Task 03 – Learning Aim C – Financial Report

You need to follow a formal tone of language.

Formal report formatting – Accepted fonts/ size/ alignment/ coherence/
References – HRS – in-text citations and a reference list/ page

1. An explanation of the purpose and the main components for sole traders of:
 Statements of comprehensive income
 Statements of financial position

2. Using the financial data from the sole trader, you must prepare an accurate:
 Statement of comprehensive income
 Statement of financial position

These must be professionally accepted and in a vertical format. The format is given below.

For both above statements, you need to adjust for:

 Depreciation
 Prepayments
 Accruals
 Changes in capital

Question:
Your supervisor has asked you to prepare the year-end financial statements for one of their
clients who is the sole proprietor. From the Trial Balance given below, you must prepare and
produce financial statements for the year ended December 2022, taking into consideration
principles, conventions, and standards and adjust as necessary.

A list of accounts of the sole proprietor for the year ending December 2022 is given below:
(Amounts in $)

Heads of Accounts Amount

Opening Stock 10,000
Purchases 58,000
Wages 4,700
Return Inwards/ Sales Return 3,520
Carriage on Purchases 2,360
Carriage on sales 710
Office Salaries 4,800
Rent and Taxes 2,400
Cash 1,100
Bank Balance 7,820
Bad debts 600
Discount Allowed 640
Land and Building 20,000
Scooter 6,600
Scooter Repairs 850
Bill Receivables 3,500
Commission allowed 1,800
Sundry Debtors 25,400
Interest on X's Loan 1,500
Drawings 6,000
Discount Received 750
Return Outwards/ Purchase Return 2,600
Sales 98,650
Bills Payable 3,000
Sundry Creditors 5,600
Creditors for rent 500
Capital 40,000
Loan from X 10,000
Commission Received 1,200

Adjustments:
1. Closing stock was $ 22,000.
2. Depreciation on land and building is 10% per annum.
3. The outstanding Salary for the year is $ 1,200.
4.Rent of $ 400 is paid for next year.
5. Further bad debts 600

Format for the required answer:

 Trading & Profit or Loss Account / Income Statement

of…......

for the year ending December 31, 2022

Particulars Amount

Net sales

Less - Cost of material consumed

Wages (Direct Expenses)

Carriage on Purchases

Total Cost of Goods Sold

Gross Profit (Net Sales-Total cost of production)

Add Other Income

Commission Received

Discount Received

Total Earnings

Less - Expenses

Selling and Distribution Expense

Carriage on Sales

Commission Allowed

Total Bad Debts

Discount Allowed

Total Selling and Distribution Expenses

Admin Expenses

Office Salaries
Plus Outstanding Salaries

Rent and Taxes

Land and Building Depreciation

Scooter Repairs

Total Administration Expenses

Financial Expense

Interest on X's Loan

Total Expenses
Net Profit 29,920

Balance Sheet/ Statement of Financial Position

of…..............
as of 31 December 2022

Particulars Amount

Assets
Non-Current Assets

Land and Building - Net Value

Scooter

Total Non-Current Assets

Current Assets

Closing Stock

Closing Debtor Value

Bill Receivables

Prepaid rent expenses

Bank Balance
Cash Balance

Total Current Assets

Total Assets 84220

Liabilities and Owner's Equity

Owner's Equity

Opening Capital

Add Net Income

Less - Drawings

Total Owner's Equity

Non-Current Liabilities

Loan from X

Current Liabilities

Bills Payable

Sundry Creditors

Creditors for Rent

Outstanding Salaries

Total Current Liabilities

Total Liabilities
Total Owner's Equity and Liabilities 84220

Working Notes

Net Sales

Total sales

Less Sales Return

Net Sales

Net Purchases

Total Purchases

Less Purchase Return

Net Purchases

Cost of material consumed

Opening Stock

Add Net Purchases

Less Closing inventory

Cost of material consumed

Land and Building Cost

Annual Depreciation 10%

Net Value

Debtor value

Further bad debt deduction

Closing debtor value

3. Accurate ratio calculations (measuring profitability, liquidity, and efficiency), using

data you have extracted from the above statements. You are required to calculate the
ratios given below.
 Liquidity Ratios: Current Ratio | Quick Ratio
 Solvency Ratios: Interest Coverage Ratio | Debt Ratio
 Profitability Ratios: Gross Profit Ratio | Net Profit Ratio
 Turnover Ratios: Net Working Capital Ratio | Inventory Turnover Ratio
You may use the below mentioned equations to calculate the ratios for 2022. The 2021 ratios
have already been calculated.

Ratio Ratio Type 2022 2021 Equation Workings

Category
Liquidity Current Ratio 6.5 Current Assets/ Current Liabilities
Ratio
Quick Ratio 4 [Current Assests – Prepaid Ex. + Inventory)]/
Current Liabilities

Solvency Interest 3 (Earnings before Interest / Interest Expense)

Ratio Coverage Ratio
Debt Ratio 0.35 Total Debt/ Total Assets

Profitability GP Ratio 35% (Gross Profit/ Net Sales Revenue) x 100

Ratio
NP Ratio 21% (Net Profit/ Net Sales Revenue) x 100

Turnover Net Working 1.5 Net Working Capital/ Total Assets

Ratio Capital Ratio *Net Working Capital = Current Assets -
Current Liabilities

Inventory 5 Cost of Goods sold/ Average Inventory

Turnover Ratio
* Cost of Goods Sold = Total Net Sales – Gross
Profit
*Average Inventory = (Opening Inventory +
Closing Inventory)/ 2

4. An analysis of the business’s performance i.e. a detailed examination of the ratio

calculations.
5. A wide range of justified recommendations for improving the business’s performance,
based on the outcomes of the ratio analysis.

You can include the below areas when answering the question number 3, 4 and 5.
 Description of the ratio – Definition/ Meaning
 Formula of the ratio
 Calculation of the ratio
 Interpretation of the ratio
 Trend Analysis – Comparison with the benchmark (You may use simple bar charts as well)
 Your opinion based on the trend analysis
 Recommendations for improvements

6. Reference List