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Income Statements for the years ending 31 December 20X1 20X2 Sales Cost of sales Gross profit 544,000 440,000 104,000 740,000 612,500 127,500 less Expenses: Selling: Wages Advertising 36,500 56,000 31,500 5,000 47,000 9,000 Administration: Rents & rates 27,000 37,000 Depreciation General Office Gain on sale of assets Wages 8,500 2,000 15,350 4,000 13,000 16,000 (1,000) 5,000 1,150 Financial: 4,500 20,500 Interest – mortgage Interest – bank 1,500 3,000 10,000 4,500 6,000 Bad debts Total expenses Net profit before tax Таx Net profit after tax 68,000 36,000 10,800 25,200 113,500 14,000 4,200 9,800 REQUIRED: a) Calculate the following ratios: i) Gross profit ii) Net profit before tax iii) Current ratio iv) Accounts receivable turnover in days v) Inventory turnover in days vi) Accounts payable turnover vii) Times interest covered viii) Debt/equity. b) Comment on the profitability and stability of the company using the ratios calculated in (a) (plus any others you think may be relevant) and make recommendations to your friend.

Income Statements for the years ending 31 December 20X1 20X2 Sales Cost of sales Gross profit 544,000 440,000 104,000 740,000 612,500 127,500 less Expenses: Selling: Wages Advertising 36,500 56,000 31,500 5,000 47,000 9,000 Administration: Rents & rates 27,000 37,000 Depreciation General Office Gain on sale of assets Wages 8,500 2,000 15,350 4,000 13,000 16,000 (1,000) 5,000 1,150 Financial: 4,500 20,500 Interest – mortgage Interest – bank 1,500 3,000 10,000 4,500 6,000 Bad debts Total expenses Net profit before tax Таx Net profit after tax 68,000 36,000 10,800 25,200 113,500 14,000 4,200 9,800 REQUIRED: a) Calculate the following ratios: i) Gross profit ii) Net profit before tax iii) Current ratio iv) Accounts receivable turnover in days v) Inventory turnover in days vi) Accounts payable turnover vii) Times interest covered viii) Debt/equity. b) Comment on the profitability and stability of the company using the ratios calculated in (a) (plus any others you think may be relevant) and make recommendations to your friend.

FINANCIAL ACCOUNTING
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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Please solve questions in a)

vi)

vii)

viii)

and question b)

 

Income Statements for the years ending 31 December 20X1 20X2 $ $ $ Sales Cost of sales 544,000 440,000 104,000 740,000 612,500 127,500 Gross profit less Expenses: Selling: Wages Advertising 36,500 56,000 31,500 5,000 47,000 9,000 Administration: Rents & rates 27,000 37,000 8,500 2,000 15,350 4,000 13,000 16,000 (1,000) 5,000 Depreciation General Office Gain on sale of assets Wages 1,150 Financial: Interest – mortgage Interest – bank 4,500 20,500 1,500 3,000 10,000 4,500 6,000 Bad debts Total expenses Net profit before tax Tax Net profit after tax 68,000 36,000 10,800 25,200 113,500 14,000 4,200 9,800 REQUIRED: a) Calculate the following ratios: i) Gross profit ii) Net profit before tax iii) Current ratio iv) Accounts receivable turnover in days v) Inventory turnover in days vi) Accounts payable turnover vii) Times interest covered viii) Debt/equity. b) Comment on the profitability and stability of the company using the ratios calculated in (a) (plus any others you think may be relevant) and make recommendations to your friend.
Transcribed Image Text:Income Statements for the years ending 31 December 20X1 20X2 $ $ $ Sales Cost of sales 544,000 440,000 104,000 740,000 612,500 127,500 Gross profit less Expenses: Selling: Wages Advertising 36,500 56,000 31,500 5,000 47,000 9,000 Administration: Rents & rates 27,000 37,000 8,500 2,000 15,350 4,000 13,000 16,000 (1,000) 5,000 Depreciation General Office Gain on sale of assets Wages 1,150 Financial: Interest – mortgage Interest – bank 4,500 20,500 1,500 3,000 10,000 4,500 6,000 Bad debts Total expenses Net profit before tax Tax Net profit after tax 68,000 36,000 10,800 25,200 113,500 14,000 4,200 9,800 REQUIRED: a) Calculate the following ratios: i) Gross profit ii) Net profit before tax iii) Current ratio iv) Accounts receivable turnover in days v) Inventory turnover in days vi) Accounts payable turnover vii) Times interest covered viii) Debt/equity. b) Comment on the profitability and stability of the company using the ratios calculated in (a) (plus any others you think may be relevant) and make recommendations to your friend.
You have been asked by a friend to analyse the following set of financial statements for a small unlisted company that he is considering investing in. Balance Sheets as at 31 December 20X1 20X2 $ $ Shareholders' funds Issued capital 100,000 50,000 150,000 150,000 Retained earnings Total shareholders' funds 57,500 207,500 Represented by: Current assets Bank Accounts receivable Inventory** 149,000 133,000 54,000 45,000 50,000 80,000 53,000 Less Current liabilities Bank 35,000 118,500 Accounts payable Taxes payable 32,000 3,000 37,000 81,000 500 Working capital 114,000 14,500 Non-current assets Land 65,000 Buildings Accum. depreciation Plant & equipment Accum. depreciation Motor vehicles Accum. depreciation Total non-current assets 12,500 (3,500) 30,000 (3,000) 27,000 185,000 (4,000) 181,000 12,500 (4,500) 55,000 (11,000) 9,000 8,000 44,000 36,000 298,000 Non-current liabilities Mortgage (secured) (105,000) 150,000 207,500 Net total assets * Opening debtors for 20X1 was $31,000 *Opening inventory for 20X1 was $46,000
Transcribed Image Text:You have been asked by a friend to analyse the following set of financial statements for a small unlisted company that he is considering investing in. Balance Sheets as at 31 December 20X1 20X2 $ $ Shareholders' funds Issued capital 100,000 50,000 150,000 150,000 Retained earnings Total shareholders' funds 57,500 207,500 Represented by: Current assets Bank Accounts receivable Inventory** 149,000 133,000 54,000 45,000 50,000 80,000 53,000 Less Current liabilities Bank 35,000 118,500 Accounts payable Taxes payable 32,000 3,000 37,000 81,000 500 Working capital 114,000 14,500 Non-current assets Land 65,000 Buildings Accum. depreciation Plant & equipment Accum. depreciation Motor vehicles Accum. depreciation Total non-current assets 12,500 (3,500) 30,000 (3,000) 27,000 185,000 (4,000) 181,000 12,500 (4,500) 55,000 (11,000) 9,000 8,000 44,000 36,000 298,000 Non-current liabilities Mortgage (secured) (105,000) 150,000 207,500 Net total assets * Opening debtors for 20X1 was $31,000 *Opening inventory for 20X1 was $46,000
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