6.2. Interpretation of accounting ratios
A subsection of Accounting, 7707, through 6. Analysis and interpretation
Listing 10 of 32 questions
The following information is taken from the statement of financial position of C Limited at 1 September 2021. $ 5% Debentures (2024) 60 000 Equity Ordinary share capital ($0.50) 240 000 General reserve 36 000 Retained earnings 22 000 During the year ended 31 August 2022: A final dividend payment of $12 000 was made for the year ended 31 August 2021. An interim dividend payment of $0.02 per share was made for the year ended 31 August 2022. A transfer of $11 000 was made to general reserve. At 31 August 2022 the company proposed a final dividend of $10 000 for the year ended 31 August 2022. The revenue for the year ended 31 August 2022 was $310 000 and the profit (before debenture interest) was $23 000. REQUIRED Prepare the statement for the changes in equity for the year ended 31 August 2022. C Limited Statement of Changes in Equity for the year ended 31 August 2022 Details Share capital $ General reserve $ Retained earnings $ Total $ Calculate to two decimal places the return on capital employed for the year ended 31 August 2022. (Use closing capital employed). Calculate to two decimal places the profit margin for the year. Suggest two ways in which the profit margin could be improved. C Limited plans to buy additional premises. Two options are being considered to raise the finance required. Option 1 Issue 6% debentures to raise $65 000 Option 2 Issue additional ordinary shares to raise $65 000 REQUIRED Evaluate the two options and advise the company on which one they should choose. Justify your answer.
7707_w22_qp_23
THEORY
2022
Paper 2, Variant 3
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Nala is a retailer who sells toys and games. All sales are on a cash basis and all purchases are on credit. She has provided the following information. $ At 31 August 2023: Inventory 6 265 Cash at bank Trade payables 4 880 Capital 125 000 For the year to 31 August 2023: Revenue 98 420 Purchases 78 130 Expenses 11 325 Inventory at 1 September 2022 was valued at $6175. REQUIRED Complete the following table. Ratio Working Answer (to 2 decimal places ) Gross margin Profit margin Return on capital employed (ROCE) Rate of inventory turnover Liquid (acid test) ratio Nala increased her advertising expenses over the year to 31 August 2023 and sells at a lower price than her nearest competitor. This has resulted in Nala selling her inventory faster than her nearest competitor. Nala and her nearest competitor buy inventory at the same prices. Nala is pleased with her results. REQUIRED Explain why Nala should not be entirely pleased with her results. Nala is planning to expand her business and to take out a bank loan to finance the expansion. The loan would be repayable after five years. REQUIRED Advise Nala whether she should obtain a bank loan to expand the business. Justify your answer by providing two points for and two points against obtaining the bank loan to expand the business. State why Nala’s bank manager would be interested in her financial statements if she requests the loan.
7707_w23_qp_22
THEORY
2023
Paper 2, Variant 2
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Questions Discovered
32