What is meant by the term ‘depreciation’ in financial accounting, and where do the depreciation calculations impact on entries in both the balance sheet and the profit and loss accounts? (10%)
b) A company has production machinery and delivery vehicles, both currently valued at £150,000. The company has two options for depreciation – straight line depreciation at 20% per annum or an accelerating depreciation method of 25% of net book value. Select the method you would advise for both asset types (with justifications) and calculate the depreciation charge for this year. (30%)
c) What is meant by the term Financial Ratios, giving examples of typical ratios used to assist investors in comparing company accounts? (30%)
d) In comparing the accounts of two companies the cost of production for the companies was as follows. Comment fully upon these results from an investor perspective (explain why you think the figures differ, how this might lead you to conclusions on efficiency etc..) (30%)
Company A Company B
Sales Revenue £2,000,000 £2,000,000
Less cost of sales
Plant depreciation £300,000 £50,000
Production labour £500,000 £700,000
Materials £500,000 £550,000
GROSS PROFIT £700,000 £700,000
Please Follow Instruction:
No more than 1500 words.
No plagiarism, Please reference everything.
The referencing is Harvard style.
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