Fundamental Assumptions of Accounting

Prudence
A prudent approach must be adopted, when looking at financial statements,
because there are a lot of items within sets of accounts- which are subjective or
uncertain.
Professional accountants will exercise a degree of caution in any judgements that
have to be made.
Prudence is a key accounting principle which makes sure that assets and income
are not overstated and liabilities and expenses are not understated.

Going Concern
Financial statements are prepared assuming that a business will continue to operate
in the foreseeable future without a need on management to liquidate or to reduce
its operational activities.
Accruals
This principal is often referred to as the Matching Principal. It means that income
and expenses must be accounted for in the period to which they relate.

Consistency
To enable the performance of the entity to be compared year on year, items must
be included consistently from one period to the next.
This should remain the situation unless there are any changes required by the issue of
new accounting standards or where there has been a major change in the business
itself such that a different presentation would give a fairer picture.

BSC BUSINESS STUDIES

BUSINESS ACCOUNTING
Week 5 SESSION 10
Seminar

Question 2: Homework.

Analysis of performance
Question 2: In Class.
You are provided with the following
information for the business dealings of
Judith Ltd for the period to December
31st 2014:

Sales (all credit)

Purchases (all credit)
Gross Profit
Expenses
Net profit
Non-Current Assets
Closing Inventory
Accounts Receivable
Accounts Payable
Capital at year end

December
31st 2014

20,000
14,400
5,600
4,600
1,000
12,800
3,000
3,000
2,600
17,400

You are provided with the following

information for the business dealings of
Alan Jones for the period to December
31st 2013:
Dec 31st 2013

Sales (all credit)

200,000
Purchases (all credit)
150,000
Gross Profit
50,000
Expenses
15,000
Net profit
35,000
Non-current Assets
120,000
Inventory
50,000
Accounts Receivable
25,000
Accounts Payable
21,500
Bank Overdraft
8,500
Capital
130,000
Long- term loan
35,000

Inventory levels have remained the

same over the period.

Inventory levels have remained the

same over the year.

Requirement:

Requirement:

Calculate the following ratios:

Calculate the following ratios:

i.
ii.
iii.
iv.
v.
vi.
vii.

ROCE
Gross Profit to Sales
Net Profit to Sales
Current ratio
Liquidity ratio
Accounts receivable ratio
Accounts payables ratio

Evaluate the performance of Dean Ltd

for the period to December 31st 2014
using ratio analysis.

i.
ii.
iii.
iv.
v.
vi.
vii.

ROCE
Gross Profit to Sales
Net Profit to Sales
Current ratio
Liquidity ratio
Accounts receivable ratio
Accounts payables ratio

Using ratio analysis evaluate the

performance of Alan Jones for the year
to Dec 31st 2013.