The paper 'Income Statement Issues" is a good example of a finance and accounting assignment. Mark’ s venture is successful as you can see from the income statements and balance sheets that the business has enough earning to repay its loans. At the same time, the business is making a profit, so the business is less likely to stick with unpaid expenses and bills. Furthermore, the primary goal for any business venture is profitability; without profit, a business will not be able to survive for a long time. Profitability is measured with expenses and income the companies generate.
Income or revenue is money that the company generates from its business activities. From the income statement, the business made a profit. Question 2 Depreciation is a process by which a company records the loss in value of its fixed asset. At moment accountants don’ t recognize price-level adjustments when preparing their accounts. It will mislead if there is a deviate from the principle cost because conjecture or opinions by accountants can take place. It should be argued that deprecation is not a matter of valuation as it is used to in cost allocation.
Assets don’ t depreciate in value on the basis of a decline in fair market value, but an asset is found to depreciate on systematic charges of expired costs against profits or revenues. All accounting methods have been created based on the assumption that a business venture will have a long working period. Acceptance of this assumption will give credibility to the historical principle which would provide limited usefulness if liquidation is assumed. If we assume some permanence to a business enterprise and that is used in amortization policies and depreciation is made appropriately and is justified.
Therefore, it is incorrect to assume liquidation. It should be seen that only in a situation where liquidation appears imminent; the going concern assumption will not be applied. Yes! Depreciation will be included in income statement if the business makes a loss because income statement is used to display revenues that have been generated by the company and it is recognized for a specific period of time, while the expenses and costs that are charged against the revenues will include write-offs ( such as depreciation etc). Questions 3 Particulars DR CR Paid Rent Rent Expenses Office furniture Advertising expenses Commission expenses Accrued commission expenses Drawings Vehicle expenses Unearned Earned Paid Expenses Insurance Expense Interest Expenses Accrued interest expenses Depreciation expenses-building Accrued depreciation expenses-building Depreciation expenses-office furniture Accrued depreciation expenses-furniture 660 1750 2000 750 350 720 960 360 400 660 1750 2000 750 350 720 960 360 400 Reconciliation A/c Debit Credit Profit Account receivable Rent Furniture Commission expenses Drawings Uneared Paid expenses Interest expenses Depreciation expenses-building Depreciation expenses-office furniture Profit 21300 1310 660 1750 2000 750 350 720 960 360 400 23,330 Rent expense Advertising expenses Accrued commission expenses Vehicle expenses Earned expenses Accrued interest expenses Accrued depreciation-furniture Accumulated depreciation-building 660 1750 2000 750 350 960 360 400 30,560 30,560 Question 4 RELIANCE LTD CASH FLOW STATEMENT FOR THE YEAR ENDED JUNE 30, 2014 Cash Flows from Operations: Net Income5,887 Non-Cash Changes: Depreciation expenses 5,400 Change in doubtful debts 250 Net Income Adjusted for Non-Cash Changes11,537 Change in Accounts Receivable (700) Change in inventories (3,000) Change in Account Payable 3,000 Net Cash Flow from Operating Activities12,237 Net share capital 6000 Net retained capital 10,810 Net Change in Cash 29,047 . Question 5 1a: ROA = Annual Net Income Average Total Assets ROA=54,338/558,900= 0.097 1b.
Return on Equity = Net Income/Shareholder's Equity Where shareholder’ s equity= total assets- total liabilities [558,900-310,500]=248,400 ROA=54,338/248,400=0.2187 2a. For 2014profit margin=54,338/600,300=0.091 For 2013 profit margin=58,065/595,125=0.0975 2b. For 2013341,550/574,425=0.595 For 2014310,500/558,900=0.556 2c. Times Interest Earned= Earnings Before Interest and Taxes/ Interest Expense For 2013[58,065+27,428+54,855]/27428= 5.117 For 2014 [54,338+23,805+46,161]/23,805=5.221 3. a. Return on assets (ROA) ratio will tell an investor what earning have been generated from the invested assets or capital. The ROA figure will give an investor an idea of how effectively the company is converting the money it has to invest in net income.
The higher the ROA number, the better, this shows the company will be earning more money on a small investment.