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Corporate Social Responsibility and Environmental Management

ASOS PLC is a London-based British business founded in the year 2000. The business is an online cosmetic and fashion retailer which targets the youth as its number one client. With the business’s headquarters in Camden Town, it sells its line of clothes and sells over 850 different clothes brands to its target market all over the country and the world. This paper will look at the business’s financial report and explain some terminologies in business relating to financial accounting.

Accounting Reports

Ratios ideal ratio 31/08/2021 31/08/2020 31/08/2019 31/08/2018
return on capital employed twice the current interest rate 9.39 12.52 6.99 22.72
stock turnover 5 to 10 4.85 6.13 5.09 5.93
debtor collection(days) within 30 days 3.88 2.36 2.54 2.13
creditor payment (days) standard 0/90 36.81 39.5 _ 14.8
current ratio 2;1 1.56 1.19 0.81 0.9
liquidity ratio greater than 1 0.75 0.57 0.11 0.17
gearing ratio between 25 % to 50% 86.13 42.86 20.88 2.32

Accounting reports are statements that reveal a company’s financial status at a certain point or over a set period, including data about the company’s transactions and operations (Sally et al., 2021). This information helps the company whenever vital decisions are being made and when there is a need to check on the business’s progress. They are a set of financial statistics produced from a business’s accounting records. Financial performances are the goals and targets that one wishes to fulfill to avoid financial risks. Essential facts about the company, such as the mission statement and vision, values, and plans, are discovered through financial performance. The business’s financial performance is dependent on every branch of the company handling their assigned tasks. Financial reports are the documents that have financial operations in them. These documents are used to determine the business’s performance at the end of their business year. Financial reports are used to determine the profits and losses incurred during the year and how the business’s finances have been utilized. The report also gives essential information like the expenses incurred during the year. The firm uses financial reports to evaluate and analyze accounting data that provides updates on the financial status. Investors understand the company history during the research process and deal with the company’s events.

The profit margins measure the company’s profitability on various costs levels, such as gross margins, operating margin, and net profit margin (Braam and Peeters 2018). The cost of goods sold, taxes, and operational expenses are the margins. A combination of current assets divided by current liabilities is the current ratio, which measures a company’s liquidity. Existing assets and current liabilities are the obligation and assets used and paid in less than a year. Profit margin is one of the most important entities in any given company or industry. The comparison of a company’s sales and profits is possible at any given time due to profit margin’s calculation.

They are commonly utilized to assess a firm’s liquidity and current liabilities balance sheet line items. The current ratio is a result of existing assets divided by current liabilities. When providing the profitability and liquidity, the larger the liquidity, the lesser the profitability, and the lesser the liquidity, the greater the profitability (Nangih and Anichebe 2021). A responsible finance manager should understand the liquidity and the profitability roles. He should be in apposition to track the company’s current assets to minimize the efficiency in expenses.

The ASOS PLC Report

From its progress, ASOS PLC company is in an excellent financial position, including a 25% to 50% gearing ratio. The gearing ratios are the financial ratios that are ideal in evaluating the owner’s debt and the borrowed cash. This company can assess its progress by its equity than its debts because of the gearing ratios. They can analyze and interpret the information for the past four years. It shows that in 2021 there was an increase to 50%, indicating an upward trend. The liquidity ratios should be greater than one at all times. The creditors and investors can get to an accounting liquidity ratio of about 2 or 3.

A higher liquidity ratio is used to explain that the company has a significant margin of safety; the debt in paying down a higher liquidity ratio means that your organization (Chasanah and Sucipto, 2019). For the years, the company’s liquidity ratio has been increasing, indicating that the company is likely to get to a better position in later years than recent ones. The company has achieved similar performance in the same creditor payment days; the ideal days are 90 days, considering the interest and the payments used to pay within 90 days.

The best current ratio is 2:1; the company cannot meet the balance and maintain it for four years, showing insufficient to meet the current liabilities. When a collection agency or firm attempts to recover past-due debts from borrowers, this is known as debt collection (Stănescu, 2021). If an individual has not paid loan or credit card payments and is badly past due, a debt collector will collect the amount due. The collection of debts with specified periods shows the company’s excellent achievement; the collection period is 30 days, where ASOS PLC contains all the obligations at a specific time.

Inventory turnover is when the stock is used or sold within a specific time annually (Kwak, 2019). It is used to determine whether a business has too much Inventory concerning its sales. The stock turnover of the company indicates that the company is managing and holding stock except in the year 2021, when it goes below the specified limit. The best stock ratio is 5 to 10 in the four years the company performs below the expected limit. The ideal return on the capital employed ratio is twice the current interest ratio. Capital utilized is the level of capital used by industry in its profit-making process. The total worth of any assets that the company possesses. Capital is generally used in business to invest the long-term growth where the ideal ratios are not consistent. The company returns to portray the perfect balance rising and declining, which may not be compatible at times.

Prepaid Expenses

Ovid Venture Balance Sheet
As of December 31, 2021
Current Assets
Bank 1500
prepaid Insurance 400
Accounts receivable 41,350
Inventory 18,000
Total Current Assets 61250
Property, Plant, and Equipment
fixture and Fittings 80,000
accumulated depreciation 60000
motor vehicles 25,000 20,000
accumulated depreciation 3715
total property plant and equipment 21,285
LIABILITIES & stockholders’ Equity
accounts payable 8,900
electricity expenses payable 250
non-current liabilities
long-term bank loan 2200
stakeholder’s equity
common stock 20,000
retained earnings 71,185 71,185
total stockholders’ equity 91,185
Ovid Venture Income statement
For the year ended December 31, 2021
$ $
Sales 280,000
less; expense
cost of goods sold 156,000
audit and accountancy 500
salaries and wages expense 21,000
depreciation expense 22,365
delivery expense 8,500
electricity expense 3,050
insurance expense 1,300
Advertising 900
office expense 700
rent expense 7,500
interest expense 200
total expense 222,015 222,015
net income/loss 57,985
cost of goods calculation
opening stock + purchases – closing stock

Prepaid expenses are the later expenses that are in advance paid. They are treated and recorded as assets on the balance sheet (Sally et al., 2021). Their merits are noted after the amount is recorded as cost. When preparing a profit and loss account, prepaid expenses are deducted from expenses. A prepaid expense is an asset added to the assets on a balance sheet.

  1. Accrued expense is also known as current liabilities, used and reported in accounting. The accrued expense is treated as a current liability in the balance sheet. The amount of the item is recorded in the profit and loss account as an expense.
  2. Prepaid income is money from a consumer before he purchases any product. Prepaid income is most commonly observed in enterprises that need prepayment for custom goods manufacturing. Prepaid income is treated as a liability and appears as a recorded current obligation on the seller’s balance sheet (Kwak, 2019). The liability is canceled if the goods or services are delivered, and the money is instead recorded as income in the profit and loss statement.
  3. Money that has been earned via the provision of a good or service but has not yet been paid in cash is referred to as accrued income. Customers owe the company money for the goods or services they purchased thus, and accruing revenues are recorded on the balance sheet as receivables. The accumulated revenue account is income in the profit and loss account. It is deducted from the balance sheet as accounts receivable.

The value of a fixed asset less all of the depreciation that has been recorded against it is called depreciated cost. In a more meaningful economic sense, the depreciated cost is the total amount of capital “used up” in a certain period, such as a fiscal year (Nangih and Anichebe, 2021). Depreciation is a non-cash expense that remains added to the cash flow statement on the operating activities with other costs.

  1. There are a variety of accounting computations and entries that must be performed when a capital asset or non-current asset is sold. Most of the time, the asset will be sold for more or less than its carrying value, resulting in a profit or loss on disposal that must be recorded. The removal of non-current assets is recorded in cash flows statements. At the same time, the profit on the sale is reported as a reduction from net income in the operating operations section.
  2. Inventory is used in accounting concepts such as products, raw materials, and all the items in production. In the cash flow statements, the Inventory is treated as an increase when it shows a negative amount, and it portrays the cash outlay that the business has been involved in purchasing products higher than it has sold it.

In conclusion, this assignment discussed some critical business and financial reports on ASOS PLC company in detail. It also defined some key terms used in ASOS PLC and essential in accounting and other companies. Section B of this assignment was on the calculation Ovid Venture balance sheet and its income statement for the year ended December 31, 2021. Accrued expenses are one of the essential accounting terms defined in this assignment. It is also called the current liabilities recorded in the company accounting books and helps in planning and financial calculations.

Reference List

Braam, G. and Peeters, R., 2018. Corporate sustainability performance and assurance on sustainability reports: Diffusion of accounting practices in the realm of sustainable development. Corporate Social Responsibility and Environmental Management, 25(2), pp. 164-181.

Chasanah, N. and Sucipto, A., 2019. Liquidity ratio, profitability, and solvency on stock returns with capital structure as an intervening variable (study on food and beverage sub-sector listed in Indonesia Stock Exchange (Idx) period 2013-2017). Ekspektra: Jurnal Bisnis dan Manajemen, pp. 52-68.

Kwak, J.K., 2019. Analysis of inventory turnover as a performance measure in the manufacturing industry. Processes, 7(10), p. 760.

Nangih, E. and Anichebe, A.S., 2021. Accounting estimates and misstatements in financial reports in Nigeria: A Survey of Small and Medium Enterprises. Journal of Accounting and Financial Management, 7(3), pp. 50-59.

Sally, V.V., Ishchenko, O.V., Bush, V.G., Gladysheva, E.G., and Abyzova, E.V., 2021. Accounting and analytical systems as an integral elements of contemporary accounting. In Frontier Information Technology and Systems Research in Cooperative Economics (pp. 739-746). Springer, Cham.

Stănescu, C.G., 2021. Regulation of abusive debt collection practices in the EU member states: An empirical account. Journal of consumer policy, 44(2), pp. 179-216.

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