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Profit and Loss Account

  1. А profit and loss account is a statement of income and expenditure for a business in a particular time period, normally one year. It shows trading performance in terms of what has been spent and what has been raised through sales and other revenue generating activities.

Student A

At the end of the financial year, a colleague from a sister company asks you for details of the profit and loss account for your company, which has interests in retailing, leisure and property.

Use the abbreviated profit and loss account below to answer his/her questions.

YEAR TO 31 MARCH 2010

Previous year

Trading surplus (before depreciation)

$8.0m

(9.5m)

Income from property

$2.5m

(4.6m)

Less: depreciation

$4.0m

(3.5m)

Pre-interest profits

$6.5m

(10.6m)

Less; Interest payments

$2.5m

(3.4m)

Pre-tax profits

$4.0m

(7.2m)

Less: tax

$1.3m

(2.3m)

Available to shareholders

$2.7m

(4.9m)

  • you think the fall in profit is due to a crisis in the local economy

  • you believe the main factor was a fall in income from renting office space. A lot of property owned by the company is standing empty

  • you think next year will be worse - you do not expect a quick recovery in the property market

  • you know that interest payments are down because several long-term mortgages were redeemed in the previous year

  • you think the company has done well to show a profit In very difficult trading conditions

  • you know that all property companies are in the same situation - most other leisure and retailing companies have also suffered.

Your partner will start

Student B

At the end of the financial year, you telephone a colleague at a sister company to ask for details of his/her company's profit and loss account. Your companies operate in the property, retailing and leisure sectors.

Ask for information to complete the missing information in the abbreviated profit and loss account shown below.

YEAR TO 31 MARCH 2010

Previous year

Trading surplus (before depreciation)

…….

(9.5m)

Income from property

…….

(4.6m)

Less: depreciation

…….

(3.5m)

Pre-interest profits

…….

(10.6m)

Less: Interest payments

…….

(3.4m)

Pre-tax profits

…….

(7.2m)

Less: tax

…….

(2.3m)

Available to shareholders

…….

(4.9m)

  • you want to know reasons for the fall in profit

  • you wonder if empty property should be sold

  • you want to know what the prospects are for next year

  • you are surprised by the figure for interest payments and ask for an explanation

  • you want to know your colleague's assessment of the company's performance

  • you are personally very worried about the trend, especially in the light of market conditions

  • you would like to know more about competitors' performance.

You start

Writing

  1. Imagine that you own 20% shares of a telecommunications company. You believe that the company could make a killing if the Board of Directors had a different structure and took more responsibility. Write a letter to the Chairman and put forward some proposals suggesting that the board should reconsider its operation and make-up. Finally, insist that the Board of Directors should hold a meeting to discuss your proposals.

Module 5

Unit 1

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