Task 5: Interpret the contents of a trading and profit and loss
account and balance sheet for a selected company (P5)
Financing the refurbishment by a bank would in most cases require providing the financial
statements of Financial Meltdown Ltd. The bank in turn will need to read and interpret these
statements in order to come to a decision if providing a loan is justified.
The cost of goods sold of the profit and loss account
The cost of goods sold are the costs that a business makes by buying or producing the goods. To work
out the cost of goods sold, a calculation is done to ensure that the figure recorded for cost of goods
sold can be directly linked to the goods actually sold and not just all the materials purchased. The
cost of goods sold of Financial Meltdown is €37.000. The calculation for cost of goods sold = opening
stock + purchases – closing stock.
The overhead section of the profit and loss account
The overhead section is the part where all the expenses are written. The total overhead are the
expenses plus the depreciation. The expenses of Financial Meltdown are: rent & rates (€6.000),
wages & salaries (€90.920), telephone & postage (€1.590), motor expenses (€5.500), advertising
(€3.500), sundry expenses (€240). The depreciation of Financial Meltdown are the buildings
(€20.000), equipment (€2.325), motor vehicles (€1.200). The expenses are €107.750. The total
depreciation is €23.525. The total overhead of Financial Meltdown is €131.275. The calculation for
the total overhead = expenses + depreciation.
Gross profit and net profit from the profit and loss account
Gross profit is the amount of money left or the overage after the cost of goods sold has been took off
from the sales turnover. The gross profit of Financial Meltdown is €146.600.
The calculation for gross profit = sales turnover – cost of goods sold. The net profit is the money
after all expenses have been deducted from the gross profit and any other revenue income has been
added. The net profit of Financial Meltdown is €25.325.
The calculation for the net profit = gross profit – expenses + other revenue income.
The fixed assets from the balance sheet
Fixed assets are items such as buildings, equipment, motor vehicles which are owned by the business
and will be used for more than one year. It’s important when you show it on the balance sheet that
they are given in a realistic value. Because the value of each item will become lower every year. The
fixed assets on the balance should show you the cost you made by buying the product, the
accumulated depreciation previous years, year depreciation and the net book value. The net book
value is the final figure and shows you what the value is at this moment. Financial Meltdown have
buildings, equipment and motor vehicles. The total net book value of the fixed assets of Financial
Meltdown at the moment is €14.025.
The calculation for the fixed assets = historic cost – residual value ÷ expected life.
Current assets from the balance sheet
Current assets are the items of value owned by a business which will go up or down every time a
business make a transaction. Current assets are the items which will be gone within a year. This
include: stock, debtors, cash in the bank, cash in hand. Financial Meltdown have all of these items.
The total current asset of Financial Meltdown is €32.910. The calculation is very easy you just count
all the current assets and that will be your total.
account and balance sheet for a selected company (P5)
Financing the refurbishment by a bank would in most cases require providing the financial
statements of Financial Meltdown Ltd. The bank in turn will need to read and interpret these
statements in order to come to a decision if providing a loan is justified.
The cost of goods sold of the profit and loss account
The cost of goods sold are the costs that a business makes by buying or producing the goods. To work
out the cost of goods sold, a calculation is done to ensure that the figure recorded for cost of goods
sold can be directly linked to the goods actually sold and not just all the materials purchased. The
cost of goods sold of Financial Meltdown is €37.000. The calculation for cost of goods sold = opening
stock + purchases – closing stock.
The overhead section of the profit and loss account
The overhead section is the part where all the expenses are written. The total overhead are the
expenses plus the depreciation. The expenses of Financial Meltdown are: rent & rates (€6.000),
wages & salaries (€90.920), telephone & postage (€1.590), motor expenses (€5.500), advertising
(€3.500), sundry expenses (€240). The depreciation of Financial Meltdown are the buildings
(€20.000), equipment (€2.325), motor vehicles (€1.200). The expenses are €107.750. The total
depreciation is €23.525. The total overhead of Financial Meltdown is €131.275. The calculation for
the total overhead = expenses + depreciation.
Gross profit and net profit from the profit and loss account
Gross profit is the amount of money left or the overage after the cost of goods sold has been took off
from the sales turnover. The gross profit of Financial Meltdown is €146.600.
The calculation for gross profit = sales turnover – cost of goods sold. The net profit is the money
after all expenses have been deducted from the gross profit and any other revenue income has been
added. The net profit of Financial Meltdown is €25.325.
The calculation for the net profit = gross profit – expenses + other revenue income.
The fixed assets from the balance sheet
Fixed assets are items such as buildings, equipment, motor vehicles which are owned by the business
and will be used for more than one year. It’s important when you show it on the balance sheet that
they are given in a realistic value. Because the value of each item will become lower every year. The
fixed assets on the balance should show you the cost you made by buying the product, the
accumulated depreciation previous years, year depreciation and the net book value. The net book
value is the final figure and shows you what the value is at this moment. Financial Meltdown have
buildings, equipment and motor vehicles. The total net book value of the fixed assets of Financial
Meltdown at the moment is €14.025.
The calculation for the fixed assets = historic cost – residual value ÷ expected life.
Current assets from the balance sheet
Current assets are the items of value owned by a business which will go up or down every time a
business make a transaction. Current assets are the items which will be gone within a year. This
include: stock, debtors, cash in the bank, cash in hand. Financial Meltdown have all of these items.
The total current asset of Financial Meltdown is €32.910. The calculation is very easy you just count
all the current assets and that will be your total.
