, J. C
Hilton, R. W., Maher, M. W., & Selto, F. H. (2021). Cost Management: Strategies for
Business Decisions. McGraw-Hill Education.
Romney, M. B., Steinbart, P. J., Mula, J. M., McNamara, R., & Tonkin, T. (2020).
Accounting Information Systems. Pearson.
Warren, C. S., Reeve, J. M., & Duchac, J. (2021). Financial and Managerial Accounting.
Cengage.
Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2019). Business Ethics: Ethical Decision
Making & Cases. Cengage Learning..

Memorandum

To: My client
From: Malik Abdullah
Date: 2023-05-26
Subject: Cash Budget and Variance Analysis
Dear client,
I'm happy to send you the document defining the initial 12-month cash budget for your
catering and hospitality start-up company that you asked. The cash budget is an essential
instrument for effective resource management, control, and decision-making. This
document also provides a variance analysis to show how different scenarios will affect
the cash budget.
 ABC CATERING SERVICES
Cash Buget (FY 2022)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Receipts: £ £ £ £ £ £ £ £ £ £ £ £
Sales Revenue 96,000 105600 116160 127776 140554 154609 170070 187077 205785 226364 248001 272801

Payments:
Purchases 28,800 31680 34848 38333 42166 46383 50021 54023 58426 63269 68593 74452
Overheads 14,400 15840 17424 19166 21083 23191 25510 28061 30867 33953 37349 41084
Salaries & Wages 16,000 16000 16000 16000 16000 16000 16000 16000 16000 16000 16000 16000
Rent/Property Expsenses 12,000 10200 8670 7370 7370 6265 5329 4529 3848 3266 2769 2346
Marketing Expenes 9,600 10560 11616 12778 14056 15462 16988 18687 20556 22612 24874 27361
Equipment 6,000 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000
Van Expenses 2,500 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500
Total payments 89,300 93780 97058 100147 103070 105865 108548 111120 113614 116162 118787 121512
Net Cash Flow 6,700 11820 19102 27629 37484 48744 61522 75957 92171 110202 130214 151289
Opening Balance 8,000 156700 168520 187622 217206 258690 312234 377756 455713 546884 652086 772300
Closing Balance 14,700 168520 187622 217206 258690 312234 377756 455713 564884 652086 772300 923589

Benefits and Limitations of Using Budgets:

Budgets are crucial for the efficient planning and management of resources in organisations.
They provide various advantages, including:

1. Supplying a road map for budgeting and goal-setting.

2. Aiding in the distribution of resources among the various parts of the enterprise.
3. Facilitating the evaluation and comparison of performance against predetermined goals.
4. Finding potential possibilities and restrictions to support decision-making (Brigham &
Ehrhardt, 2013).

The inherent assumptions and uncertainties involved in the budgeting process, as well as the
potential for inflexibility of budgets in dynamic corporate contexts, must be acknowledged.

Budgetary Control Solutions:

I would advise putting the following financial management measures into place to ensure the
effective and efficient use of resources and to support decision-making within the
organisation:

1. Monitoring and comparing actual performance to budgeted amounts on a regular

basis.
 2. Analysing variance to find deviations and take the necessary measures.

3. Putting in place reliable financial controls and procedures to keep track of costs and
monitor cash flow.

4. Setting up key performance indicators (KPIs) to gauge and assess financial

performance.
5. Updating the budget on a regular basis to reflect shifting market conditions (Hilton &
Platt, 2013).
.

Your organisation may improve financial management, enhance resource allocation, and make
informed decisions by implementing these budgetary control solutions.The cash budget and
variance analysis are broken down in depth on the worksheet that is supplied.

Please don't hesitate to get in touch with me if you need any more information or assistance. I am
devoted to assisting you in growing your company and reaching your financial objectives.

Best regards,

Malik Abdullah,

Graduate trainee,

UK SME.

Bibliography
Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice. Cengage
Learning.

Hilton, R. W., & Platt, D. E. (2013). Managerial accounting: Creating value in a dynamic
business environment. McGraw-Hill Education.

L02 and L03

Malik Abdullah,

Graduate Trainee,

UK SMR,

2023-05-26 .

Subject: Year-End Financial Statements and Performance Evaluation

Dear client,

I hope you are doing well as I write this. I'm happy to submit the year-end financial accounts and
a thorough review of your firm's performance for the fiscal year as the designated accountant for
your company. Additionally, I have calculated pertinent profitability, liquidity, asset utilisation,
and investment ratios that will help you make well-informed decisions by giving you important
information about the financial health of your company.

Income Statement Adjustments:

To ensure accurate reporting, I have made the following adjustments to the income statement:
 1. Bad Debts: After careful consideration, I have set aside a large sum of £50000 as a
provision for bad debts to account for anticipated losses resulting from uncollectible
receivables.
2. Depreciation: Using the straight-line technique, I have computed and added depreciation
charges while taking into account the useful life of your assets. Your assets' wear and tear
will be properly accounted for thanks to this modification.

Balance Sheet Adjustments:

In order to comply with accounting principles and present a true and fair view of your business's
financial position, the following adjustments have been made to the balance sheet:

1. Accruals: To ensure that any unpaid liabilities incurred during the year are accurately
recorded in the financial statements, accrued expenses have been recognised.
2. Prepayments: In order to appropriately reflect the amount of expenses incurred during
the year, prepaid expenses have been revised.

Now, let's delve into the analysis of your business's performance using the provided ratios,
comparing them to the previous year's figures:

Liquidity Ratios:

1. Current Ratio: The current ratio assesses the capacity of your organisation to pay short-
term obligations. Indicating a stronger liquidity position, your current ratio has increased
from 1.78 to 1.94. This development shows that your company's capacity to meet current
liabilities with current assets has grown.

2. Acid Test Ratio: Using this ratio, you may determine whether your business has enough
cash on hand to cover its existing debts without resorting to inventory. The present figure
still denotes a healthy liquidity position, notwithstanding the minor decline from 1.32 to
1.25

Leverage Ratios:
 1. Debt Ratio: This figure shows what percentage of your company's assets are financed by
debt. Your company's debt ratio decreased from 0.54 to 0.35, which shows less financial
leverage. This decline represents a better financial situation with a lesser insolvency risk.

2. Debt to Equity Ratio: This ratio shows how much debt versus equity is used to fund
operations at your organisation. Your debt to equity ratio has almost stayed the same at
0.87 to 0.85, showing a steady balance between debt and equity financing.

Profitability Ratio:

1. .Gross Margin Ratio: This ratio gauges the profitability of the primary activities of your
company. The drop from 0.69 to 0.55 shows that your cost management or pricing
strategy is becoming less effective. To find areas for improvement, more research is
needed.

2. Return on Asset Ratio: This ratio shows how profitable your company's overall assets
are. The rise in profitability from 0.52 to 0.59 shows greater asset utilisation.

3. Return on Equity: The return on equity ratio evaluates the success of the equity
investment made by your organisation. The ratio from 1.10 to 1.25 shows that your
company has produced greater returns for the invested shareholders' equity.

Asset Usage Ratios:

1. Inventory Turnover Ratio: This ratio gauges how effectively you handle your
inventory. Your company is still maintaining a strong inventory turnover, demonstrating
effective inventory control, even though there has been a minor decline from 4.50 to 4.20.
 2. Asset Turnover Ratio: This ratio reveals how well your company uses all of its assets to
create revenue. Improvements in asset productivity and revenue production can be seen
in the increase from 2.23 to 2.65

3. Receivables Turnover Ratio: This ratio evaluates how effectively you manage your
receivables. A longer time of collection is suggested by the decline from 6.50 to 5.80,
which highlights the need for more efficient credit control methods.

4. Days Sales Outstanding Ratio: This ratio gauges how long it typically takes your
company to receive payment from clients. The lengthening of the collection duration
from 60 days to 64 days emphasises the necessity of optimising your credit management
procedure.

Financial ratios offer insightful information about the operation of your company, but they are
not without drawbacks. Together with other qualitative and quantitative elements unique to your
industry and market conditions, these should be taken into account.

I want to emphasise the advantages modern accounting software can offer your company in
terms of time and resource savings, given the lack of such software. By implementing accounting
software designed to meet your needs, you may automate repetitive bookkeeping operations,
improve accuracy, and get real-time financial data to help you make better decisions. Several
well-known software solutions on the market include functions including invoicing, expense
management, financial reporting, and interaction with other business tools, including
QuickBooks, Xero, and Sage.

In conclusion, it is clear from the financial accounts and analyses given that your company has
advanced while simultaneously encountering problems. I suggest the following to seize
development opportunities and address potential areas of improvement:
 1. Review pricing tactics and expense control to raise gross margin percentages.

2. To decrease the ratio of days sales outstanding and improve cash flow, strengthen credit
control procedures.

3. Consider making an investment in modern accounting software to simplify bookkeeping

procedures, boost productivity, and offer real-time financial data.

4. To spot new opportunities and potential hazards, keep an eye on market trends, industry
benchmarks, and the competitive landscape.

With the appropriate tactics in place and your commitment to success, I have no doubt that your
company will continue to prosper. Please don't hesitate to get in touch with me if you need any
more information or assistance.

I appreciate your confidence and co-operation. I'm excited to go on working with you in the
future and contribute to the expansion and prosperity of your company.

Sincerely,

Malik Abdullah,

Graduate Trainee,

UK SME.
  Prepare the income statement and appropriation account of Tristar Company for
the year ended 30 April 2011.

To prepare the income statement and appropriation account for Tristar Company for the year
ended 30 April 2011, various adjustments have to be made determine the profit for the year.
Here's the step-by-step calculation:

1. Calculating the interest on capital and interest on drawings for each partner:

John's capital: $40,000 David's capital: $35,000 Sue's capital: $25,000

John's interest on capital: $40,000 × 4% = $1,600 David's interest on capital: $35,000 × 4% =

$1,400 Sue's interest on capital: $25,000 × 4% = $1,000

John's drawings: $10,000 David's drawings: $10,000 Sue's drawings: $12,000

John's interest on drawings: $10,000 × 5% = $500 David's interest on drawings: $10,000 × 5% =

$500 Sue's interest on drawings: $12,000 × 5% = $600

2. Calculating the provision for doubtful debts: Provision for doubtful debts: 5% of trade
receivables Provision for doubtful debts: 5% × $45,000 = $2,250

3. Calculating the depreciation: Depreciation on motor vehicles: 20% on the reducing

balance method Depreciation on fixtures and fittings: 10% on the straight-line method

Depreciation on motor vehicles: $16,000 × 20% = $3,200 Depreciation on fixtures and fittings:
$30,000 × 10% = $3,000

4. Calculate the adjusted balances:

Current account balances: John: $2,500 credit David: $1,500 credit Sue: $1,000 debit

Capital account balances: John: $40,000 + $1,600 - $10,000 = $31,600 David: $35,000 + $1,400
- $10,000 = $26,400 Sue: $25,000 + $1,000 - $10,000 = $16,000
Depreciation provision balances: Motor vehicles: $3,200 Fixtures and fittings: $17,500 - $3,000
= $14,500

5. Preparing the income statement:

Sales: $209,500 Less: Returns outward: $4,750 Net sales: $209,500 - $4,750 = $204,750

Cost of goods sold: Opening inventory: $30,650 Purchases: $111,200 Less: Closing inventory:
$28,100 Net purchases: $111,200 - $28,100 = $83,100 Cost of goods sold: $30,650 + $83,100 =
$113,750

Gross profit: $204,750 - $113,750 = $91,000

Operating expenses: Salaries and wages: $42,100 Heat and light: $3,890 General expenses:
$16,750 - $4,200 = $12,550 Discount received: $5,300 Marketing expenses: $12,050 Rent:
$7,500 - $2,500 = $5,000 Total operating expenses: $42,100 + $3,890 + $12,550 + $5,300 +
$12,050 + $5,000 = $81,890

Net profit before interest: $91,000 - $81,890 = $9,110

6. Preparing the appropriation account:

Net profit before interest: $9,110 Add: Interest on capital: John: $1,600 David: $1,400 Sue:
$1,000 Total interest on capital: $1,600 + $1,400 + $1,000 = $4,000

Add: Interest on drawings: John: $500 David: $500 Sue: $600 Total interest on drawings: $500 +
$500 + $600 = $1,600

Total appropriation: $9,110 + $4,000 - $1,600 = $11,510

The income statement and appropriation account for Tristar Company for the year ended 30
April 2011 would be as follows:

Income Statement for the Year Ended 30 April 2011:

Sales: $209,500 Less: Returns outward: $4,750 Net Sales: $204,750 Cost of Goods Sold:
$113,750 Gross Profit: $91,000 Operating Expenses: $81,890 Net Profit Before Interest: $9,110
Appropriation Account for the Year Ended 30 April 2011:

Net Profit Before Interest: $9,110 Interest on Capital: John: $1,600 David: $1,400 Sue: $1,000
Total Interest on Capital: $4,000 Interest on Drawings: John: $500 David: $500 Sue: $600 Total
Interest on Drawings: $1,600 Total Appropriation: $11,510

 (b) Prepare the statement of financial position (balance sheet) of Tristar Company
at 30 April 2011.

I will list the assets, liabilities, and capital for Tristar Company in order to compile the
statement of financial position (balance sheet) as of 30 April 2011. The balance sheet is
shown below:

Financial Position of Tristar Company as of April 30, 2011

Assets:

Existing Assets:

Supply: $28,100

$45,000 in trade receivables

Less: $2,250 is set aside for dubious debts.

$42,750 in net trade receivables

Bank: $7,560

Current Assets as a Whole: $78,410

Inactive Assets:
Buildings: $44,750

Cost of motor vehicles: $16,000

Less: $3,200 in accumulated depreciation

Automobiles Net: $12,800

Less: Accumulated Depreciation: $14,500 Fixtures and fittings (cost): $30,000

Fixtures and equipment net: $15,500

$72,050 in total non-current assets

Assets in total: $150,460

Liabilities: $54,700 in Trade Payables

Liabilities and Capital:

Capital: $31,600 for John

David: $26,400

Sue: $16,000

Capital in total: $74,000

Currently Owing Money:

Balances in Current Accounts:

$2,500 (Cr) to John

$500 (Cr) for David

Sue: $1,000 (Dr)

Rent accumulated: $2,500

Current Liabilities as a Whole: $7,500

Liabilities and Capital as a Whole: $150,460

The income statement, appropriation account, and statement of financial condition for Tristar
Company as of April 30, 2011, are now complete. The company's financial performance and
position for the year that ended on that day are summarised in these financial statements.