Financial Accounts on Frenza Trading Ltd

QUESTION 1

1.1 What is meant by ethics

Ethics can be defined as moral principles that governs the activities of the employees working in the organisation. Ethics defines that what is good, acceptable or lets say obligations for the behaviour and what is bad, not acceptable or forbidden for the people who work in the business. They effect in the decision making and workings of the employees. Ethics are the form of guidance for the behaviour of employees who work in the investment and other industries. An ethical conduct of an employee can affect the company in which the employee is working and its stakeholders, a good conduct can have positive impact while a bad conduct can have negative consequences on the related parties.

1.2 Identify who are the stakeholders involved in this situation:

The stakeholders that are involved in the decisions of board of directors of Frenza Trading Ltd. Are as follows:

Shareholders: The major stakeholders that are involved in the decisions of board of directors are shareholders as they are the one who will be affected by the decision made by them on showing his personal asset in the financials of business.

Bank: The another stakeholder that is affected by the decision making of the directors is the bank. The directors have decided to wrongly decrease the expenses of the current year to increase profits that are not going to be consistent, for getting the loan from the bank.

1.3 Outline the Ethical issues involved:

There are two ethical issues that are involved in the decision making of the board of directors:

Firstly, the board of directors decided to temporarily transfer their personal land to the company and showing it into the financial statements of the company which means they wrongly improving the financial position of the company for sub setting the negative image.

Secondly, they have decided to substantially decrease the operational expenses of the company which are temporarily going to increase the profits of the company for the current year which is wrong as the profits are not going to be consistent in the subsequent years an it is also helping them in wrongly obtaining the loan from the bank.

1.4 Discuss what you would do if you were Fred Jones

If I were the chief accountant of the Frenza Trading Ltd. I would definitely not agree with the decision of the board of directors for transferring the personal assets temporarily to the company for improving the financial statements of the company in order to improve the image of the company in the market. And also the decision of board of directors to decrease the expenses of the company substantially by 50000 to show increased profits which will be temporary and obtaining the loan from the bank by showing such tempered financial statements.

QUESTION 

The bank manager is right about the income statement of the company that it is not showing the items which are shown in income statement and the profit of 82000 shown in this statement is not the profit. The three reasons behind this are discussed below:

First of all, the investment by owners Jackson and Amy and bank loan which are shown as income in the given statement of profit and loss are not income but it is the liabilities of the company to the owners and banks.

Secondly, the expenses that are shown are not actually the expenses but are the assets of the business that is been purchased by the owners to start their business operations.

And finally, the amount of 82000 is the capital of the business that will be required to carry the operations of the business.

Hence, it can be said that the items shown in the income statement of the business does not belong to the income statement because those items are of balance sheet.

Equities and Liabilities:
Owner's funds	150000
Long term Loans:
Bank Loan	125000
TOTAL	275000
Assets:
Fixed Assets:
Building	150000
Furniture	25000
Kitchen Equipment	15000
Computer	3000
Current Assets:
Cash at bank	82000
TOTAL	275000

QUESTION 3

Journal entries:

Cash A/c Dr.	120000
To Capital A/c		120000
(Cash introduced in business)
Segways A/c Dr.	110000
To Bank A/c		110000
(Assets purchased and paid by cheque)
Cash A/c Dr.	60000
To Bank Loan A/c		60000
(Borrowed from bank @ 10% interest)
Cash A/c Dr.	990
To Sales A/c		990
(Services provided)
Rent A/c Dr.	880
To Cash A/c		880
(Rent paid)
Debtors A/c Dr.	1100
To Sales A/c		1100
(Sales made on credit)
Expenses A/c Dr.	330
To Cash A/c		330
(expenses paid)
Assets A/c Dr.	2200
TO creditors a/c		2200
(Assets purchased on credit)
Wages A/c Dr.	200
To Cash A/c		200
(Wages Paid)
Advertising A/c Dr.	400
To Bank a/c		400
(Advertising expenses paid)
Interest A/c Dr.	600
To Bank a/c		600
(Interest on loan Paid)

Ledger accounts:

capital a/c
Particulars	Amount	particulars	amount
To balance c/d	120000	By cash a/c	120000
	120000		120000

	Cash a/c
Particulars	Amount	particulars	amount
To capital a/c	120000	By Rent a/c	880
To Bank loan	60000	By expenses a/c	330
To sales	990	By wages	200
		By Balance c/d	179580
	180990		180990

	Bank a/c
Particulars	Amount	particulars	amount
To balance c/d	111000	By Segways a/c	110000
		By advertising	400