Required 1. Using the information above, complete the calculation of accounting ratios and percentages and comment briefly on the performance of the company for the two years.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Carinal Ltd. specializes in the development of electronic components within quite a
competitive environment causing concerns for marketing and pricing. Its non-current assets
primarily include IT software, property, and investments, and there have been additions to
these during the year.
As audit manager, you are conducting a preliminary analytical review and associated risk
analysis for this client for the year ended June 30 2022. You have been presented with the
following draft financial information about Carinal with incomplete ratios and percentages
calculation.
INCOME STATEMENT
Year ended June 30
2022 2021
$'000 $'000
Revenue 22450 18675
Cost of sales 8475 8055
Gross Profit 13975 10620
Distribution costs 4245 3120
Administrative expenses 1276 2134
Selling expenses 5555 512
Profit from operations 2899 4854
Net interest receivable 1245 495
Profit before tax 4144 5349
Income tax expense 2145 2345
Net profit 1999 3004
Retained profits 1325 2105
Dividends paid $1250 $1049
Accounting ratios and percentages
Earnings per share 0·54 1·25
Performance ratios include the following:
Gross margin ((Gross profit/revenue) ? ?
Expenses as a percentage of revenue:
Distribution costs ? ?
Administrative expenses ? ?
Selling expenses ? ?
Operating profit as a percentage of revenue ? ?
Part A
Required
1. Using the information above, complete the calculation of accounting ratios and
percentages and comment briefly on the performance of the company for the two
years.
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