- Level: AS and A Level
- Subject: Business Studies
- Word count: 2280
of the trading and profit and loss account and the balance sheet of Alumwell Motors Ltd
Extracts from this document...
Introduction
To: Soya Hoberista and Lord Saber From: Nishtar Hussain Reference: Interpretation of the trading and profit and loss account and the balance sheet of Alumwell Motors Ltd Date: 06/03/12 Introduction As previously requested, I was informed to provide some financial advice for our new client, Alumwell Motors Ltd. They are a fairly new business with two major shareholders Soya Hoberista and Lord Saber. The businesses core purpose is to purchase and sell new and used cars, however they have just completed their second year of trading. You requested some professional advice on how the business is performing and whether they are in a strong enough position to expand their business. I will also provide financial advice on the first two years' of the trading and profit and loss account and the balance sheets. The layout and contents of a Profit and Loss Account Alumwell Motors Ltd Trading and Profit and Loss Accounts 31 December 2010 2011 Sales 700 800 Less Cost of Sales 450 600 Gross Profit 250 200 Less Expenses Wages 60 65 Rent and Rates 15 16 Light and Heat 10 11 Advertising 6 5 Insurances 9 10 Directors' Salaries 25 27 Sundry Expenses 5 6 130 140 Net Profit 120 60 Sales and cost of sales 'Cost of sales are the costs directly related to the purchase or production of whatever the company sells'. ...read more.
Middle
If the item Alumwell Motor's buy is used partly for the business and partly for personal use, they must only record the proportionate cost. For example, if the business buys a PC for �500 and they use it only half of the time for business, they should record the cost as �250 and make a note on the supplier's invoice when you file it. Current assets - with brief descriptions of stock, debtors, bank balance Alumwell Motor's will have a balance sheet item which would equals the sum of cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that could be converted to cash in less than one year. The business creditors will often be interested in how much that company has in current assets, since these assets can be easily in debt in case the company goes bankrupt. In addition, current assets are important to most companies as a source of funds for day-to-day operations. Long-term liabilities Long term liabilities are those that are due to be paid in more than a year. Those due in less than a year or on demand are current liabilities. The most important type of long term liability would be for Alumwell Motor's is debt. ...read more.
Conclusion
Describe Business valuation The purpose of the balance sheet is that Cheang Motors can see what are the fixed assets, current assets, stock, debtors, bank balance, current liabilities, creditors, bank overdraft, net current assets, less long-term liability- bank loan, financed by, share capital retained profits, all these costs are not this sheet because they see how much money is being spend on all them in 2006 and 2007. Through this they will be able to see how much the company is valued at. The balance sheet is a record of a company's assets and liabilities -- in short, what it's already got or expects to get soon, and what it owes to others. Shareholder value ultimately comes from liquid assets, assets that can easily be converted into cash. The amount of liquid assets a company can amass ultimately determines its value. A business will be able to use this information and use it for the next year and try and better it. By looking at the above Balance sheet, you will get an idea of what the business is valued at. It shows that the Fixed assets have gone up from 2006 (�110,000) and 2007 (�115,000). The liabilities have also seen an increase in the two years. This obviously shows money coming in and out and what the business owns and what it owes. This then shows the value of the business. ...read more.
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