Internal Code: IAH260
Financial Accounting for Management
You are launching a business in the name and style of your choice. It has to be a manufacturing business. It means that your business would involve, buying materials, transforming it using plant and machinery, and selling it. Keep in mind the conditions given for this assignment. Strictly adhere to the conditions.
You can make any assumption, provided they are reasonable in an actual business situation, subject to the conditions 1 to 11 (detailed below). Realistic nature of the assignment would involve factors such as the volume of turnover, cost structure, type and nature of the transaction. Please draw up the accounts and reports in proper form as if they were made out for a real-life business.
1. Every student will have at least 30% of his total assets invested in fixed assets. Depreciation on monthly basis is to be computed using the straight-line method of depreciation. Life of asset can vary between 5 to 15 years for different assets.
2. Credit sales can be seven times cash sales.
3. Credit purchase can be eight times cash purchase.
4. Wage cost could be 10% to 30% of sales.
5. Cash balance at the end of any year is to be maximum of 4 months and the minimum of 1-month cash expenses. Deployment of surplus cash on the short-term inter-corporate market at 6% per annum is possible.
6. Sales volume will increase by 5% over the previous month, the sale price will increase by 10% over the previous month and purchase price will increase by 10% every 15 days, all reckoned on a calendar month basis.
7. All other costs will remain stable over the period.
8. Assume no gestation period. That is, the business starts operations from day one. Irrespective of your starting date of business – your first accounting period would end on the 31st March of that year [with a condition of business running for at least 3 months]. For example:
9. If you start a business on 10 Jan. 1981, then your first accounting period will end on 31 March 1982.
10 If you start a business on 31 Dec. 1980, then your first accounting period will end on 31 March 1981.
11. You need to have at least 10 transactions per accounting period.
REQUIRED: Part 1
1) You are required to prepare the accounts of the business as if owned by you as an individual proprietorship in any name and style of your choice, within the framework of the conditions one through eleven detailed above, for three accounting periods.
2) Prepare a precise chronological statement of all transactions.
3) Prepare all the three financial statement
REQUIRED: Part II
1) Analyze the financial statement of the company using common ratios discussed in the class, for the above three accounting periods.
2) Analyze the cash flow statement of the company, prepared as above.
3) Analyze the costing aspects of the company, based on the financial statements prepared as above.
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