Profit and Loss Income Statement

Question: Discuss about theProfit and Loss for Income Statement. Answer: Introduction One of the renounced financial statements commonly used by the financial experts and most of the business organisation is the income statement commonly known as the profit and loss statement. The importance of the profit and loss statement is that it reveals the profit earned by the company during the certain period of time that may be a period of 12 months. On the other hand, Balance Sheet of any company reveals the status of the assets, liabilities as well as the capital structure of the company at a particular point of time. This particular assignment is based on the assessment of the changes in the balance sheet of the King Edward VII College of the years 2014 and 2015. On the basis of the information given in the balance sheet the performance of the college is to be measured and to highlight the areas of changes as well as the to highlight the increase in 10% criteria as well as to report on the financial position of the college. Analysis of Balance Sheet of King Edward VII College and University for the Year Ending 2015 2014 After going through the balance sheet it has been noticed that there are many changes from the last year 2014 to this current year 2015. As per the given situation in the assignment it is needed to identify where there is an increase at the rate of 10% from 2014 to 2015. By going through the balance sheet of King Edward VII College it has been analysed that the financial position of the college has improved in comparison to the last year. Following are the areas where there is an increase in 10% criteria in the items present in balance sheet of King Edward VII college and university:- Endowment asset investment has increased by 10%. It has been noticed that the endowment asset investment is 162597 for the year 2014 where as it has increased to 179373 in 2015. (179373 - 162597 = 16776/162597*100 = 10.3%) Debtors have also increased by more than 10%. It has been identified that debtors are 78212 in the year 2014 where as it has increased to 89729 in the year 2015. It has been increased by roughly 14.73% in the year 2015. (89729 - 78212 = 11517/78212*100 = 14.73%) The creditor to whom the college is bound to pay within a year has also been increased by more than 10%. It has been followed that the creditors falling under this category amounts to 193328 in the year 2014 by it has been increased to 221164 in the year 2015. (221164 - 193328 = 27836/193328*100 = 14.40%) The total assets of the college reduced by the current liabilities of the college have also been increased by more than 10%. It has been identified that the total asset reduced by the current liabilities is 1009150 in the year 2014 where as it has increased to 1238061 in the year 2015. (1238061 - 1009150 = 228911/1009150*100 = 22.7%) The endowments in the nature of restricted permanent have increased by slightly more than 10% in the year 2015. It has been followed that the endowments in the nature of restricted permanent was 138314 in the year 2014 where as it has been increased to 153044 in the year 2015. (153044 - 138314 = 14730/138314*100 = 10.95%) These are the above mentioned criteria where the increase in 10% criteria has been increased. Financial Performance Based on the Profit and Loss Statement The profit and loss statement shows the profit of the company at the particular point of time. As per the profit and loss statement of the King Edward College it has been seen that the college has received its fund from the various sources such as fees for tuition as the educational contacts, endowment and investment earnings, some of the earnings has been generated from the operating incomes which has considerably been increased from the previous financial year 2013-14 to the current financial year 2014-15. The total income of the college has increased from 603,668 in the year 2013-14 to 684,225 in the year 2014-15. On the same way the expenditure has also been increased from 605,809 in the year 2013-15 to 640,449 in the year 2014-15. But the college has faced the loss of 2,141 in the year 2013-14 which the company turned into profit of 43,776 by providing the better service quality. The tax is not to be paid for the financial year 2013-14 the college faces a loss but it has t o be paid for the year 2014-15. Thus after all certain deductions the surplus generated by the college after depreciation and tax has also increased in the financial year 2014-15 which is really a good sign which shows that the financial position of the college is really improving. Identifying the Variances Higher than 10% After analysing the balance sheet it has been noticed that there are certain areas which has increased in comparison to the last financial year 2013-14 and the current financial year 2014-15. There are few areas which have been identified which meets the 10% criteria such as Endowment asset investment, Debtors, creditor followed by the total asset reduced by the current liabilities and endowment in nature of the restricted permanent. Comparison of the Performance It has been seen that the performance of the various campus of this college has been improved in the financial year 2014-15 in comparison to the last financial year 2013-14. This has been revealed in the income statement as well as the balance sheet of the college which gives a positive result about the company. By comparing the financial statements of the college it has been seen that the college has earned a profit in the current financial year in comparison to the precious year which is really a good sign. Recommended Solutions for the Expenditures Where the Variance is More It has been usually seen that the financial performance of the company has improved in comparison to the last year. But it has also been observed that there are certain expenditures which exceed the 10% criteria. The college should incur its expenditure in such a way that it should not be too high that in turn reduces the profit of the college. If the expenditure increases it is the fault of the management in utilizing the resources. Though the profit of the college has increased but the expense should be in its limit so that the college can incur more profit. Conclusion From the entire assignment it has been concluded that the financial performance of the college has improved but there are certain criteria where the expenditure has increased as a result of which the college has earned a profit but not as per the expectation. So it should be notified that in order to increase the profit the resources should be utilizes in such a way that the management can achieve the best out of it. Reference Bodie, Z. Merton, R. (2000)Finance. Upper Saddle River, NJ: Prentice Hall. Fraser, L. Ormiston, A. (2001)Understanding financial statements. Upper Saddle River, N.J.: Prentice Hall. Fridson, M. Alvarez, F. (2002)Financial statement analysis. New York: John Wiley Sons. Peterson Drake, P. Fabozzi, F. (2006)Analysis of financial statements. Hoboken, N.J.: Wiley. Robinson, T. (2009)International financial statement analysis. Hoboken, N.J.: John Wiley Sons. Ross, S. et al. (2005)Corporate finance. Boston: McGraw-Hill/Irwin.