topic f

Question 1

statement of comprehensive income

Answer 1

soci is a statement which concludes of profit and loss, it records any amount made

shows if turnover shrinks or gorws

Question 2

statement of financial position (sofp) / balance sheet

Answer 2

sofp shows assets, liabiities and capital, resevers, creditors and borrowing

” its value of business”
“ progression or vunerable”
“ long term v short term”

Question 3

resevers

Answer 3

funds business ahs set asdie with the intentions of spending it on an assest or payement to shareholders

Question 4

limitation on ratios

Answer 4

based on changeable figures
ratios are averaged figures
only highlights problem but dont explain it
misleading figures
shows poor performance
difficult to compare against competitors

Question 5

prepayments

accurals

Answer 5

when invoices has been paided in advance of current accounting peiods

removed from sofp

accurals are the opposite

Question 6

profitability

Answer 6

the degree to which a business or activity yields profit or financial gain.

• mark up
• gpm
  -npm
  -efficiency
  in capital

Question 7

liquidity

Answer 7

a business ability to cover current liabilites bu it currents assets ( paying off)

efficient/ ease with which an assets or security can be converted into immedidate cash without affectingv its market price

Question 8

implication on a financial statement effectd

Answer 8

Analysis of the data
• The value of the business is falling each year
• Profitability is improving each year
• Mike is taking more out of the business in drawings each year
• Drawings are greater than profit each year, which causes the value of the
business to fall
• The value of the non-current assets is falling
Causes
• Mike may not know the levels of profit at the time he is taking his drawings
out so may not realise he is taking out more than the business earns
• Mike might not understand the consequences of drawings being greater than
levels of profit
• Falling value of non-current assets to causes, as working with outdates
machinery that is not being renewed / replaced
(8)
•
Consequences
• Reducing liquidity
• Affecting the ability of the firm to reinvest in non-current assets
• A fall in sales / profitability given that drones will need up-to-date technology
to build
• Inability to reinvest and support development of new product lines

Question 9

ratios effective

Answer 9

Provides a systematic approach to analysing performance
• Simplifies the interpretation of financial statements
• Allows comparison of companies
• Allows comparison of business performance over time
• Provides summarised data for stakeholders
• Enables benchmarking
• Identifies the financial strengths and weaknesses of a business
(6)
Disadvantages
• Ratios are quantitative – they do not show qualitative data
• Ratios look at the past, not the future
• Comparable information is not always available
• Financial information can be manipulated
• Accounting Standards allow different accounting policies,
which impairs comparability