Higher National Diploma - Business Management

UNIT 10: Financial Accounting and Reporting

Outcome 1: Understand the regulatory framework for financial reporting
Outcome 2: Be able to prepare financial statements from complete or incomplete accounts
Outcome 3: Be able to present financial information in accepted formats for publication
Outcome 4: Be able to interpret financial statements
Your Assignment consists of two parts for you to complete. Part 1 includes four tasks which
you must answer and submit via Turnitin for online marking. If your work is not sufficient for a
Pass grade, you can resubmit your work but only one resubmission will be allowed.
Part 2 will include three questions for you to solve in a time-constrained environment. Part 2
will assess your ability to prepare the financial statements from a trial balance for a sole trader,
partnership and company.

PART 1
Scenario Glory Business Advisory LLP
You have recently joined Glory Business Advisory firm (the Firm) as an associate of the
Financial Accounting and Reporting line of service. Your responsibility is to advise the clients of
the firm on various financial reporting issues as well as to assist the clients with the preparation
of the financial statements. You have been assigned to work on several projects handled by
your firm. You are required to complete the project and report on issues to your supervisor
(Tasks 1-4 of your Assignment).

TASK 1 THE REGULATORY FRAMEWORK

Home Furniture Partners (the Firm), a UK based partnership, was established ten years ago
and is a distributor of home furniture in the UK. Recently, the partnership started expanding
and the partners are considering the transformation of their partnership to a limited company.
In this regard, the partners are evaluating potential regulatory influences on the financial
statements of their business. Also, the partners are planning to adopt the International
Financial Reporting Standards (IFRS) in the nearest future. You are required to prepare a report
to the partners covering the following issues:
(LO 1.1, 3.1) Describe the different users of financial statements and their needs in relation to
the Firm. Explain how the information needs of different user groups vary.
(LO1.2, 1.3) Explain the legal and regulatory influences on the financial statements of the Firm
assessing the implications for users.

Higher National Diploma - Business Management

(LO1.4) Explain how different laws/regulations are dealt with by accounting and reporting
standards. In your discussion you must refer to the UK Companies Act 2006; and the European
directives.
Guidelines to achieve Merit (M) and Distinction (D) grades:
M2 -- The discussion should indicate that learners have used a range of sources of information.
Include the references in the body of the discussion (I.e. in the assignment itself) as well as in
the bibliography.
Reference to the assessment criteria for Task 1:
Learning Outcome Lo1: understand the regulatory framework
Learning outcome l03: be able to present financial information in accepted
formats for publication
1.1- Describe the different users of financial statements and their needs
1.2- Explain the legal and regulatory influences on financial statements
1.3- Assess the implications for users
1.4- Explain how different laws/regulations are dealt with by accounting and reporting
standards
3.1- Explain how the information needs of different user groups vary

TASK 2 PREPARATION
INCOMPLETE RECORDS

OF

FINANCIAL

STATEMENTS

FROM

Stefan is a self-employed motor engineer. He maintains a cash book to record his business receipts
and payments. The following is a summary of the cash book for year ended 31 December 2005.

Higher National Diploma - Business Management

The motor vehicle had been purchased second hand on 1 January 2004 for 10,000 and is
subject to depreciation at 25% per annum, straight line. The proceeds from the sale of the
personal motor vehicle, which were paid into the business bank account, represents additional
capital introduced.
(LO 2.2) You are required to prepare the Profit and Loss Statement and Balance Sheet of Stefan
for the year ended 31 December 2005.
M1 The learners shall demonstrate that effective judgments have been made while preparing
the financial statements from incomplete records.
Reference to the assessment criteria for Task 2:
LO2 be able to prepare financial statements from complete and incomplete
records
2.2 - Prepare financial statements from incomplete records

TASK 3 PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

(1) Keswick Co acquired 80% of the share capital of Derwent Co on 1 June 2005. The
summarised draft statements of profit and loss for Keswick Co and Derwent Co for the year
ended 31 May 2006 are shown below:

Higher National Diploma - Business Management

During the year Keswick Co sold goods costing $1,000,000 to Derwent Co for $1,500,000. At
31 May 2006, 30% of these goods remained in Derwent Cos inventory.
(LO2.3) Required:
Prepare the Keswick group consolidated statement of Profit and Loss for the year ended 31
May 2006. Show all workings.
(2) Major Ltd acquired 75% of the share capital of Minor Ltd on its incorporation. The Balance
Sheets of the two entities as at 31 December 2010 are as follows:
Balance Sheets as at 31 December 2010
In $
Major Ltd
Minor Ltd
Non - current assets
50,000
25,000
Investment in Minor Ltd 15,000
at cost
Inventory
13,000
7,000
Other current assets
10,000
6,000
Total assets
88,000
38,000
Share capital 1$ shares 45,000
20,000
Retained earnings
30,000
15,000
Current liabilities
13,000
3,000
Total equity and liabilities 88,000
38,000
During December 2010 Minor Ltd had sold goods to Major Ltd for $6,000 at cost plus 25%.
Major Ltd had not sold any of these goods and all were therefore included in inventory.
Additionally, Major Ltd had not paid Minor Ltd for these goods and therefore the sum of
$6,000 is included in Majors payables and in Minors receivables.
(LO 2.3) Required: Prepare a Consolidated Balance Sheet at 31 December 2010. Show all
workings.
Reference to the assessment criteria for Task 3:
LO2 be able to prepare financial statements from complete and incomplete
records
2.3 - Prepare a consolidated balance sheet and profit and loss account for a simple group of
companies.

TASK 4 INTERPRETATION OF FINANCIAL STATEMENTS

Statements of Financial Position and Profit and Loss for the Sun Ltd for FY2009 and FY2010 are
given to you as per below.

Higher National Diploma - Business Management

(LO4.1, 4.2) You are required to calculate accounting ratios (profitability, liquidity, efficiency,
gearing, investment) of the company for the financial years ended 30 June 2009 and 2010.
Compare the ratios between two accounting periods and against the ratios of the direct
competitor, the Moon Ltd, and prepare a report commenting on the companys performance.
Your report must include the ratios computed for both years and the interpretation on the
companys financial performance during 2009 and 2010.
Sun Ltd
Profit and Loss Statements for the year ended 30 June

Sun Ltd

Higher National Diploma - Business Management

Additional information:
(1) Assume that the amount of receivables given in the Balance Sheet are trade receivables.
(2) Assume that the amount of current liabilities in the Balance Sheet are trade payables.
(3) There were 100 ordinary shares issued by the Sun Ltd as at 30 June 2009 and 2010.
(4) The following notes for Sun Ltd are given to you:
Dividends paid ($)

2010
1,092

2009
Nil

(5) The ratios of the direct competitor, the Moon Ltd, for the financial year 2010 are given
to you below:
2010
Gross profit margin, %
30%
Net profit margin, %
10%
ROCE, %
35%
Current ratio
2.6
Quick ratio
1.6
Debtor days
30 days
Inventory turnover days
40 days
Creditors days
65 days
D/E ratio
70%
EPS, $
30
Dividends per share, $
20
Guidelines to achieve Merit (M) and Distinction (D) grades:
M3 - While evaluating the financial performance of the company, ensure that
appropriate
structure of report was used, the ratios are interpreted in a logical and coherent way
appropriate for familiar and unfamiliar audiences.
D1 Learners must demonstrate that synthesis has been used to generate and justify valid
conclusions.
D2 Learners must demonstrate that importance of interdependence has been recognized.

Reference to the assessment criteria for Task 4:

LO4 be able to interpret financial statements
4.1 - Calculate accounting ratios to assess the performance and position of a business
4.2 Prepare a report incorporating and interpreting accounting ratios, including suitable
comparisons

Higher National Diploma - Business Management

Deadlines:
Tasks
Part 1 Task 1 Business Report
Part 1 Task 2
Part 1 Task 3
Part 1 Task 4
Part 2 TCA (3 questions)

Grading Criteria
PASS( LO1- LO3);
M2
PASS(LO2)
M1
PASS (LO2)
PASS (LO4)
M3; D1; D2
PASS (LO2, LO3)
D3

Due Date
16 April 2016
16 April 2016
16 April 2016
16 April 2016
As per schedule announced