Financial Performance of Beau Brummel

Question 1

The company’s statement of comprehensive income gives the current financial performance of Beau Brummel in 2011. The statement indicates the following performance

Beau Brummel

Statement Of Comprehensive Income

For The Year Ended 31st March 2011








Less: Cost Of Sales



Opening Stock


Closing Stock


Cost Of Sales



Gross Profit


Commissions And Discounts Received



Less: Expenses



Accounting Fees


Commissions And Discounts

Rent And Rates




Telephone And Stationary


Travelling Expenses


Wages And Salaries




Total Expenses


Net Profit


The above statement indicates that the company made sales worth £540,000 and the cost of sales were £252,000. The company hence makes a gross profit of £304,000 considering the commissions received. The company had total expenses of £176,000 and the resultant net profit £128,000 during the year.

The balanced statement of financial position indicates that the company’s current position as follows

Beau Brummel

Statement Of Financial Position

As At The Year Ended 31st March 2011







Non Current Assets



Net book value

Furniture And Fittings








Total Non Current Assets


Current Assets







Total Current Assets



Total Assets


 Equity And Liabilities

Non-Current Liabilities




Total Non Current Liabilities


Current Liabilities



Electricity Accrued


Total Current Liabilities



 Financed By:

Equity Capital


Retained Earnings


Total Equity



Total Equity And Liabilities


The value of fixed assets is £56,000 after considering the accumulated depreciation rate. The value of the current assets is higher than that of the fixed assets stands as £286,000 this is attributed the high value of debtors (£ 236,000). The company does not have the long term liabilities. However, the current liabilities are valued at £74,000, the electricity bill £50,000 is still owing and as such it forms part of the current liabilities. The company is financed by equity valued at £140,000 and the Retained earnings worth £128,000. The company does not pay tax and also it doesn’t pay dividends. The depreciation is calculated on a straight line basis.

Question 2

(a)        Accounting is the systematic and comprehensive process of identifying, analyzing and reporting financial transactions pertaining to a business entity. Accounting is one of the vital functions of any business. The information is communicated to users in order to help them in making informed decisions. Businesses conduct various transactions which have financial implications e g selling and buying of goods. Accounting identifies these transactions by attaching a value on them and then gives a report.

The two main purposes of accounting are; one, to help users of the accounting report to make sound decisions based on the state of the business. This ensures that the decisions reached are not only informative but in line with the financial report. Two, accounting facilitates accountability of the firm by ascertaining it’s the financial position. This provides crucial information to tax authorities and other interested agencies.

(b)       Bookkeeping involves recording and keeping financial transactions. It helps in tracking all vital information required by a business. On the other hand, accounting is the process of analyzing and reporting on the records kept by bookkeepers. Accounting summarizes and presents the information contained in records in a manner easier to comprehend. This is achieved by preparing financial statements that assist in decision making.

(c)        Financial accounting focuses mainly on financial statements while management accounting focuses on providing vital information that helps management to operate the company in an effective way. Financial statements are provided to the company’s stakeholders e.g. creditors, debtors, investors and interested parties. The financial statements have to follow accepted accounting policies. Management accounting provides information helpful in determining the cost of production. Other topics featured in management accounting are break-even point, capital budgeting, planning of profit and standard costing. Financial accounting aims at providing relevant financial information to stakeholders, managers and shareholders of an organization. This is achieved through preparing financial statements such as balance sheet and cash flow.

(d) Users of financial statements may be classified into:

        1. Investors – this consists of those people who have an interest in the company in form of shares. Investors may be existing or potential shareholders. They will likely be interested in the dividend declared and the performance of the company. The policies put forward by the company are likely to affect the investors loyalty and hence the need for accountability and workable policies.

         2. Customers and suppliers – customers are concerned about the potential of the firm to provide quality services and products that meet their needs. Good performance of a company shows the acceptability of their products in the market. Suppliers are interested on the performance of a company in order to determine whether it will be able to pay their dues when due.

        3. The creditors – creditors will include banks and other financial institutions. Their main concern is whether the firm has the ability to payback interest on loan when it’s due. Financial statements will also enable them decide whether to advance further loans to the firm. Creditors include both secured and unsecured. The financial stability of the firm is of much interest and so is the book value of assets offered as security.

(e)        Limited liability’ refers to that type of liability that does not exceed what is already invested. Shareholders of a company are limited from losing more than the capital they have invested in the company. In case of debts and obligations of the shareholders are legally protected from contributing any amount.

‘Company’ refers to legal entity registered by the registrar of companies as contained in the Companies Act. It can either be a private or public company. It comprises of a group of people having similar interests. A company acquires the traits of a person such that it can get into contracts, own property, sue and be sued.

A limited company differs from a sole trader in that the liability of a company’s shareholders is limited to what they have invested while the liability of a sole trader is unlimited such that if debts and obligations are not met by his business then the debtors can sue him to recover whole amount from his other assets.

(f)        According to the Companies Act 2006, it is a requirement for all companies in UK to prepare individual financial statements which should be delivered to the registrar of companies. Limited liability partnership Act emphasizes on the need for financial statements to be prepared in accordance to the standards set in the Companies Act. All statements should adhere to a strict layout and presentation.

Question 3

(a) Entity concept - This concept considers a corporation as a separate entity from individuals who make it up. Thus, any transactions, activities and reporting relates to a specific business and not shareholders affiliated with the entity.

(b) Matching concept - It’s an accounting principle that requires a company to offset its revenue against the expenses incurred at that time period. In order to report a company’s profitability, expenses incurred are required to be matched with related revenue.

(c) Historic cost concept - According to this principle, the cost of an asset is taken to be its historical cost at the time of purchase. Historical cost is the value given up in order to acquire an asset or service at that time when the value of a resource was given up. Accounting requires consistency as it is concerned with past events. Due to this, financial transactions are required to be recorded at their historical costs. Appreciation in value in subsequent periods is ignored except where allowed by accounting principles.

(d) Going concern concept - This concept is based on the assumption that a company will continue being in operation in the foreseeable future. That the company will make sufficient money to stay afloat. This concept assumes that a company will indefinitely exist allowing all of its assets to be fully utilized.

Question Four

Main Accounting Bodies in the UK

The professional accounting bodies of the UK evaluate the accountant’s individual experience. The professional bodies also test the individual competencies of the accountants. There are various accounting bodied in the United Kingdom among the main bodies are, Association of Chartered Accountants (ACCA), Association of International Accountants (AIA)  and the Institute of Financial Accountants (IFA).

The above professional bodies are similar in some matters and differ in others. The United Kingdom recognizes six professional bodies for the purpose of auditing a public company. The Consecutive Committee of Accountancy Bodies (CCAB) is the body that evaluates the major British accountancy bodies. As such this body has qualified the six bodies which are (ACCA, ICAI, CIMA, CIPFA, ACAEW, and ICAS). This bodies are part of The Recognized Qualifying Bodies in the UK, included in this is the Association of International Accountants (AIA).  Chartered Institute of Management accountants is not part of the RQB members. Recently the body indicates that it would be leaving the consecutive committee of accountancy because of the fact that the committee focused more on Auditing than the financial reporting elements of a company. a further analysis of the bodies gives the following facts that clearly compares the professional bodies.

Association of Chartered Certified Accountants (ACCA)

The body offers a Chartered Accountant certification upon qualification. It’s among the bodies that have Royal charter from Queen Elizabeth 11. ACCA offers 14 examinations which should be completed after a period of three years, which are offered twice in a year. ACCA is a qualification that is recognized to carry out business activities as such; it has been recognized under the Financial Services and Markets Act. The body members also qualify to take appointments concerning the insolvency of companies. In this regard they are recognized under the Insolvency Act. Under the companies Act 2006 the members of this body undertake an audit of a company and form an opinion on the financial statements. Thus it is a Recognized Supervisory body and a Recognized Qualifying Body.  ACCA has two forms of membership which include an Affiliate member and a Fellowship member. An affiliate member is a student who completes the necessary examinations. However, full membership is only awarded after 3years. The fellowship membership is a senior membership program which is attained after five years.

Association of International Accountants (AIA)

It was founded in the United Kingdom. Similar to the ACCA, the body works for the interests of the public. It is also member of the RQB and RSB. It provides various exams and it has a unique Islamic and Banking exam. The body has student membership, Affiliate membership, Academic membership, Associate and Fellow Membership. Unlike other bodies it also has Direct Entry; for example, if you have proven experience as a professional accountant you can qualify for membership in AIA. The AIA members can be appointed on a supervisory role relating to issues of money laundering relating to the money laundering regulations set in 2007.

Chartered Accountants of Ireland (CAI)

The body involve it members in facilitating sound advice to companies and the government. The fellowship membership status is earned after ten years. In addition to carrying out audit and supervisory work similarly to ACCA, the body can evaluate investments in business.

Chartered Association of Public Finance and Accountancy (CIPFA)

This professional body focuses on public service unlike other bodies. The body through its members evaluates good management of public finance and good governance. Membership to this body is by invitation after the completion of the necessary qualifications.

Chartered Management Accounting (CIMA)

It has the most members in relations to other management accounting bodies. The body form of membership is either Associate or Fellow membership. It focuses on the costing and budgeting of company’s operations which assist in decision making.

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