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Communication and Financial Statements of Marks and Spencer

University: Higher national diploma in Business

  • Unit No: 13
  • Level: High school
  • Pages: 22 / Words 5506
  • Paper Type: Business Plan
  • Course Code:

    N/A

  • Downloads: 33
Organization Selected : Marks and Spencer
Question :

 This assessment will be comprised of certain questions which are like:

  • Give the effective purpose of financial reporting in Marks and Spencer.
  • What are the main areas in the organisation for financial information in Marks and Spencer?
  • Interpret various communication and financial statements.
  • Give the effective benefits of IFRS.
Answer :

INTRODUCTION

Financial reporting is an activity in which organisations formulate its financial statements and then provide them to stakeholders so that they can analyse organisation's actual position. It is very important for all the business entities to conduct financial reporting every year so that it can be analysed that company is performing well or not. Stakeholders such as customers, investors, shareholders, creditors etc. evaluate performance of the company before making any type of investing, buying etc. type of decisions (Rathke and et.al., 2016). The organisation which is chosen for this project report is Marks and Spencer. It is a major British multinational retailer established in Westminster, London, UK. In this assignment various topics are discussed that are context and purpose of financial reporting, regulatory and contextual framework, key stakeholders of a company and benefits of financial information for them. Value of financial reporting, formulation and interpretation of final accounts, difference between IAS and IFRS, benefits of IFRS and identification of varying degree of compliance with IFRS is also being covered in this report.

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MAIN BODY

1. Context and purpose of financial reporting

Financial reporting includes the various statements of the company which analyse the internal as well as external information. Financial reporting includes the income statement, balance sheet and cash flow statement. These reports are mandatory to prepare for manufacturing or service organisations. Because every organisation have different department which is not linked with each other but it will connected at the time making report. There is two different type of report in the Marks and Spencer's organisation. First one is financial report which is prepared for various stakeholders for the external analysis. Second one is management report, it is basically for internal analysis of the business. Internal and external analysis is very important for the Marks and Spencer's company. It also consider the involvement of stakeholders and other regulatory requirements. Financial reporting is very critical and important task for the company.

Purpose of financial reporting: -

There are two basic purpose of financial reporting, which helps the organisation to work according to their gaols. First purpose is to provide these information to the management, so they can take decision on the basis of it. With the help of these data, manager prepare strategies for the future on the basis of current financial report. It is helpful for the internal analysis and which shows that strength and weakness of the Marks and Spencer's organisation. It shows the overall financial health of the company.

Second one is to provide these information to the company's stakeholders for external analysis. It will provide financial information and activities to the external parties and it includes shareholders, potential investors, customer and government. These reports ensure that company will run in proper way and provide information for the invitation of outside users of the organisation (Nguyen and Truong, 2017).

2. Conceptual and regulatory framework and their requirements

IFRS is International Regulatory framework for financial reporting, it provide the basic and common environment to the business. This framework basically followed by the those organisations who trade in different countries. Same system followed by the companies so it become easy for the comparison of their financial statements. Regulatory framework is very important for the preparation of financial statement. Organisation need to follow these elements:

  • National financial reporting standards
  • National law
  • Market regulations
  • Security exchange rules

Requirement of regulatory framework:-

  • Regulatory framework ensure that the users of financial statements get the minimum required information which they want to know.
  • Organisation need to ensure that all the information provided to the external party is in comparable form.
  • Also shows the growth in international investment and multinational companies.
  • Increase the confidence of financial reporting users.
  • For insuring companies and directors behaviour towards their investors.

Key- principle of Conceptual and regulatory framework : -

  • First time adoption of IFRS (IFRS 1) : - This principal is for those organisation who adopt IFRC for the first time. It prepare complete set of financial statements which cover the IFRS preceding year and reporting period.
  • Insurance contract (IFRS 4): -In this contract one party accept the all significant risk which occur by another party. They agreed on particular compensation amount if any event happen in the future.
  • Financial instrument discloser (IFRS 7): - In this principal organisation need to disclose their financial statements. Which shows the financial position and the performances of the entity. Disclosure made at the end of the financial year and it also represent how organisation manage their risk.
  • Leases (IFRS 16): - in this principle, company need to maintain proper record in respect of lease transaction, assess amount and time period. IFRS 16 introduce leases accounting model and required a lessee to recognise assets and liabilities for more than 12 months. Qualitative characteristic which make financial information more reliable:
  • Fundamental qualitative representation: - It includes the relevance and faithful representation information. Information is relevant if differences in the decision taken by the users. These financial information is capable to make difference if organisation have predictive value or conformation value. In the faithful representation, information is faithfully represent that what is the purpose to represent. These informations are error free, neutral and complete.
  • Enhancing qualitative representation: - It involve the comparability, verifiability, timelines and understandability. These fours characteristics enhance the information into usefulness but it can't be change non-useful information into useful (Perera, D. and Chand, P., 2015).
  • Other characteristic: - Cost constraint provide information which need to justify the using information and providing cost.

3. Identification of main stakeholders of an organisation and benefits of financial information for them

In the organisation, stakeholders also dividing into two segment which is internal and external. Internal users include the managers and owners of the organisation. External users are customers, financial institutions, potential investors and government.

Internal users: - Internal users required information for the purpose of analysis and taking decision in respect of organisation.

  • Managers: - Manager required the financial information for the decision making and build strategies for the organisation benefit. It analyse the financial statements such as income statements and balance sheet. Which provide the accurate and true position of the business.
  • Owners: - Owner of the company also check the financial statement of their organisation because they also want to know about their position in term of profitability. Owner analyse these information or check the true position of the company with the help of balance sheet and income statements (Morrow, 2014).

External users: - External parties also check the financial information which provide them idea to whether they invest in the organisation or not.

  • Customers: - Customer want to review these information so they can decide that they have to invest or not.
  • Financial institution: - It includes commercial banks who provide lending to the company. Because of this financial institution need to see company's statement. So after analysis institution make decision weather they provide loan or not (Martínez-Ferrero, 2014).

4. Value of financial reporting for meeting organisational objectives and growth

Financial reporting is very important for all the organisation as it helps to meet the objectives and achieve growth. If a company is forming all its financial statements in appropriate format then it may help to attain business goals such as profit maximisation, investor's attraction and customer satisfaction. Marks and Spencer needs to maintain its final accounts appropriately so that when investors analyse them than they can find the information which is required by them to make decisions regarding making investment or not. It may guide them to analyse possible rate of return which is going to be provided by the organisation to them. It is also very beneficial for customers as they can assess that they are buying products of such company which financially strong. It results in their satisfactions and when they are satisfied then it will help Marks and Spencer to maximise its profits. When all the objectives are achieved by a business entity then growth can be attained (Maroun, 2015).

Objectives and growth can be acquired by Marks and Spencer if the right accounting principles and government legislations are followed by accountants while formulating financial statements. It assures that organisation is showing appropriate information which is beneficial for stakeholders. If performance of the company is good then it may attain higher growth (Kusnadi and et.al., 2016).

5. Main financial statements of the organisation

a. Statement of profit and loss

Particular

Amount

Revenues

385100

Less: Cost of sales

-297563

Profit

87537

Add: Other income

5600

Gross profit

93137

Less: operating expenses

-83663

Operating profit

9475

Less: Finance cost

-830

Profit before tax

8645

Less: Tax

-1500

Profit after tax

7145

Add: Other comprehensive income

2100

Total Comprehensive income

9245

b. Statement of changes in equity

Particular

Ordinary share capital

Revaluation reserve

Retained earnings

Total

As per trial balance

86700

40700

32100

159500

Total Comprehensive income

 

2100

7145

9245

Preference dividend

 

 

-2330

-2330

Ordinary dividend

 

 

-4340

-4340

 

86700

42800

32575

162075

c. Statement of financial position

Assets

Amount

Non current assets:

 

Land and property

115000

Plant and equipment

37275

Investment property

25400

Total non current assets

177675

Current assets:

 

Inventory

17300

Trade inventories

62000

Total current assets

85300

Total assets

262975

 

 

Equities and liabilities

 

Ordinary Share @25 each

86700

Revaluation reserve

42800

Retained earning

32575

Total equities

162075

Non current liabilities:

 

10% redeemable preference share

23300

Deferred taxation

8900

Total non current liabilities

32200

Trade payables

65700

Bank overdraft

1500

Tax payables

1500

Total current liabilities

68700

Total equities and liabilities

262975

Working notes:

1.

Particulars

Cost of sales

Operating expenses

As per trial balance

291700

78500

Adjustment in investment

700

 

Depreciation on land and property

2500

2500

Depreciation on plant and equipment

2663

2662

Amount to be shown in P & L

297563

83662

 

 

 

Cost of damaged good

1470

 

Can be sold

1670

 

Residential

-990

 

Net realisable value

770

 

Decreased by

700

 

Cost of sales increased by

700

 

 

 

 

Depreciation of property

125/100*(88000-45400)

 

 

5325

 

2.

Non current assets:

Land and property

Plant and equipment

Investment property

As per question

120000

88000

23300

Accumulated depreciation

 

-45400

 

Current year depreciation

-5000

-5325

 

Revaluation

 

 

2100

Carrying value

115000

37275

25400

3.

Closing inventory

18000

Goods on cost

-1470

Net realisable value

770

Amount to be shown in balance sheet

17300

d. Comparison of information provided by cash flow and financial statements

Various information can be gathered from financial statements and cash flow. Both of them are different from each other. Only cash related data can be analysed with the help of cash flow but overall performance of the company can be assessed from final accounts such as profit and loss account and balance sheet. All type of incomes and expenses are recorded in final accounts but cash related transactions are disclosed in cash flow (Ioannou and Serafeim, 2017).

In cash flow detailed information related to cash inflows and outflows is canned and in financial statements all the transactions that are made by a company in a year are recorded. Final accounts helps to assess actual performance and position of the organisation. Cash flow can guide stakeholders to evaluate the spending and incomes of funding of the business (Gonçalves and Lopes, 2014).

6. Interpretation and communication of financial statements

From the financial statements of Marks and Spencer various data is analysed which is required to communicate with stakeholders in order to enhance their interest in the organisation. Total revenues of the organisation for year 2017 were 10622000 and for 2018 these are 10698200. Organisation's gross profits have been decreased from 3992700 to 3952600 in year 2018. Total operating income of the organisation for year 2017 was 707300 which has been decreased up to 677400 in year 2018. Marks and Spencer's net income for year 2018 is 25700 and in year 2017 it was 117100. From the income statement of the company it has been assessed that total profits of the business entity are decreasing due to higher cost of sales.

Total current assets of Marks and Spencer for year 2018 are 1317900 and for year 2017 these were 1723300. Organisations total assets for year 2017 were 8292500 that are decreased in year 2018 up to 7550200. Total current liabilities of Marks and Spencer are 1826000 for year 2018 that are reduced in this year from previous year. Company's total liabilities were 5142100 in 2017 but in 2018 these are decreased up to 4596000. Stakeholders equity for 2018 are 2956700 that are decreased in current year from previous year. All these information should be communicated with stakeholders so that they can assess that their money is appropriately used by the organisation or not (Evers, Meier and Spengel, 2014).

7. Difference between IAS and IFRS

IAS

IFRS

These are the primary version of IFRS.

These are the modified version of IAS. The modification is done due to complexities in IAS.

IAS are the international accounting standards.

IFRS are the international financial reporting standards.

These are developed and imposed by IASC (International accounting standards committee).

All the IFRS are launched and obligated by IASB (International accounting standards board).

IAS were published in year 1973.

IFRS were published in year 2001.

8. Benefits of IFRS

IFRS: These are the international financial reporting standards that are imposed by IASB which is a regulatory authority responsible for the implementation of standards for business entities. The main objective of all the standards to facilitate the organisation while formulating final accounts by providing proper guidance. When business entities are facing problems due to IAS then IASB decided to modify them by publishing IFRS (Benefits of IFRS, 2019). There are various benefits of these standards. All of them are as follows:

Provide higher comparability: IFRS provide proper guidance to the companies while conducting financial reporting in order to make sure that appropriate standards and principles are followed by the company. When the statements are formulated in appropriate manner then it may help to enhance comparability of business entities. It facilitates the more accurate and appropriate comparison of financial statements (Chen and et.al., 2016).

Good for new and small investors: IFRS are good for new and small investors because they can easily figure out the companies which are attaining higher returns and formulating their accounts in appropriate format by following right principles.

Enhances flexibility: IFRS helps business entities such as Marks and Spencer to enhance flexibility because it helps organisations to form their final accounts in consolidated form. As it converts the final accounts in an easy format that can be analysed easily by investors, creditors and other stakeholders.

Increase foreign investment: If an organisation is operating its business in more than one country and adopting IFRS then it will be very beneficial for that company because it may result in higher foreign investors. It will be easy for them to analyse their financial statements and then form investment related decisions.

9. Varying degree of compliance with IFRS

In every country there are different types of accounting standards are followed but some times it creates issues for those organisations. These problems are lack of foreign investment and investors. This can be resolved by following IFRS because these are formed for those multinational companies. For example, Marks and Spencer is currently executing its business in various countries and it is not possible for the company to follow rules and regulations of all the nations. At the same time as Marks and Spencer is using IFRS which is very beneficial for the company because it allows it to attract foreign investment by providing accurate information of the business to stakeholders such as investors. It helps the companies to achieve objectives and goals by formulating all the statements in appropriate manner. For Marks and Spencer it is very important to follow all the appropriate standards according to IFRS in order to reduce the impact of factors. While operating business in different countries IFRS is the best option to form final accounts because it make easy for stakeholders to assess the financial position (Aversano and Christiaens, 2014).

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CONCLUSION

From the above project report it has been concluded that financial reporting is the process of formulating and analysing final accounts that may depict actual position and performance of the company. All of them are assessed by internal as well external stakeholders in order to get information of financial status of the company. Three types of statements are formulated under this process these are profit and loss account, balance sheet and cash flow statement. All of them are used to form strategic decisions for the betterment of the company.

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