IASB Conceptual Framework

The IASB process is needed by investors when making decisions regarding the purchase of equity shares, debt securities, settlement, and offering other sources of credit (Iasplu 2017). The shareholder requires financial resource reports in order to ascertain management's capacity to monitor the organization's finances effectively and efficiently, as well as to determine the corporation's outlook for potential net cash inflows (Iasplu 2017). Furthermore, the model contains pertinent notes that are valuable to the company's founders and is critical in making economic decisions. The IASB framework about the amount and nature of the organization’s economic resources and needs helps the investor to evaluate the company’s financial weaknesses and strengths, capacity to assess credit, and to assess the solvency and liquidity position before making the decision to acquire the shares (Iasplu 2017). Additionally, information about the payments and claims helps the investor to forecast the future cash flows of the entity how it will be shared among the shareholders of the company.

The changes reported in the organization financial resources and claim emanating from the company’s financial performance and transaction events such as issuing equity and debts helps the investors to distinguish the differences in the changes of the financial statements of the corporation (Iasplu 2017). The data about the financial performance of the agency over the given period of time helps the investor to assess the historical and future ability of the institution to generate cash flows. Consequently, the information may indicate the economic events which affect the organization potential of raising funds.

Tasks Two: Contentin Plc

Part a



Contentin Plc Income Statement for the Year Ended 3st December 2016





Dr. Cr.

$ $

Sales 28,000

Total Revenues 28,000

Expenses

Cost of goods sold 16,000

Depreciation 1,800

Add depreciation on:

Cost of sales 200

Administrative expenses 40

Distribution costs 80

Interest paid on loans 180

Dividends paid 950

Administrative expenses 3,800

Distribution costs 2,500

Allowance for receivables

Income tax charge 1,200

Deferred taxation 260

Add:

Provision for deferred taxation 120

Total expenses 27,130

Net income 870



Comprehensive Income Statements for the Year Ended December 31, 2016 Contentin Plc

$ $

Net income 870

Other comprehensive income

Gain on sale of property 600

Surplus on depreciation 100

Adjustments from land 150 850

Comprehensive income 1,720





Part b



Contentin Plc Statement of Financial Position for the year Ended 31st December 2016

Assets

Current Assets

Inventory 1,000

Trade Receivables 1,700

Less Allowance Receivables 120

Cash at Bank and Hand 1450

Income 1,720

Total Current assets 5,990

Fixed Assets

Land 150

Accumulated depreciation Property, plant and equipment 230

Property, plant and equipment 13,000

Total fixed assets 13,380



Total Assets 19,370

Liabilities

Current liabilities

Income tax charge 120

8% loan notes 3000

Total liabilities 3,120

Owner’s Equity

Retained Earnings at 1st October 2015 1,100

Share Premium Account 1,500

Surplus Account 200

Ordinary Share Capital 3,000

Additional funds raised on 31st December 3000 shares @ sh.2 6,000

31st June retained earnings 3000 shares @ 1.5 4,500



Total liabilities and Owner’s equity 19,370



Workings



Depreciation = 5 /8 x 320,000 = 200,000 cost of sales

2/8x 320,000 = 40,000 administration expenses

2/8 x320, 000 = 80,000 distribution cost





Task Three: Analysis of the Santana Plc

Operating Activities

The operating activities of the business organization involve the main roles which generate revenue, maintain facilities and markets of the company’s products and services. These undertakings result in the operating income which is used by the corporation to sustain its day to day operations. In summary, the operating activities involve the cash inflows and outflows of the entity’s main operations.

The Santana public company revenues increased between financial years 2015 and 2016, the sales rose by $ 300. The increase could be attributed to the price reduction by the company in the fiscal period of 2016 thus attracting more customer hence more sales. The profits increased between the business years from $637 to $1,037. The cash outflow of the Santana reduced by the $264.This implies that the entity cut down its expenditures on the operating costs.

Financial Position

The financial position of the company is identified in comparison to its competitors in the same industry. Santana is compared with its three rivals in the market to determine the position it holds in the sector. To assess the number of the organization we to evaluate its return on capital employed (ROCE) which is given by dividing operating profit and capital employed (operating profit /capital employed) where the capital employed is given the difference between the current assets and current liability (C.A – C.L). For instance the company has ROCE = in 2016 (1,204 / 648 – 648) = 15.05% and 2015 ROCE = 833 / 464 – 302 = 5.14%. In contrast to its rivals in the market, for example, C1 had ROCE of the 11.8% and 12.2%, C2 had ROCE of the 9.5% and 9.7% and C3 10.1 % and 12.2 % in the % for the financial years 2016 and 2015 respectively. Clearly, Santana is not in the good financial position as compared to its competitors.

Financial Performance

Profitability Ratios

Profitability ratios are used to evaluate the ability of the company to generate gains compared to the costs and expenses incurred by the organization over a given period of time. Often when a corporations has higher value of these ratios than their rivals it indicates that the entity is performing well in the market. For example Santana has current ratio of the of the 648/ 568 = 1.14 in 2016 and 464 /302 1.53 in 2015 these ratios are abode the threshold of 1:2 which indicate the Santana is performing well in the financial years 2015 and 2016. In comparison to its competitors, C1, C2, and C3 had the profits amounting to $ 401 and $ 570, $ 16 and % 20, $2015 and $ 360 respectively as compared to Santana which had $ 839 and $ 1,204 in the financial years 2016 and 2016. From the analysis its clear that Santana performs well then its rivals because of the higher profitability figures.

Efficiency Ratios

The efficiency ratios are used to assess how well the organization is utilizing its liabilities and assets internally. They calculate debt repayment, use of inventory, and turnover receivables. These ratios are determined by dividing the expenses and the revenue generated over a given financial year. For the fiscal year 2015 and 2016, Santana had the efficiency ratio of the 1,200 /6,540 = 18% and 13% respectively. In comparison to the rivals, C1 = 444/3842 = 12% and 468/4150 = 11%, C2 = 382/2002 = 19% and 468 / 2122 = 22%, C3 420/3000 = 14% and 371 /2751 = 13% in the financial years 2015 and 2015 respectively. Therefore, from the ratio analysis its vivid that Santana is more efficient than their competitors in terms of the asset utilization.



Gearing Ratios

Gearing ratios are used to assess the organization’s tier of the equity capital compared to the long term debt. The ratio helps the management to identify the appropriate time when the debt and equity can be utilized. The figure is determined by dividing the long term debts and the capital employed. The gearing ratio in 2015 was 354 -302 / 950 x 100 = 5.47%. Santana has low gearing level.



















































Reference

Iasplu (2017).IASB conceptual frame work .Retrieved from