Financial Accounting

You are employed as an operational manager with Jones Group. The group has a number of different businesses in the sports and leisure sector. You have had recent training in understanding financial and management accounting techniques which you are finding useful in your role for better understanding the group’s different business interests.

Task 1
You have been asked to prepare an information booklet for other managers to support them in increasing their financial and management accounting knowledge.

Your booklet must include:
• An explanation of the role of accounting concepts and standards in financial accounting
• An explanation of the characteristics of a public limited company’s annual report using examples of public limited company accounts
• An analysis of the roles and responsibilities of Directors and Auditors with regard to published company accounts
• An explanation of the purpose of different financial statements (income, position and cash flow statements)
• An analysis of the importance of consolidated financial statements used by groups of companies with examples
• An analysis of the uses and limitations of financial statements and annual reports

Extension activity
To achieve a Merit, your booklet must also include an assessment of the importance of legislation, concepts and standards for consistency and comparability of financial reporting.

To achieve a Distinction, your booklet must also include an evaluation of the usefulness of financial statements and annual reports to stakeholders of business organisations.

Task 2
The group is considering taking over a new retail business Alpha Sports Stores Limited. Financial accounts have not yet been prepared for the year but you have been provided with the trial balance. You are asked to prepare a set of financial statements from the trial balance information to support the board of directors’ decision about the potential takeover.

You must:
• prepare a set of sole trader financial statements from the information contained in Appendix 1

Task 3
You have been asked to carry out an analysis of next year’s figures for two of the group’s businesses to support decision-making.

You are required to:
• Analyse breakeven data from the information about ABC Production Limited provided in Appendix 2. You should calculate breakeven and give an explanation of what this means for the business
• Analyse the cash position of Active Sport Gym and Leisure Shop from the information in Appendix 3. You should prepare the cash budget and give an explanation of what this means for the business

Extension activity
To achieve a Merit, your analysis must also include an assessment of the implications of changes in costs and revenue on the breakeven and cash budget, using examples related to the breakeven analysis and cash budget you have prepared.

To achieve a Distinction, your analysis must also include an evaluation of the usefulness of management accounting techniques to support business success.

Appendix 1
Alpha Sports Stores
Trial Balance as at 31st March

Dr Cr
£ £
Inventory 2 000
Sales 248 783
Purchases 68.975
Sales Returns 1 206
Purchase Returns 780
Carriage Inwards 220
Discounts Received 3 135
Discounts Allowed 2 474
Wages 111 220
Insurance 7 500
General Expenses 39 590
Heat and Light 3 880
Bad Debts 965
Non-current (fixed) assets 277 200
Trade Receivables 6 700
Trade Payables 2 100
Bank 37 750
Cash 1 500
Capital 185 082
Short-term Loan 50 000
525 530
525 530

Additional Information:
1. Alpha Stores had an opening inventory of £32 000
2. Depreciation is not charged on non-current (fixed) assets

Appendix 2

ABC Production Ltd produces sports bags.
Its costs and sales for the year ended 31 December were as follows:

Units sold 20 000
Sales revenue 900 000
Direct wages 200 000
Direct materials 300 000
Variable overheads 120 000
Fixed costs 205 000

The selling price and all costs were at a constant rate throughout the year.
To improve profit for the next year, the following changes are planned:

(i) Units to be sold to increase by 10%
(ii) Selling price to be maintained at the current price
(iii) Wages to be increased by 3% per unit
(iv) Material costs to be reduced by 5% per unit, this being achieved by changing from a local supplier to an overseas supplier
(v) Variable overheads to be reduced by £0.45 per unit
(vi) Fixed costs to increase by £7 500 per annum


Appendix 3

Prepare a three-month Cash Budget for Active Sport Gym and Leisure Shop to estimate the cash balance at the end of April from the following information.
The projected Bank Account balance on 1 January is £32 180
Projected Shop Sales Figures:






Credit Sales (£)

4 350

3 150

3 600

3 825

3 900

Cash Sales (£)

1 450

1 050

1 200

1 275

1 300

Credit customers pay one month after the month of sale.

Projected Gym Takings:
o January – £22 400
o February – £22 400
o March – 10% increase on February
o April – £500 increase on March

Estimated Purchases:
All purchases are on credit and suppliers are paid one month after goods are bought.
o December – £3 000
o January – £500 less than December
o February – 10% increase on January
o March – Same as February
o April – 12% increase on March

o Wages are £11 000 per month. A 5% wage increase is expected from 1 April.
o Light and Heat is £550 per month. An 8% increase is expected from 1 March.
o Maintenance is carried out three times a year – February, June and October. This costs £55 500 per year.

General expenses are estimated at £30 000 per year, paid every 2 months starting in

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