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Finance & Accounting
Pages 12 (3012 words)
ACCOUNTING FOR BUSINESS DECISION Table of Contents Table of Contents 2 a) 1. The income statement of TR Ltd. as on 30th September 2013, shows that- Sales has increased by ?320,000 (i.e. from ?620,000 in 2011 to ?940,000 in 2012), which signifies expansion, and increase in income…
201,000 in 2012. Since this profit is calculated before deducting interest and tax, so the company can plan for distribution of profits after deduction is done, i.e. on PAT (Profit after tax). On deduction of interest from the operating profit, there is a marked decrease in the Profit available before tax by ?94,000. This decrease in profit is due to increase in the amount of bank loan and bank overdraft in between September 2011 and September 2012 for the purpose of continuing operations of the business. As a result of decrease in profit after deduction of interest, the profit for the year has also decreased from ?107,000 in 2011 to ?64,000 in 2012. Reduction in profit would have an adverse effect on the business, such as, the company fail to pay the dues of its creditors, would not be able to pay appropriate dividends to its shareholders, as well the company would face problems in expansion as it would face shortage of funds. The ongoing activities of the business entity would also be affected with such decrease in profits. The financial position as per the balance sheet of TR Ltd. as at 30th September 2012, depicts the following- Though the value of non-current assets are shown in terms of written down value in the balance sheet, the market value of land and buildings as on 30th September 2012 in much more than its written down value. ...