Adom Ltd, is a private company in Ghana operating in the manufacturing sector. Below is a Statement of financial position and a summarized statement of income with comparatives for the year ended 31st December 2019. statement of financial position as at 31st December 2019: Non-current assets 2019 GH¢ 2018 GH¢ PPE 200,000 250,000 R &D 40,000 - Total Non-current assets 240,000 250,000 Current assets     Available for sale 12,000 20,000 Inventory 70,000 45,000 Trade receivables 30,000 23,000 Cash & cash equivalents 18,000 17,000 Total current assets 130,000 105,000 Total assets 370,000 355,000 Equity     Equity share capital (GH¢1 per share) 150,000 100,000 10% preference share capital 50,000 50,000 Retained earnings 60,000 55,000 Total equity 260,000 205,000 Non-current liabilities     10% loan notes 50,000 90,000 12% debentures 5,000 3,000 Total non-current liabilities 55,000 93,000 Current liabilities     Trade & other payables 30,000 20,000 Bank overdraft 25,000 37,000 Total current liabilities 55,000 57,000 Total equity & liabilities 370,000 355,000 Income statement for the year ended 31st December 2019   2019 GH¢ 2018 GH¢ Sales 365,000 219,000 Cost of Sales (219,000) (156,000) Gross profit 146,000 63,000 Operating expenses (55,000)  (4,000) Operating profit 91,000 59,000 Income Tax Expense (17,000) (8,000) Finance Cost (9,000)   (6,000) Profit for the period 65,000 45,000 Additional Information Industry Ratios Current Ratio:     2.0 times   Acid test ratio: 1.0 time   Debt to Equity Ratio: 50%   Gross Profit Margin: 32%   Net Profit Margin: 20%   Return on Capital Employed: 22%     Required: Prepare a report and address it to the Chief Executive Officer, analyzing the financial performance and financial position of Adom Ltd based on the industry ratios above for the years 2018 and 2019

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Adom Ltd, is a private company in Ghana operating in the manufacturing sector. Below is a Statement of financial position and a summarized statement of income with comparatives for the year ended 31st December 2019.

statement of financial position as at 31st December 2019:

Non-current assets

2019

GH¢

2018

GH¢

PPE

200,000

250,000

R &D

40,000

-

Total Non-current assets

240,000

250,000

Current assets

 

 

Available for sale

12,000

20,000

Inventory

70,000

45,000

Trade receivables

30,000

23,000

Cash & cash equivalents

18,000

17,000

Total current assets

130,000

105,000

Total assets

370,000

355,000

Equity

 

 

Equity share capital (GH¢1 per share)

150,000

100,000

10% preference share capital

50,000

50,000

Retained earnings

60,000

55,000

Total equity

260,000

205,000

Non-current liabilities

 

 

10% loan notes

50,000

90,000

12% debentures

5,000

3,000

Total non-current liabilities

55,000

93,000

Current liabilities

 

 

Trade & other payables

30,000

20,000

Bank overdraft

25,000

37,000

Total current liabilities

55,000

57,000

Total equity & liabilities

370,000

355,000

Income statement for the year ended 31st December 2019

 

2019

GH¢

2018

GH¢

Sales

365,000

219,000

Cost of Sales

(219,000)

(156,000)

Gross profit

146,000

63,000

Operating expenses

(55,000)

 (4,000)

Operating profit

91,000

59,000

Income Tax Expense

(17,000)

(8,000)

Finance Cost

(9,000) 

 (6,000)

Profit for the period

65,000

45,000

Additional Information Industry Ratios

Current Ratio:

 

 

2.0 times

 

Acid test ratio:

1.0 time

 

Debt to Equity Ratio:

50%

 

Gross Profit Margin:

32%

 

Net Profit Margin:

20%

 

Return on Capital Employed:

22%

 

 

Required:

Prepare a report and address it to the Chief Executive Officer, analyzing the financial performance and financial position of Adom Ltd based on the industry ratios above for the years 2018 and 2019.

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