Awen Ltd is a manufacturer of machine tools and is at present contemplating an issue of GH¢2,000,000 10% debenture stock (2020) in order to assist the remodelling of its present production facilities. Some shareholders are reluctant to approve additional long-term debt due to the fact that the machine tools industry is subject to wide-ranging fluctuations in sales and profits. A group of shareholders have approached you and asked you to comment on the performance of Awen Ltd as compared with industrial averages and to make recommendations as to whether they should approve the proposed additional long- term debt. Abbreviated financial statements and typical ratios for firms in the machine tools industry are as follows: Awen Ltd Statement of Comprehensive Income for the year ended 31/12 2005 2004 GH¢000 GH¢000 Sales 23,500 16,000 7,500 (2,000) (3,000) 20,500 14,000 6,500 (1,900) (2,600) Cost of Sales Gross profit Selling expenses Administrative expenses Operating profit Interest cost 2,500 _(500) 2,000 _(300) Profit before tax 2,000 (1,200) 800 6,365 1,700 (1,020) 680 6,090 Taxation Profit after tax Income surplus a/c

Awen Ltd is a manufacturer of machine tools and is at present contemplating an issue of GH¢2,000,000 10% debenture stock (2020) in order to assist the remodelling of its present production facilities. Some shareholders are reluctant to approve additional long-term debt due to the fact that the machine tools industry is subject to wide-ranging fluctuations in sales and profits. A group of shareholders have approached you and asked you to comment on the performance of Awen Ltd as compared with industrial averages and to make recommendations as to whether they should approve the proposed additional long- term debt. Abbreviated financial statements and typical ratios for firms in the machine tools industry are as follows: Awen Ltd Statement of Comprehensive Income for the year ended 31/12 2005 2004 GH¢000 GH¢000 Sales 23,500 16,000 7,500 (2,000) (3,000) 20,500 14,000 6,500 (1,900) (2,600) Cost of Sales Gross profit Selling expenses Administrative expenses Operating profit Interest cost 2,500 _(500) 2,000 _(300) Profit before tax 2,000 (1,200) 800 6,365 1,700 (1,020) 680 6,090 Taxation Profit after tax Income surplus a/c

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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