Student Name/ID Number Unit Number and Title Unit 5: Accounting Principles Academic Year Semester 1, Academic year 2023 – 2024 Unit Tutor Dr.Nguyen Thi Thanh Mai, Dr.Le Thi Thu Ha and Ms.Nguyen Thi Kieu Trang Assignment Title A2: Production and Interpretation of Financial Statements (2 of 2) Issue Date 19th September 2023 Submission Date 22nd December 2023 Submission Format The submission is in the form of a portfolio of evidence compiled using the evidence produced for two assignments, it will also include the following. A detailed letter to a named client. The letter must be clear worded, well-structured and should make use of appropriate business language and terminology. The letter can also include clearly-labelled tables and charts. It will accompany and support the appropriately constructed financial statements (income statement and statement of financial position) for the business. The word count is 2,000–2,500 words, although you will not be penalised for going under or exceeding the total word limit. A bibliography should be provided using the Harvard referencing system. Inaccurate use of referencing may lead to issues of plagiarism if not applied correctly. Unit Learning Outcomes LO2 Prepare basic financial statements for unincorporated and small business organisations in accordance with accounting principles, conventions and standards. LO3 Interpret financial statements. Transferable skills and competencies developed ● Managing financial data ● Written communication using a range of media ● Manipulating and interpreting data using spreadsheets ● Effective communication of relevant information across the organisation and to appropriate stakeholders ● Creation and interpretation of information and showing how that information can be used most effectively to add value to the organisation ● Ability to use quantitative skills to manipulate data, evaluate, estimate and model business problems ● Application of accounting knowledge to consistently deliver high-quality, accurate data and information in a timely fashion. Vocational scenario Having successfully completed your six-month probation as a Graduate Trainee at the accounting firm, you have now been attached to a unit in the firm that deals with the provision of accountancy and consultancy services to small businesses that are typically set up as sole traders, not for profit and partnerships. The firm is careful about which small and emerging businesses it works with as it seeks to spot growth potential and identify and work with clients that have scalable business models. Assignment activity and guidance You are initially working with a selection of small businesses that have been trading for three years and which now need annual trading statements to be compiled and submitted in line with government requirements. You have been given a trial balance for the business, including accruals, prepayments and figures for bad debts and depreciation. The following extended trial balance was extracted from the books of Sun’s Hotel at the close of business on 31 December 2023: Sun’s Hotel The initial trial balance as at 31 December 2023 Accounts Initial trial balance Debit Credit £’000 £’000 Capital (opening) 689,000 Trade payables 23,000 Land and buildings – cost 600,000 Land and buildings – accumulated depreciation 45,000 Plant and equipment – cost 120,000 Plant and equipment – accumulated depreciation 20,000 Trade receivables 40,000 Accruals 550 9% bank loan repayable 130,000 Cash at bank 68,200 Short-term investment 105,000 Financial Expense 5,850 Financial Income 9,500 Revenue 245,000 Cost of Sales 150,000 Distribution expenses 30,000 Administrative expenses 21,000 Inventories 10,000 Drawings 12,000 Prepayment Interest payable 1,162,050 1,162,050 Additional notes were not included in the above initial trial balance: 3 (a) Depreciation for Buildings £20,000 is allocated 40% to Administrative expense and 60% to Distribution expense. Depreciation for Plant & Equipment £950 is allocated two equal halves to Administrative and Distribution expenses. (b) A credit customer is considered to be not able to collect £5,500. (c) A distribution expense is necessary to be accrued £10,500. (d) Interest expense is necessary to be accrued for the last 6 months. (e) A prepayment of £8,000 is determined at the closing date, which is included in the distribution expense. The following information of Sun’s Hotel is relevant: Statement of profit or loss for the year ended 31 December 2021 2022 £’000 £’000 Revenue 189,000 210,000 Cost of Sales 118,500 135,000 Gross profit 70,500 75,000 Administrative expenses 28,000 32,000 Distribution costs 35,000 31,000 Financial Income 6,000 6,500 Finance costs 6,900 8,100 Profit for the period 6,600 10,400 Statement of financial position as at 31 December 2021 2022 £’000 £’000 Non-current assets 590,000 655,000 Land and buildings 505,000 555,000 Plant and equipment 85,000 100,000 Current assets 112,900 130,100 Inventories 7,500 10,900 Investments 50,000 80,000 Trade receivables 8,900 13,200 Prepayments 1,500 2,000 Cash at bank 45,000 24,000 Total assets 702,900 785,100 Capital 606,200 624,600 Total equity 606,200 624,600 Non-current liabilities 80,000 110,000 Borrowings 80,000 110,000 Current liabilities 16,700 50,500 Trade payables 8,200 29,000 Accruals 6,000 15,500 Interest payable 2,500 6,000 Total liabilities 96,700 160,500 702,900 785,100 The businesses do not make use of contemporary software to support book-keeping and local accounting function. This is something which concerns you as you feel that it represents an opportunity for the business to save time and resource. 4 Your supervisor, one of the firm’s Key Account Managers, has asked you to compile the year-end financial statements ready for submission and provide, for each client, some detailed analysis of the figures produced, which will be presented in the form of an accompanying letter. Specifically, you will undertake the following: 1. From the data provided, you are required to complete the final trial balance as at 31 December 2023 and prepare the year-end financial statements, taking into consideration accounting principles, conventions and standards. You will need to make and show appropriate adjustments to both the income statement and the balance sheet. In addition, your client Sun’s Hotel is considering whether invest his money to acquire a share of a public company coded HPG. Because you regularly perform analysis of reports from the information of a number of public companies, your manager requires you to perform an interpretation of the financial statements of Hoa Phat Group for the recent five years to 2023. 2. Write an accompanying letter to the client that will be sent with the completed financial statements. The letter needs to include: • Calculation of relevant profitably, liquidity, asset usage and investment ratios. • Critical evaluation of the performance to the business year on year (making reference to data you have calculated and data provided from the previous year), with reference to relevant benchmarks (if any) as well as any limitations of using financial ratios as performance measures. • An outline of the benefits of contemporary accounting software packages, with examples of products on the market • Justified your conclusions and recommendations for Sun’s Hotel. Recommended Resources Please note that the resources listed are examples for you to use as a starting point in your research – the list is not definitive Weblinks The balance careers. Business letter format with examples. Available at: https://www.thebalancecareers.com/how-to-format-a-business-letter-2062540 Xerox. Writing an effective business letter. Available at: https://www.xerox.com/en-us/small-business/tips/business-letter HN Global HN Global (2021) Reading Lists. Available at: https://hnglobal.highernationals.com/learningzone/reading-lists HN Global (2021) Student Resource Library. Available at: https://hnglobal.highernationals.com/subjects/resource-libraries HN Global (2021) Textbooks. Available at: https://hnglobal.highernationals.com/textbooks 5 6 Learning Outcomes and Assessment Criteria Pass Merit Distinction LO2 Prepare basic financial statements for unincorporated and small business organisations in accordance with accounting principles, conventions and standards LO2 and LO3 D2 Critically evaluate financial statements to assess organisational performance using a range of measures and benchmarks to make justified conclusions P3 Prepare financial statements from a given trial balance for sole traders, partnerships and not-for-profit organisations, to meet accounting principles, conventions and standards. M2 Produce financial statements from a given trial balance, making appropriate adjustments. LO3 Interpret financial statements P4 Calculate and present financial ratios from a set of final accounts. P5 Compare the performance of an organisation over time using financial ratios. M3 Evaluate the performance of an organisation over time, using financial ratios with reference to relevant benchmarks.