PART A: “The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions” (International Accounting Standards Board, 2007). Financial statements are intended to be understandable by readers who have “a reasonable knowledge of business and economic activities and accounting, and who are willing to study the information diligently”. They may be used by different users for different purposes. You are required to 1. Assess the source and structure of the trial balance and to make adjustments to the profit and loss accounts and balance sheet of R. Riggs on discovery of the following mistakes in recording various transactions during the financial year. (AC3.1, AC3.2) i. Additional furniture worth £525 were purchased on credit on 3 March 2012 but were not recorded ii. The business receive interest of £50 on their deposit from the bank on 30 December 2012 but this transaction was not recorded iii. Accrued expenses of £200 were paid on 4 June 2012 but were not recorded. 2. Calculate the following ratio for R. Riggs and write a brief memorandum report to recommend appropriate strategies to improve the performance of the business. (AC4.1, AC4.2) i. Gross profit and Net profit margin ii. Current and acid test ratio iii. Debtors and creditors payment periods and stock turnover R Riggs Profit and Loss Account for the year ended 31 December 2012 £ £ Sales 157,165 Less Cost of goods sold: 94,520 Gross profit 62,645 Discounts received 160 62,805 Less Expenses: Wages and salaries 31,740 Rent 3,170 Discounts allowed 820 Van running costs 687 Bad debts 730 Doubtful debt provision 91 Depreciation 1,630 38,868 Net Profit 23,937 R Riggs Balance Sheet as at 31 December 2012 £ £ £ Fixed assets Office furniture & Van 6,650 Less depreciation 1,630 5,020 Current Assets Stock 2,400 Debtors 12,316 Less provision for doubtful debts 496 11,820 Prepaid expenses 230 Cash at bank & hand 4,424 18,874 Total Assets 23,894 Current liabilities Creditors 5,245 Accruals 412 5,657 Financed by Capital 11,400 Add net profit 23,937 Less drawings 17,100 23,894 AC3.1 Assess and explain the source and structure of the trial balance with sample of trial balance AC3.2 evaluate business accounts, adjustments and notes AC4.1 calculate and analyse all ratios to offer a consistent interpretation of historical business performance AC4.2 recommend appropriate future management strategies