Accountancy: Income Statement, Financial Ratios, Investment Appraisal

Accountancy

Table of Contents
SECTION A.....................................................................................................................................3
Question1.....................................................................................................................................3
Section B..........................................................................................................................................5
Question 2....................................................................................................................................5
(a) Calculation of Pay Back and Net Present Value for the investment......................................5
(b).................................................................................................................................................6
(c).................................................................................................................................................7
(d).................................................................................................................................................7
Question 4....................................................................................................................................8
(a) Calculation of financial ratios of NS Plc................................................................................8
(b) Comment on the performance of NS plc as compared to MS plc..........................................9
REFERENCES................................................................................................................................1

SECTION A
Question1
a. Income Statement for the year ended 31/12/2021
Particulars Amount in ‘000 Amount in ‘000
Sales 25000
Cost of Sales
Opening Inventory 4000
Purchases 19000
Closing Inventory [6000] [17000]
Gross profit 8000
Expenses
Administration expenses 1000
Selling and distribution expenses [980 + 20
(Outstanding)]
1000
Advertising [500 – 200 (Prepaid)] 300
Audit fee 100
Bad debt 40
Director’s remuneration 200
Salaries & wages [480 + 70 (Accrued)] 550
Miscellaneous expenses 20
Debenture interest [120 + 140 (Outstanding)] 260
Depreciation on fittings 200
Depreciation on machinery 680 [4350]
Profit before tax 3650
Provision for taxation [650]
Profit after tax 3000
Dividends – Interim paid
Final Proposed [11000 * 0.1]
990
1100
[2090]
Retained profit for the year 910
Brought forward retained profit 2360

Retained profit carried forward 3270
Working notes:
1. Debenture interest to be paid for the year = 2600 * 10% = 260
Outstanding debenture = Debenture to be paid – Debenture paid = 260 – 120 = 140
2. Depreciation on fittings = 2000 * 10% = 200
3. Depreciation on machinery
Reduced balance = Cost – accumulated depreciation = 4000 – 600 = 3400
Depreciation = 3400 * 20% = 680
b. Statement of financial position as at 31/03/2021
ST plc
Particulars Amount in ‘000
Non – current assets Cost Accumulated
depreciation
Net Book Value
Land and building 8000 - 8000
Fittings 2000 400 + 200 = 600 1400
Machinery 4000 600 + 680 = 1280 2720
14000 1880 12120
Current assets
Inventory 6000
Receivables 1210
Prepayments 200
Bank 30
Cash 10 7450
Total assets 19570
Share capital
£1 Ordinary share 11000
Reserves
Retained Profit 3270