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Unit 13 Financial Reporting Assignment
In this Accounting report, there will be an analysis of the Trial balance of Jack & Sons for the year ended 30th November, 2016, and with the aid of the Trial balance, comprehensive income Statement of Position will be prepared for the year 2016. This will give an in-depth analysis of the understanding of the items to be included in the Income statement and in the balance sheet. In the next part, we will be analysing the Annual Report of the two big giants in the Grocery industry i.e. TESCO and MORRISON. These are the two leading multinational groceries of the world. The thorough analysis of the Annual report along with the ratio analysis of the same will help in in-depth understanding of the actual working and finance performance of the Organizations. And a proper financial comparison of the two big organizations can be done with the thorough analysis of various financial and others important ratios. This report will help to increase our practical knowledge aspect regarding the Accounting theories.
a.) Adjusted Trial balance
With the help of Jack & Sons trail balance and the mentioned adjustment entries, prepared an adjusted trial balance for the year ended November, 2016.
The following adjustments has been done in the Trial Balance-
- Closing stock of £ 85,000 which is an asset has been mentioned in the Debit side of the Trial Balance.
- Depreciation on Equipments for the year 2016 has not been charged in the Trial balance, so we did the same and charged depreciation with the rate of 10% on the reducing balance and an amount of £ 40,500 has been added in the provision of depreciation at the credit side of the Trial balance (Trotman, et. al., 2012).
- The Provision of Depreciation for the Motor Vehicles has also been increased by £ 18000.
- Prepayment of Rent by £ 8000, which is an asset, is also mentioned in the debit side of the trial balance and reduced from the rent paid for the current year.
- There is an accrual of telephones for the current year by £ 2100 which has not been shown in the trial balance, which we have adjusted by adding the figure in the debit side of the trial balance as this expense belongs for the current year only (Trotman, et. al., 2012).
- The prepayment of Heat and lighting by £ 1000 has been shown as a different item and reduced from the current amount.
- Taxation accrual for the current year by £ 12000 has been provided in the provision of Income tax in the trial balance.
- After considering all the adjustments in the trial balance, there is a mismatch in both the sides of £ 16,600 which has been further transferred to Suspense A/C (Horngren, 2013).
b.) Statement of Comprehensive Income Statement
Statement of Comprehensive statement
Cost of Sales
Salaries & Wages
Heat & Light
Depreciation of Equipment
Depreciation of Motor Vehicle
Interest paid for Loan
Profit before taxation
Provision for taxation
Profit after taxation
The Comprehensive Income statement includes all the expenses and revenues concerning in a particular period. It includes only those items which pertain to that year and the items which either is of the last year or for the next year are excluded from this statement.
In the following Income Statement, following adjustments were made
1) Cost of sales was calculated by using the following formula,
Opening stock+ Purchases- Closing stock= Cost of Sales
And further was included in the income statement.
2) All the operating expenses were added up than among which the following adjustment were done (Weetman, 2013)
£ 8000 from rent was less because this £ 8000 pertains to the next year and was included in the trial balance.
£ 1000 from Heat & Lighting was excluded as these also belong to the next year and was already included in the Heat & Lighting.
Accrual of Telephone expenses of £ 2100 belonged to this year but was included in the current year therefore this has been added in the income statement of the current year.
3) Provision of taxation which belonged to this year of £ 12000 were not included, therefore this was also provided in the current year and less from the current year’s profit.
4) Depreciation on the Motor vehicles and on Equipment was not provided, therefore provisions have been provided for both the Assets on the rates as provided in the Adjustments entries.
5) Closing stock was mentioned in the last that was also adjusted, in the Income statement.
All the adjustments were done and the comprehensive Income statement was prepared accordingly, keeping in mind the things pertaining to this year only and excluding the things which do not belong to this year (Kemp & Waybright, 2013).
C) Statement of Position
Statement of financial position as at 30th November, 2016
Total Non-current assets
Prepayment of Rent
Prepayments of Heat & Light
Total Current assets
Equity and Liabilities
Total Non-current Liabilities
Provision for dep. of Equipment
Provision for dep. Motor Vehicle
Provision for Income tax
Total Current liabilities
Total Equity & Liabilities
(Kemp & Waybright, 2013)
Adjustments in the Statement of Position
1) Closing stock was mentioned in the Asset side of the Balance sheet/ Statement of position.
2) The Two prepayments of Heat and Light and Rent were assets for the organization, as prepayments for further years are considered as Assets for the organization, and thereby are included in the Assets side of the Statement of position or balance sheet.
3) Provision of depreciations for both assets that is Equipments and Motor Vehicles are increased with the amount charged for the current year. Therefore the depreciations of 40,500 and 16000 respectively were further added to the provisions.
4) Provision of income tax were provided in the liability side of the Balance sheet with 12000, this was previously not mentioned, therefore added up in the balance sheet.
All the adjustments were done and balance sheet was prepared accordingly. The complete analysis of the Statement of Position made an analysis of the Assets and liabilities side, and increased the information knowledge about the Financial statements (Kemp & Waybright, 2013).
Comparison of the Performances of both the Companies
Tesco- Tesco is one of the biggest multinational groceries in British. It is one of the leading organizations in terms of revenue and profits among all the groceries stores throughout the globe. Looking at the Annual reports of the Tesco of the last 3 consecutive years i.e. 2013, 2014, 2015, its been evident Revenues has increased with the year 2014(£ 63557) with a certain margin, than it decreased in 2015(£ 62,284) again with certain margin.
The Profits of the organization has also seen some great ups and downs in the year 2013 is £120 in the year 2014 it increased to £970 but in the year 2015 it incurred huge losses i.e. (£5766), which shows unsuccessful expansion or any wrong strategy (Ahrendsen & Katchova, 2012).
It shows that with the consistent performance in the years 2013 and 2014, it than entered in to other expansion plans which ultimately lead to decrease in the performance of Tesco.
Morrison- Morrison is also one of the biggest groceries after Tesco, Sainsbury’s etc. This has emerged as prominent and trustworthy grocery store and is gaining popularity with its expansion plans.
The turnover of the Morrison in the year has been £ 18116 which show a decline in the year 2014 £ 17680, this meagre decline in the turnover shows the intense competition in the groceries industry.
The Profits figures of the organization through all the three years i.e. 2013, 2014 and 2015 showed a declining graph. In the year 2013 it was about £ 1206 where in the year it declined and was £ 1074 and it further declined in the year 2015 and was £761. The declining graph of the profits of the organization shows the inability of the organization to increase its sales and usage of wrong marketing techniques and methods (Ahrendsen & Katchova, 2012).
On an overall comparison of both the Organization it is clearly evident that, Morrison despite investing in Assets and improving business working methods, it is unable to increase its profits as well as turnover as compare to its competitive “ Tesco PLC".
Where Tesco has still managed to be on the leading side in the concerned industry but due to certain wrong strategies and techniques, it showed a decline in its revenue and profits in the year 2015.
As recommendation, Morrison needs to improve its working position by focusing on its marketing plans and thereby increase its turnover and profits. And Tesco needs to maintain its position by correcting its wrong measures and techniques (Ahrendsen & Katchova, 2012).
Calculation of Ratios
(Uechi, et. al., 2015)
Gross profit refers to the profitability earn through selling of goods or services of the Organization. The Gross profit margin of Tesco has been consistent throughout the years 2013 and 2014 showing the organization has not put in more efforts to increase its sales. By the year 2015, the gross profit margin became negative showing Organization did not manage to earn profits and the sales decreased by the year.
Return on Assets indicates the ability of a company to utilize its assets to earn income for the company. The increase in the Return on assets shows that company made a better use of its but in the year 2015, it showed a huge decline and also negative shows that company is not earning profits with the utilization of existing Assets (Uechi, et. al., 2015).
The consistent decrease in the Gross profit of Morrison’s shows that there has been consistent decrease in the sales of the Organization. therefore, the Gross profit margin showed a decrease in every year.
The return on assets has declined from the year 2013 to 2014, this shows that company has started earning losses and are not making full utilization of its Assets. Its assets are somewhere lying unutilized and organization is not able to make proper funds from the utilization of its Total Assets (Uechi, et. al., 2015).
Current ratio represents the ability of the company to repay its current liabilities with the aid of Current assets. From the year 2013 to 2014, there has been an increase in the Current ratio which shows better capacity of the organization to repay current liability. But in the year 2015, there has been decline in the ratio, which shows increase in the liability.
Quick ratio refers to the capacity of the organization to repay its current liabilities with the use of its quick assets i.e. assets which can be easily convertible into liquid assets. Here, the current assets shoes an increase with the year 2014 but then in 2015 it shows a decline which means the Current assets falls down (El-Dalabeeh, 2013).
The current ratio of the Company has been consistent through all the years which show the consistency in investment in the Current assets and consistent liabilities of the Company. The capacity of the company to repay its current liabilities from its current assets is quite subtle and that company can arrange cash in case of urgency.
The Quick ratio has also been quite consistent, which shows company’s capability of paying back its current liability has been quite resistant. Quick ratio basically excludes inventory from the current assets as inventory is not considered to be easily convertible in the liquid assets as and when required in urgency. And the quick ratio of this company shows that it can mange funds in any sort of emergency (El-Dalabeeh, 2013).
(Pazarceviren, et. al., 2015)
The Operating expense ratio expresses the ability of the company to earn revenue on the amount expenditure done in the Organization. The Consistent increase in the operating expense ratio signifies the increase in the operating expenses of the organization as compared to the revenues of the organization,
The Asset turnover ratio expresses the effective utilization of the company’s assets and the revenue earned with the utilization of the Total Assets of the organization. With the year 2015, there has an increase in the ratio which signifies that organization has been making a proper utilization of the Company’s Assets in earning revenue (Pazarceviren, et. al., 2015).
(Maricica & Georgeta, 2012)
The Declining Operating expense ratio of Morrison’s expresses the increasing operating expense of the organization without increase in its sales. Therefore the company needs to increase its sales and also need to curtail in its increasing administrative/ operating expenses.
The Asset turnover ratio here expresses that the company is making consistent utilization of its Total Assets to earn revenue for the Organization. But there is a meagre decline in the ratio every year which shows that net sales are declining despite having proper assets (Maricica & Georgeta, 2012).
With the thorough analysis of the Trial balance and related adjustments entries, we understood the various aspects of the Accounting adjustments. Through Preparation of the Comprehensive Income Statement we learnt regarding the incomes and expenditures which are related with the current year and through preparation of the Statement of position, the understanding of the Assets and liabilities were learnt. This report gave the complete understanding over the preparation of the financial statements of an Organization. With the analysis of the Annual reports of the Two Organizations in the same industry that is Tesco and Morrison, developed the understanding level of the comparison and understanding level of the Annual Reports. And the thorough ratio analysis, gave the idea about the understanding of the financial performance of the organizations. Overall, this report enhanced the understanding of the Accounting aspect and ratio analysis of the existing organizations; it also helped in increasing in the understanding of the practical aspect of the Accounting systems. Throughout the preparation of the report knowledge of accounting increased to a great extent and various learning aspects were very useful in increasing the Accounting knowledge.
Ahrendsen, B.L. & Katchova, A.L. 2012, "Financial ratio analysis using ARMS data", Agricultural Finance Review, vol. 72, no. 2, pp. 262-272.
Deegan, C.M. 2016, Financial accounting, 8th edn, McGraw-Hill Education (Australia) Pty Ltd, North Ryde, N.S.W.
El-Dalabeeh, A.K. 2013, "The Role of Financial Analysis Ratio in Evaluating Performance: (Case Study: National Chlorine industry)", Interdisciplinary Journal of Contemporary Research In Business, vol. 5, no. 2, pp. 13.