1. Briefly explain the general purpose of each of the three financial statements (the income statement, the balance sheet and the cash flow statement) and the usefulness of each of them for a business like PharmaIsle Ltd. (20 marks)
An income statement shows a summary of a company’s financial operations over a specific period of time. It consists of three main elements: sales which is the gross amount earned by the business, gross profit and expenses such as delivery expenses and renting warehouses. PharmaIsle Ltd will benefit from using an income statement because they provide a basis for making a decision in response to trends in the market, for example if PharmaIsle Ltd.’s sales decrease year on year then they can think about decreasing …show more content…
The reason why her cash balance is so much lower than last year and also into the negatives is because she invested £10,000 on new computers for the business. Another reason why her cash balance is much lower than the previous year is because she also took out a £20,000 loan from the bank, meaning that she has to repay £1000 each month back to the bank as well as a £1000 interest fee in the first year. However, because the cash flow forecast is based on Katryna’s personal assumptions, it means that the numbers within the cash flow forecast for 2017 are only rough estimates which also means that they could change which could put a significant impact on the business. For example, one of Katryna’s assumptions was that she will have to reduce her sales prices, thus reducing her gross profit by about 10%. However, Katryna doesn’t know exactly for much she will have to decrease her prices as she may have estimated for them to decrease by roughly 10%, but the supermarket might still think that her prices are too high and ask her to reduce them more. This will have an adverse effect on her gross profit as sale prices will be much lower, and also affect her corporation tax which will be much lower. Another one of Katryna’s assumptions was that she will need to invest £10,000 in computer equipment …show more content…
The price should be both fair for both parties and still be low enough to conform with the supermarket’s good value pricing policy but not significantly lower than Katryna’s premium prices as this will result in a reduction in Katryna’s overall profit. Furthermore, in order to address the concern regarding non-current assets, Katryna should make sure she chooses a company that provides an extended warranty on the computers, or she should pay extra to have an existing warranty extended. This means that if they do break for any reason, Katryna is able to have them fixed without having to pay any extra money which will make sure that she doesn’t have to factor in any more expenditures for non-current
An income statement shows a summary of a company’s financial operations over a specific period of time. It consists of three main elements: sales which is the gross amount earned by the business, gross profit and expenses such as delivery expenses and renting warehouses. PharmaIsle Ltd will benefit from using an income statement because they provide a basis for making a decision in response to trends in the market, for example if PharmaIsle Ltd.’s sales decrease year on year then they can think about decreasing …show more content…
The reason why her cash balance is so much lower than last year and also into the negatives is because she invested £10,000 on new computers for the business. Another reason why her cash balance is much lower than the previous year is because she also took out a £20,000 loan from the bank, meaning that she has to repay £1000 each month back to the bank as well as a £1000 interest fee in the first year. However, because the cash flow forecast is based on Katryna’s personal assumptions, it means that the numbers within the cash flow forecast for 2017 are only rough estimates which also means that they could change which could put a significant impact on the business. For example, one of Katryna’s assumptions was that she will have to reduce her sales prices, thus reducing her gross profit by about 10%. However, Katryna doesn’t know exactly for much she will have to decrease her prices as she may have estimated for them to decrease by roughly 10%, but the supermarket might still think that her prices are too high and ask her to reduce them more. This will have an adverse effect on her gross profit as sale prices will be much lower, and also affect her corporation tax which will be much lower. Another one of Katryna’s assumptions was that she will need to invest £10,000 in computer equipment …show more content…
The price should be both fair for both parties and still be low enough to conform with the supermarket’s good value pricing policy but not significantly lower than Katryna’s premium prices as this will result in a reduction in Katryna’s overall profit. Furthermore, in order to address the concern regarding non-current assets, Katryna should make sure she chooses a company that provides an extended warranty on the computers, or she should pay extra to have an existing warranty extended. This means that if they do break for any reason, Katryna is able to have them fixed without having to pay any extra money which will make sure that she doesn’t have to factor in any more expenditures for non-current