The Board of Directors were worried over the dwindling financial performance and precariousfinancial position of the Company. The company products were ageing; the economicdepression biting harder as a result of the fluctuating exchange rate due to Brexit. TheCompany imports 60% of the goods sold in Garden City. The fluctuating exchange rate hadaffected the company’s importation. Consequently, the revenue of the Company droppedsignificantly. Write a brief and formal technical report to the Board of Directors to assess theperformance, liquidity and stability of company using only:i) Return on Capital Employedii) Total Assets Turnoveriii) Quick Ratioiv) Fixed Interest Coverv) Debt Equity Ratio Extract of statement of Financial Position as of September 3020162015£' Million£' MillionAssetsNon- Current Assets at Cost50,00070,000Less Accumulated Depreciation10.00012.000Carrying Amount40.00057.500Current AssetsInventory32,5007,500Trade Receivables20,0005,000Bank Balance4.00037.50056,50050.000Total Assets96,500107.500Equity and LiabilitiesOrdinary Share Capital @ 50pence each23,00023,000Retained earnings17,20010,00010% Loan notes12,50012,50010% Redeemable Preference Shares2.00052,70047.500Current LiabilitiesTrade Payables7,50010,750Taxation24,00016,000Bank Overdrafts12.30033.25043,80060.000Total Equity and Liabilities96,500107.500 QUESTION 2Tenderland Plc. has been trading in merchandise for several years in Garden City. Theinformation below relates to the extracts from the financial statements for the past two years.Statement of Profit or loss and other Comprehensive income for the year ended September30.20162015£' Million£'MillionRevenue100.000160.000Gross Profit45,00070,000Administrative expenses22,50027,500Finance cost10% Loan Note Interest125012502375028.750Operating Profit before Tax21,25041,250Less: Taxation for the year8.00016.000Less: Operating Profit for the Year13.25025.250Dividends paid to Equity holders6,0508,550

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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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The Board of Directors were worried over the dwindling financial performance and precarious
financial position of the Company. The company products were ageing; the economic
depression biting harder as a result of the fluctuating exchange rate due to Brexit. The
Company imports 60% of the goods sold in Garden City. The fluctuating exchange rate had
affected the company’s importation. Consequently, the revenue of the Company dropped
significantly.

Write a brief and formal technical report to the Board of Directors to assess the
performance, liquidity and stability of company using only:
i) Return on Capital Employed
ii) Total Assets Turnover
iii) Quick Ratio
iv) Fixed Interest Cover
v) Debt Equity Ratio

Extract of statement of Financial Position as of September 30
2016
2015
£' Million
£' Million
Assets
Non- Current Assets at Cost
50,000
70,000
Less Accumulated Depreciation
10.000
12.000
Carrying Amount
40.000
57.500
Current Assets
Inventory
32,500
7,500
Trade Receivables
20,000
5,000
Bank Balance
4.000
37.500
56,500
50.000
Total Assets
96,500
107.500
Equity and Liabilities
Ordinary Share Capital @ 50pence each
23,000
23,000
Retained earnings
17,200
10,000
10% Loan notes
12,500
12,500
10% Redeemable Preference Shares
2.000
52,700
47.500
Current Liabilities
Trade Payables
7,500
10,750
Taxation
24,000
16,000
Bank Overdrafts
12.300
33.250
43,800
60.000
Total Equity and Liabilities
96,500
107.500

QUESTION 2
Tenderland Plc. has been trading in merchandise for several years in Garden City. The
information below relates to the extracts from the financial statements for the past two years.
Statement of Profit or loss and other Comprehensive income for the year ended September
30.
2016
2015
£' Million
£'Million
Revenue
100.000
160.000
Gross Profit
45,000
70,000
Administrative expenses
22,500
27,500
Finance cost
10% Loan Note Interest
1250
1250
23750
28.750
Operating Profit before Tax
21,250
41,250
Less: Taxation for the year
8.000
16.000
Less: Operating Profit for the Year
13.250
25.250
Dividends paid to Equity holders
6,050
8,550

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