of the trading and profit and loss account and the balance sheet of Alumwell Motors Ltd

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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

Sales and cost of sales

‘Cost of sales are the costs directly related to the purchase or production of whatever the company sells’.

Own words description of sales and cost of sales

Sales and cost of sale is the cost the business sells and purchases the product from the suppliers. The cost of sales will include the cost of stock Alumwell Motor’s buy for resale.  The Components of raw materials to make the business product, labour to produce the product, the machine the business needs to hire and the small tools and other production costs Alumwell Motors motors will spend.  

Gross profit

When you create your profit and loss account, you deduct your cost of sales from your overall sales, or turnover, to arrive at your gross profit. This is your profit before deduction of expenses. Cost of sales does not usually apply if you supply a service only.

Own words description of gross profit

The profit made by Alumwell Motor’s which they are taking into account. Direct purchases that the business made to get the goods to the customer. For example, the stock does not take into account other running costs of the business such as rent or the staff wages.

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In 2006 Alumwell Motors turnover was 700 and 250 gross profit in percentages this will be;  

250

700 x 100 = 36

In 2007 Alumwell Motors turnover was 800 and 200 gross profit. The gross profit in percentage is:

200

800 x 100 = 25

This shows that Alumwell Motors were in more control of their costs in 2006 than in 2007. The business was making more profit in 2006 and a loss in 2007. This shows that Alumwell Motors need to have more control of their costs in 2007 if they want ...

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