Comprehensive Financial Analysis Report: CC Ltd. (MN1405), 2015

This report presents a comprehensive financial analysis of CC Ltd., covering the year ended December 31, 2015. The analysis includes the preparation of an income statement and a statement of financial position, incorporating provided financial data and adjustments for items such as depreciation, accrued expenses, and dividends. Furthermore, the report calculates and interprets key financial ratios, including the acid test ratio, current ratio, gearing ratio, and ROCE, to assess the company's liquidity, solvency, and profitability. It also discusses the most helpful ratios for assessing long-term sustainability, the reliability of liquidity ratios, and additional information needed to improve the usefulness of these ratios. Finally, the report addresses the limitations of financial ratios in assessing performance, providing examples to illustrate these limitations and offering a holistic view of CC Ltd.'s financial standing.

MN1405 Accounting
Exam Alternative Assessment
Answer ALL questions.
QUESTION 1
The accountant of CC Ltd., a business that makes and sells cooling equipment, provided the
following balances as at 31 December 2015.
Account
£ 000
Administrative expenses
514
Auditor’s fees
20
Cash at bank
10
Debentures (12%)
200
Debenture interest paid
12
Directors’ remuneration
120
Dividends paid: Ordinary interim
40
Preference
10
Furniture and equipment: at cost
400
Accumulated depreciation (at 1 Jan, 2013)
96
Inventories (at 1 Jan 2013)
310
Land
670
Ordinary share capital (£1 per share)
800
5% Preference share capital
400
Retained profit (at 1 Jan 2013)
34

Purchases
800
Sales
1,644
Share premium
100
Trade payables
170
Trade receivables
450
Wages and salaries
88
Additional information:
• Inventories at 31 December 2015 were valued at £390,000.
• Administrative expenses owing at 31 December 2015 amounted to
£26,000.
• There is no depreciation charged on land. Depreciation is to be charged
on the furniture and equipment at a rate of 12.5 per cent on cost.
• Salaries paid in advance amounted to £8,000.
• Corporation tax owing at 31 December 2015 is estimated to be
£16,000.
• A proposal has been made for a final ordinary dividend of 1.25p per
share to be paid in May 2016.
Required:
• Prepare an income statement for the year ended 31 December 2015.
(25 marks)
• Prepare a statement of financial position as at 31 December 2015.
(25 marks)
(Total: 50
Marks)
QUESTION 2
The accountant of CC Ltd prepares financial ratios using the income statement and the
statement of financial position for the year ended 31 December 2015.
Required:
• Calculate the following financial ratios using data from the income
statement and the statement of financial position that you prepared:
• Acid test ratio,
• Current ratio,

• Gearing ratio,
• ROCE.
(16 marks)
• Which of the above ratios would provide the most helpful information
for assessing the long-term sustainability of the company? Justify your answer.
(6 marks)
• Which of the above ratios is usually considered the most reliable for
assessing liquidity and why? Why is it difficult to find an ‘ideal’ liquidity ratio for
businesses in general?
(6
marks)
• What other information could the accountant gather to improve the
usefulness of the ratios above for assessing the performance of the company?
(10 marks)
• In general, financial ratios have a number of limitations for assessing
performance. Describe and analyse three possible limitations using examples.
(12 marks)
(Total 50
marks)
END
General Guidance on Resit
Please refer to material on the MN1405 Moodle Archive – such as the course outline and
lecture notes – to help complete your resit assessment. You can access Moodle Archive via
the Moodle Homepage.
School Guidelines: The assignment should be submitted in accordance with the School of
Management hand in process. Please consult the School of Management Student Handbook
which provides full regulations and guidance on submitting coursework, citing sources
correctly and avoiding plagiarism.