Principles of Accounting and Finance

Welcome to Principles of Accounting and Finance. This module introduces the basic concepts and techniques of accounting and finance. You will be introduced to the framework of accounting – its nature, its purposes, and the contexts/environment in which it is practised in a global dimension. You  will learn the basics of accounting including concepts, conventions, and the principles that underlie both finance and accounting. This module introduces you to the key concepts in accounting so that financial issues in the ‘real world’ can be explored, discussed, and understood. As well as learning about specific accounting techniques, you will develop a critical understanding of these techniques and their role in the management of a business. A key feature of the module is a balanced emphasis between the development of an understanding of accounting and the preparation and interpretation of financial information.

On successful completion of this learning, and this module, you will be able to:

  1. Explain accounting and financial concepts / terminology
  2. Prepare and interpret basic financial statements.

The following additional information are also available:

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  1. Closing inventory has been valued at £1,500,000.
  2. An invoice of £124,000 for utilities accrued at year end
  3. The business’ bank account receives a refund of £80,000 for undelivered services
  4. The owner draws £44,000 in drawings

Required

Sensitivity: Internal

  1. Prepare the Income statement for year end 31 December 2020 (25% of grade weight);
  2. Prepare the statement of financial position as at 31 December 2020 (25% of grade weight).

Component 2

The finance team at KWAKU LTD, a small start-up company manufacturing water coolers would like your help in analysing where each of the following items of transaction shouldappear on the statement of financial position and on the Income Statement. Please produce a short report addressed to the finance team using appropriate terminologies to describe the transactions and explaining your reasoning for treatment of each item.

  1. An amount of £20,000 owed to the company by a customer.
  2. A newly acquired equipment at a cost of £10,000
  3. Loan from a bank for £25,000 payable over 6 years
  4. Investment of £50,000 received from a venture capitalist
  5. An inventor who has recently been recruited to develop new products on an annual salary of £70,000.
  6. Amount due to a supplier for £12,000
  7. Credit sales to a customer of £30,000
  8. Interest and charges paid on overdraft of £1,000

KWAKU Ltd has spotted an opportunity to supply water coolers to a new customer in West Africa. As part of its planning, senior management would like some computational help using familiar costing techniques to support their financial planning process for submission to a potential investor.

Each unit of water cooler is to be sold for £80 and KWAKU Ltd has determined that it has the

capacity to manufacture 1,000 units.

Direct Materials per water cooler cost £30

Direct Labour per water cooler cost £75

Sensitivity: Internal

Fixed overheads are £30,000

Please provide the computation of unit cost per water cooler based on:

  1. Absorption costing technique
  2. Marginal costing technique

Discuss your results carefully showing your computations and suggest the impact of each costing technique on the financial plan of KWAKU Ltd.

 
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