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Accounting and finance Essay Example

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Accounting and finance

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Every company that is incorporated in UK and that is listed in the UK Stock Exchange has to adhere to the Combined Code on Corporate Governance. This code contains recommendations by the Cadbury and Greenbury reports on Corporate Governance, Turnbill reports and Smith Guidance. Turnbill report gives guidance of how directors should comply with internal controls. Smith Guidance gives mandates on compliance regarding audit committees.An Income statement is essential to arrive at the net profit/loss made by the business at the end of an accounting period. There are various types of profits that can be calculated, namely, gross profit, operating profit and profit before and after tax. Gross profit is the profit that is arrived at by just subtracting from sales, all direct expenses related to sales. Operating profit is the one that show whether the company is operating efficiently or not. It refers to the profit of a company before deduction of expenses like interest and tax. It is also called EBIT. Profit before and after tax refers to the net profit of the company. Profit before tax is arrived at by deducting all the expenses except tax from the operating profit. Profit after tax is arrived at by deducting the tax amount from profit before tax. See appendix 1 for pro forma income statement for the company.Depreciation is the charge against an asset and is entered in the income statement as expenses in order to arrive at the correct profit and loss figure of a company. An asset faces depletion in its value over time due to factors like wear and tear, obsolescence etc. Therefore, assets should be shown in the books only in the depleted values. It is for this, depreciation is charged. The two main methods used to measure depreciation are straight line method and diminishing value method.Allocating overhead cost is another challenging job for the company. Full costing method can be used by the Company for arriving at the cost. “Full cost accounting describes how goods and services should be priced to reflect their true costs (including environmental and other social costs).” (Carnegie Mellon, 2010) Thus the price of a product that is fixed by using this method will reflect even the environmental and social cost involved in the production of a product.Indirect costs are the one that is indirectly related to manufacturing and sales of a product or service. Such expenses

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Works cited

Ukincorp, 2010. How to Incorporate a Public Company. [Online] Available at: http://www.ukincorp.co.uk/s-1G-public-company-formation-uk.html [Accessed 6 May 2010]

Businesslink, 2010. Limited Liability Companies. [Online] Available at: http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1073789612&type=RESOURCES [Accessed 6 May 2010]

IOD, 2010. Corporate Governance in UK. [Online] Available at: http://www.iod.com/intershoproot/eCS/Store/en/pdfs/factsheet_corp_gov_uk_1003.pdf [Accessed 6 May 2010]

Carnegie Mellon, 2010. Full Cost Accounting. [Online] Available at: http://www.ce.cmu.edu/GreenDesign/gd/education/FCA_Module_98.pdf [Accessed 6 May 2010]

Wisegeek, 2010. What are indirect costs. [Online] Available at: http://www.wisegeek.com/what-are-indirect-costs.htm [Accessed 6 May 2010]

Accounting tools, 2010. Activity based costing. [Online] Available at: http://accountingtools.com/Pages_Costing/Costing_Activity_Based_Costing.html [Accessed 6 May 2010]

Nos, 2010. Cost sheet. [Online] Available at: http://www.nos.org/srsec320newE/320EL29a.pdf [Accessed 6 May 2010]

Ruskin Brown Associates, 2010. Activity based costing. [Online] Available at: http://www.ruskin-brownassociates.com/pdfs/activity.pdf [Accessed 6 May 2010]

Appendix

1. Income statement

Income statement

Sales 190000000

Cost of goods sold 140000000

Gross profit 150000000

Operating expenses

Selling expenses

Commissions 15000000

Transportation 9000000

Advertisements 20000000 44000000

Administrative expenses

Salaries 10000000

Depreciation (Office Equipments) 5000000 15000000 59000000

Operating income 91000000

Interest expenses 10000000

Profit before tax 81000000

Less: Income tax (30%) 24300000

Profit after tax 56700000

2. Cost Sheet

(Nos, 2010)

3. Activity based costing

(Ruskin brown associates, 2010)

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preview essay on Accounting and finance
  • Pages: 4 (1000 words)
  • Document Type: Essay
  • Subject: Unsorted
  • Level: Undergraduate
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