Wednesday, August 28, 2019

Read the requirement carefully and finish on timethis is a group paper Essay

Read the requirement carefully and finish on timethis is a group paper with 3 members - Essay Example 201,000 in 2012. Since this profit is calculated before deducting interest and tax, so the company can plan for distribution of profits after deduction is done, i.e. on PAT (Profit after tax). On deduction of interest from the operating profit, there is a marked decrease in the Profit available before tax by ?94,000. This decrease in profit is due to increase in the amount of bank loan and bank overdraft in between September 2011 and September 2012 for the purpose of continuing operations of the business. As a result of decrease in profit after deduction of interest, the profit for the year has also decreased from ?107,000 in 2011 to ?64,000 in 2012. Reduction in profit would have an adverse effect on the business, such as, the company fail to pay the dues of its creditors, would not be able to pay appropriate dividends to its shareholders, as well the company would face problems in expansion as it would face shortage of funds. The ongoing activities of the business entity would also be affected with such decrease in profits. The financial position as per the balance sheet of TR Ltd. as at 30th September 2012, depicts the following- Though the value of non-current assets are shown in terms of written down value in the balance sheet, the market value of land and buildings as on 30th September 2012 in much more than its written down value. ... An increase in retained profit as on 30th September 2012 depicts that the business entity has retained a part of the profit earned. From the income statement it is found that the business has earned a profit of ?64,000 as on 30th September 2012. As the extra profit retained in the year 2012 amounts to ?34,000, so it can be concluded that the company has drawn an amount of ?34,000 from the profit of ?64,000 and added it to the balance of retained profit. The remaining ?30,000 out of the profit is declared as to be distributed as dividend for the year 2012. An increase in Bank Loan has increased the debt of the firm. Though bank loan is a long term debt but still the company would face problems in meeting its debt if the profit does not increase in the long run. As the profit has decreased in the year 2012 so the company would face problem in meeting its timely payments as agreed upon with the bank. The amount of current liabilities has in the year 2012 but as the profit in the year 20 12 has decreased the company would face problems in meeting the liabilities on time as it will face a shortage of funds. Though the current assets are more than the current liabilities to be met in the year 2012, but still the company would face problems in meeting its liabilities as because the balance of liquid cash available is not sufficient to meet the liabilities and Inventory is not a liquid asset and Trade receivables is yet to be realized. From the above, it can be concluded that the business is at a crucial stage in the year 2012. Though there has been improvement and increase in operations undertaken and performed for the growth and expansion of the business, still the marked decrease in profit

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