6. Analysis and interpretation
A section of Accounting, 7707
Listing 10 of 43 questions
Q Limited prepares its financial statements to 31 March each year. The company’s retained earnings at 1 April 2022 were $16 250. During the year ended 31 March 2023, the company made a profit of $43 500 (after charging all expenses and interest). The total dividends of $39 000 for the year were paid by 31 March 2023. The following balances were extracted from the company’s ledger accounts after the income statement had been prepared. $ Fittings and equipment at cost 150 000 Provision for depreciation of fittings and equipment 40 650 Motor vehicles at cost 72 000 Provision for depreciation of motor vehicles 31 125 Inventory 51 790 Balance at bank 1 076 debit Trade receivables 19 700 Provision for doubtful debts Trade payables 31 450 5% Debentures (repayable 2029) 40 000 Bank loan (repayable 2027) 10 000 Ordinary share capital 120 000 REQUIRED Calculate the retained earnings of Q Limited at 31 March 2023. Prepare the statement of financial position for Q Limited at 31 March 2023. Q Limited Statement of Financial Position at 31 March 2023 $ $ $ Calculate the liquid (acid test) ratio to two decimal places. The directors (who are also the shareholders) would like to expand the company and wish to borrow $50 000 to fund the expansion. They are considering whether to issue further ordinary shares or to request another long-term bank loan. REQUIRED Suggest two reasons why although the company has made a profit, there is little cash available in the bank account to fund the expansion. Advise the directors whether they should fund the expansion by issuing ordinary shares or requesting a bank loan. Justify your answer.
7707_s23_qp_21
THEORY
2023
Paper 2, Variant 1
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Carlos owns a business selling computer equipment. He provided the following information for the year ended 31 July 2020. $ Sales 240 000 Cost of sales 169 000 Operating expenses 55 000 Drawings 18 000 Capital employed 62 000 REQUIRED Calculate the profit for the year ended 31 July 2020. Workings Profit for the year ended 31 July 2020 31 July 2019 $11 550 Calculate the following ratios correct to two decimal places. Profit margin Workings Year ended 31 July 2020 31 July 2019 8.56% Gross margin Workings Year ended 31 July 2020 31 July 2019 34.26% Return on capital employed (ROCE) Workings Year ended 31 July 2020 31 July 2019 32.08% Comment on the performance of Carlos’s business over the two years (2019 and 2020). Carlos is concerned that the business bank balance has shown a large decrease. He is considering either investing more cash from his private funds or obtaining a two-year bank loan. REQUIRED Advise Carlos which option he should select. Justify your answer by providing one advantage and one disadvantage of each option. State the name of one party, other than himself and his employees, who would be interested in Carlos’s financial statements. State one reason for their interest. Interested party The interest they would have
7707_w20_qp_22
THEORY
2020
Paper 2, Variant 2
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Haziq has not maintained full accounting records for his business. Haziq provided the following information for the year ended 31 July 2020. At 1 August $ At 31 July $ Bank loan 6 000 4 500 Inventory 8 400 ? Non-current assets at net book value 35 580 32 450 Rent prepaid – Trade payables 6 280 7 460 Wages accrued – Summary of bank account for the year ended 31 July 2020 Date Details $ Date Details $ July 31 Sales receipts 166 000 Aug 1 Balance b/d 2 150 Balance c/d 6 600 July 31 Payments to credit suppliers 96 220 Bank loan repayments 1 500 Bank loan interest Rent 2 640 Wages 41 400 General expenses 10 890 Drawings 17 500 172 600 172 600 Additional information The gross margin was 40%. All sales were for cash and all cash received was banked. REQUIRED Prepare the income statement for the year ended 31 July 2020. Haziq Income Statement for the year ended 31 July 2020 $ $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… ……………. ……………. ……………. …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… Advise Haziq whether or not he should maintain a double entry bookkeeping system for his business. Justify your answer with two advantages and two disadvantages.
7707_w20_qp_23
THEORY
2020
Paper 2, Variant 3
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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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Questions Discovered
43