BUSINESS ACCOUNTING P2 - I will be explaining the difference between the capital and revenue items of expenditure and income.
UNIT 5 – BUSINESS ACCOUNTING P2 In this assignment, I will be explaining the difference between the capital and revenue items of expenditure and income. The table below shows some of the business transactions that took place in the last accounting period and are taken from the Books of Accounts of the business. Items Capital Expenditure Revenue Expenditure Capital Receipts Revenue Income Delivery van brought £15,000 Petrol Cost for the van £5000 Repairs for the Van £500 Navigation System equipment Paid & added to the Delivery Van £500 New Computer brought & added to the business Office £2000 Gas bill paid for one quarter. £1500 Electricity bill was paid - one quarter £500 Food stuff & Containers paid £10,000 New Cutlery & Crockery brought and paid £5000 Received from customers £25,000 Received commission from other businesses £7000 Old office furniture sold £3000 Old van sold £500 Interest on bank saving account received £400 Old Computer sold £300 Capital expenditure is used to buy capital items which are assets that will stay in the business for over a period of time or more than one accounting year. Examples are vehicles and buildings. Capital expenditure is fixed assets that are intangible assets. Fixed assets means items of the value owned by the business that are likely to stay in the business for more
Evaluate the reliability of break-even analysis in estimating budgeted activity levels for selected organisation
Asid Ashraf Unit 7 Management Accounting D1: Evaluate the reliability of break-even analysis in estimating budgeted activity levels for selected organisation As I have already summarised the breakeven point is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has broken even. [Selling price-variable costs=contribution] [Fixed costs/contribution=breakeven point]So in your businesses scenario it is, the selling price £15 minus your variable costs £12 which equals £3. This then leaves you with your fixed costs which are 11,500 divided by the contribution which £3 is leaving you with a total breakeven point of, 3833.33. First of all, production managers like Mr Jones and management accountants need to have a clear understanding of break-even analysis. This analysis is used as a general guideline for business decision making and is important for a number of reasons, including the ability to forecast the future cost and revenues and determine whether the business is making profit or loss, and also be able to develop a pricing strategy. The break-even analysis is based on marginal costing. The break-even analysis is based on forecasting and has a certain limitations which should be considered. It is not always possible to predict what will happen on the market. The linear relationship is based on the presumption that costs
Analyse the impact on a budget of changes in costs and selling prices for Morrison's Supermarkets
Asid Ashraf Unit 7 Management Accounting M3: Analyse the impact on a budget of changes in costs and selling prices for a selected organisation An analysis of Morrison’s profit & loss account and how the impact on a budget of changes in costs and selling prices for Morrison’s: Morrison’s has not been shy to invest money in acquisitions and store expansions• Morrison’s is a top 50 UK company by market capitalisation. Analysts value the property, plant and equipment portfolio at about £7.5 Billion. The share price has fluctuated between £2.60 and £3.00 in last 12 months. As a public limited company, it can raise significant sums of money through the sale of shares and/or through borrowing in order to expand – e.g. Acquisition of Safeway in 2004 – e.g. Acquisition of Somerfield stores from Co-op in 2009• Profits in 2009 were impacted by Summerfield/Co-op store integration. Morrison’s made charitable donations of £1.18M last year tutor2u Morrison’s key ratios show real financial strength, although it must be careful about short term liquidity 2010 2009 2008 Current ratio 0.51 0.53 0.49 Quick ratio 0.24 0.28 0.25 Gearing ratio (%) 20.0 27.1 24.3 Earnings per Share (p) 22.8 17.4 20.8 Dividend per share (p) 8.2 5.8 4.8ROCE (%) 13 12 12P/E ratio (times) 14.3 15.6 15.2 The low gearing ratio (Debt to Equity) is the strongest in the supermarket sector and
Sources Of Finance and Profit and Loss Accounts.
Sources Of Finance Internal Sources– These are sources of finance that come from the business’ assets or activities. Capital Ownership Capital In this context, 'owners' refers to those people/institutions who are shareholders. Sole traders and partnerships do not have shareholders - the individual or the partners are the owners of the business but do not hold shares. Shares are units of investment in a limited company, whether it be a public or private limited company. Shares are generally broken down into two categories: Non-Ownership Capital Whilst the following sources of finance are important, they are not classed as Ownership Capital - Debenture holders are not shareholders, nor are banks who lend money or creditors. Only shareholders are owners of the company. Retaining Profit Profit not distributed to stockholders: the part of after-tax profits of a business that is not distributed to stockholders. Selling Assets The business can finance new activities or pay-off debts by selling its assets such as property, fixtures, and fittings, machinery, vehicles etc. Deprecation This is a form of long term loan that can be taken out by a public limited company for a large sum and it will be paid back overall several years. It is usually borrowed from specialist financial institutions. Shares An important source of finance for limited companies. A share issue
ASSIGNMENT P5, M2 & D2- RATIO ANALYSIS
Assignment P5: Ratio Analysis Profitability: Profitability is a measure of the profit of a firm in relation to another. This provides a fundamental measure of the success of the business. It also looks at how much profit the firm generates from sales or from its capital assets. Gross profit percentage of sales: This is the formula that shows the profit as a percentage of the income. For example, if the Gross Profit percentage of sales if high that means the business is doing well. And, if the Gross Profit percentage of sales is low that means the business is not doing well. Calculation: The percentage 57.7% represents the gross profit for SIGNature. The percentage is correspondingly above the half which means the business is doing well. Although there is only 7.7% more than the half, which signifies the management of the company needs to work hard to change the gross profit percentage, by the end of April 2011. Moreover, 57.7% is a good start for the gross profit for the company. Net profit percentage of sales The net profit margin is a profitability ratio which measures the profitability of the organisation. This indicator indicates the profit the company has made before the tax reduction. Using the net profit ratio it can be compared to the gross profit. If the gross profit is higher than the net profit it means that the business is spending more money on it
Ratio analysis is a technique commonly used to make better sense of financial data
Ratio analysis is a technique commonly used to make better sense of financial data and help inform makingfinancial decisions. It is not any use of making the decisions on its own it just alerts the managers to any areas that maybe of concern. Ration analysis does not look at sales revenue or profit in isolation, ratios put these figures into the context by comparing them with similar data. So instead of looking at the total profit generated by the business over a year, ratio analysis might compare this figure to the amount of capital that is available to the business. Ratio analysis can reveal which business is best at generating profit. Formula Formula With Figures Explanation Gross Profit Margin Gross Profit --------------- x 100 = % Sales 256200 ----------------- x 100 = 57.7% 444000 This ratio shows how well a business is trading. Gross profit has to meet expenses and costs to provide a reasonable net profit; this is also used in comparisons. This is considered to be good position for SIGNature to be in. Net Profit Margin Net Profit -------------- x 100 = % Sales 66660 ----------------- x 100 = 15% 444000 This show the net profit as a percentage which is essential for a business because a business needs to know if it is able to meet its expenses and the main purpose of a business is to make a profit. This show that they keep 15% of
The difference between capital and revenue items of expenditure and income
The difference between capital and revenue items of expenditure and income Capital Income is the money that the owners and other investors have invested into the business to start it up or to buy additional equipment. Capital income is usually used to buy things that will stay in the business for a long period of time such as premises, vehicles, computes and other equipment. These are called fixed assets meaning that these things will usually stay in the business for some time. When the business is in its early stages Capital income is used to buy opening stock however as the business develops and starts to generate sales income that money should be used to pay for stock. The source of where Capital income comes from usually depends on the type of business. Depending upon the legal status of the business the type of income will vary. There are different types of capital income for the different types of legal status’s a business is in. The Capital Income for a sole trader would differ in many ways from a Partnership due to the fact a sole trader is solo and a partnership can have 2-20 members I it. * Sole trader – A sole trader is someone who own the business on their own; therefore they have to find the Capital income on their own or personal loans. Sole traders often invest their personal savings into the business or take out a bank loan an sometimes borrow from
Calculating Business Ratios
D2: You need to look at each ratio and decide if it is good or bad. You need to think about: * How it will impact upon the future performance of the firm. * How it compares to other businesses in a similar market. * What the results would have been if predictions as shown in the cash flow had been true- whether the performance would have been better or worse. Profitability: Profitability is a measure of the profit of a firm in relation to another. It allows for a more comprehensive assessment of the performance of a firm by comparing one figure to another. There are three profitability ratios: * Gross profit percentage of sales: This is calculated using the following formula: Gross profit * 100 = 76692.21 *100 = 53.90261 Sales turnover 142279.22 This ratio looks at gross profit as a percentage of sales turnover, this ratio is often referred to as the gross profit margin. If gross profit margin falls from one year to the next or is thought to be too low, a firm may try to reduce the cost of its purchases. This may involve looking for a cheaper supplier, but the firm must try to ensure that this does not affect the quality the product. Alternatively, it may try to increase sales without increasing the cost of goods sold. The gross profit made at every £1 made is 53p. It is okay, it is not that bad but the business could do
Interpret the contents of a trading and profit and loss account and balance sheet for a selected company, explaining how accounting ratios can be used to monitor the financial performance
M3 and D2: Interpret the contents of a trading and profit and loss account and balance sheet for a selected company, explaining how accounting ratios can be used to monitor the financial performance of the organisation. Profit and loss account and balance sheet for Tesco for 2001 and 2002. Consolidated Profit & Loss Account for the year ended 2002 2001 Weeks 52 52 Currency £ million £ million Turnover 23653.0 20988.0 Cost of sales -21866.0 -19400.0 Gross Profit 1787.0 1588.0 Operating Expenses -465.0 -422.0 Operating Profit 1322.0 1166.0 Other costs/income 32.0 13.0 Profit before interest and taxation 1354.0 1179.0 Net interest receivable (payable) -153.0 -125.0 Profit on ordinary activities before taxation 1201.0 1054.0 Tax on profit on ordinary activities -371.0 -333.0 Profit on ordinary activities after taxation 830.0 721.0 Equity minority interests 0.0 1.0 Profit for the financial period 830.0 722.0 Dividends -390.0 -340.0 Retained profit 440.0 382.0 Consolidated Balance Sheet Fixed assets Intangible Assets 154.0 154.0 Tangible Assets 11032.0 9580.0 Investments 317.0 304.0 Total Fixed Assets 11503.0 10038.0 Current assets Stock 929.0 838.0 Debtors due within one year 454.0 322.0 Short-term investments 225.0 255.0 Cash at bank and in hand 445.0 279.0 Total Current Assets 2053.0 1694.0
Describe sources of internal and external finance for a selected business.
P4: Describe sources of internal and external finance for a selected business. Tesco: Internal sources: Internal sources of finance can be from the business owner’s savings or from profits. * Owner’s savings: The owner of a business often has to use their own personal savings to start the business, particularly if they are a new sole trader (a person who owns and runs their business). This is because banks may not be willing to take a risk and invest in them. Savings are a good source of finance for a business, as interest does not need to be paid to someone else while the money is being used, and the business remains totally in eh control of the owner. The owner of tesco can use his savings and start up the business. * Capital from profits: Once a business is operating it may be able to invest the money that it makes as profits back in the business. This means that even greater profits may be made in the future. The amount of profit to invest back in the business or in new business which will depend on how much profit the owner(s) want to keep for themselves against how much they want the business to expand. For some businesses it is not possible to use capital from profits for example, if they are a charity or non-profit organisation. The owner of tesco can use his money from one of his supermarkets and open a new supermarket. External sources: External
