See attached brief

1.
Explain the purpose of an income statement (profit and loss account) and
comment on the usefulness of the income statement in assessing the performance
of a business such as Modern Furniture.
It is basically defined as the financial statement which shows how the revenue of a
company is utilized before it is turned into the net income. It gives details of all the
expenses such as administrative, operating etc. to convert top line into the bottom-line.
It displays the revenue which has been recognized for a particular period and also the
various costs and expenses charged against these expenses. Hence, the main purpose
of this statement is to tell investors and managers whether the company is making or
losing money for the period reported. One important thing that is always kept in mind
is that the income statement represents a particular period compare to balance sheet
which represents that particular state.
Review the profit and loss account for the years 2012 and 2011 (see below) and
identify whether there are any particular concerns that should be considered by
Joseph.
After reviewing the given income statement, following things should be considered by
Joseph:-
1) Despite marginal increase in sale, there is huge increase in the cost of the
materials purchased for the furniture which in turn is eating the operating profit of the
company compare to financial year 2011. Hence, attention should be given either to
control cost or ways should be found out to pass on to the customers as there is
significant increment in wages etc.
2) The second important consideration is increment in the expenses such as cleaning
and maintenance, marketing cost etc. which in turn put pressure on already less gross
profit and hence the net profit is significantly lower than the last year....