Briefly explain the general purpose of each of the two financial statements (the performance statement and the position statement) and the usefulness of each of them for the business in the case study.

Case study

Perfect Caravan Breaks Ltd

Harry Quinn worked as a successful investment banker for 15 years in the City of London. Over this time, he had received a generous annual salary and bi-annual bonuses and because he had accumulated a large amount of savings, Harry managed to pay off the mortgage on his residential house in 2007. Although well rewarded, by 2008, Harry had become tired of investment banking; in January 2009, his company made a large round of redundancies and Harry took a lucrative severance package.

Although Harry had accumulated a significant amount of wealth as an investment banker, he was only 45 years of age and not ready to retire. He wanted a change of career which was very different to his investment banking job. When he had first got married, Harry and his wife, Samantha, had enjoyed spending time on the south coast of the United Kingdom and had a few holidays with friends in a caravan park. Harry had always wondered about how he could start a business in a tourist-related area. Following his redundancy, Samantha suggested that he might look to invest in a caravan park. In June 2009, Harry and two friends decided to buy a caravan site and incorporated the company Perfect Caravan Breaks Ltd on 1^st July 2009. Over the next 18 months, they developed the caravan park, spending 200k refurbishing the grounds; 75k renovating the shop on site; 100k renovating old and buying new mobile caravan units; and 25k installing new toilets. By March 2011, Perfect Caravan Breaks Ltd had incurred additional expenses by hiring new staff for the upcoming summer season.

During its first summer of operation, the company made a small profit, and over the next 9 years, Perfect Caravan Breaks Ltd profits continued to grow. The outbreak of Covid-19, however, meant that the business was badly hit in 2020 and 2021. Perfect Caravan Breaks Ltd had 325,000 in reserves, but Harry did not want to rely on these alone. He managed to secure a bank loan for 250,000 (bearing interest at 10% p.a.) which was taken out on 1 July 2021 and is repayable in 10 instalments of 25,000 each. The first of these instalments was paid at the end of June 2022 with subsequent payments at the end of every financial year for the following nine years.

Although they had renovated a shop on the site, Harry and his team wanted to build a small restaurant and open part of the site to allow campers with tents. The team at Perfect Caravan Breaks Ltd also realised that they needed to do more work marketing the business in the aftermath of Covid-19, which included engaging with previous customers who had taken holidays with them over the past decade.

During 2022, a restaurant was built at a cost of 100k, and by Easter 2023, the site was open to a small number of campers with tents. Harry hired new members of staff to run the restaurant and additional site maintenance workers to keep the grounds clean. Despite good weather during summer 2023, caravan rental revenue saw sluggish growth compared to 2022. Some campers with tents arrived but this part of the business grew more slowly than Harry's management team had predicted. An awful summer in 2024 followed - with many weeks of rain and cold weather - leading to big falls in revenue. The management team believed that the weather in summer 2025 was going to be better than in 2024 and made new staff hires to help with the increased bookings which they anticipated.

It is now July 2025, and Harry has been sent the performance and position statements of Perfect Caravan Breaks Ltd by his accountant. Harry has asked his management team to review the financial statements of the company for 2024 and 2025 and come to a meeting to:

1. identify the particular elements of performance (profitability) and financial health (working capital and cash management) that might be regarded as problematic
2. make recommendations to improve the business's future performance and financial health.

You have been presented with the following financial statements:

Perfect Caravan Breaks Ltd: Detailed performance statement for the years ending June 2024 and 2025

	Year to 30 Jun 2025	Year to 30 Jun 2024
Sales revenue		175,000		480,000
Less: cost of goods sold:
Opening inventory	25,123		27,146
Purchases from wholesalers	4,230		3,124
	29,353		30,270
Less: closing inventory	23,123		25,123
Cost of goods sold		6,230		5,147
Gross profit		168,770		474,853
Less: operating expenses:
Salaries and other costs (management and office staff)	155,200		107,100
Insurance	3,000		2,750
Distribution and postage costs	800		767
Marketing, website and email advertising expenses	5,000		4,750
Office administration	287		280
Energy and other utilities	2,000		1,750
Depreciation of non-current assets	5,000		4,000
Accounting and legal costs	1,000		750
Total operating expenses		172,287		122,147
Operating profit / (loss)		(3,517)		352,706
Less: interest costs
Interest on bank loan	15,000		17,500
Interest on bank overdraft	5,600		4,500
Total interest costs		20,600		22,000
Profit / (loss) before taxation		(24,117)		330,706
Corporate tax		-		-
Profit / (loss) after taxation transferred to reserves		(24,117)		330,706

Perfect Caravan Breaks Ltd: Position statements as at June 2024 and 2025

	30 June 2025	30 June 2024
Non-current assets
Property		300,000		275,000
Plant and equipment		175,000		190,000
Computers and office equipment		75,000		70,000
Vehicles		125,000		127,000
Total non-current assets		675,000		662,000
Current assets
Inventory	23,123		25,123
Receivables	9,278		5,245
Cash	56,000		70,000
Other current assets	2,000		2,000
Total current assets	90,401		102,368
Current liabilities
Payables	1,750		625
Corporation tax	-		-
Other tax liabilities	-		-
Bank overdraft	69,025		20,000
Total current liabilities	70,775		20,625
Net current assets/working capital		19,626		81,743
Total assetslesscurrent liabilities		694,626		743,743
Long-term liabilities
Bank loan		150,000		175,000
Net Assets		544,626		568,743
Equity
Share capital		200,000		200,000
Reserve: retained earnings		344,626		368,743
Total Equity		544,626		568,743