Theory question 108
Interpretation of Accounts8. The following is a summary of the final accounts of Lux Limited for the year ended 31st December, 2000.
Trading, Profit and Loss and Appropriation Account: Opening stock N3,600; Purchases N80,800 (N84,400); Closing stock N4,400 (N80,000); Gross profit N16,000; Sales N96,000. Selling and distribution N3,000; Insurance N2,000; Salaries and wages N2,000; Travelling expenses N1,000; Net profit c/d N8,000. Proposed dividend N4,000; Revenue reserve N4,000.
Balance Sheet as at 31st December, 2000: 40,000 Ordinary shares of N1 each N40,000; Revenue reserve N10,000 (N50,000); Creditors N4,000; Proposed dividend N4,000 (N8,000); total N58,000. Land and building N20,000; Machinery N18,000 (N38,000); Stock N4,000; Debtors N12,000; Cash N3,600 (N20,000); total N58,000.
You are required to calculate: (a) current ratio (b) quick ratio (c) working capital (d) return on capital employed (e) dividend per share (f) net profit margin.
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Current assets = 20,000 (the stock is the closing stock of 4,400; the 4,000 printed in the balance sheet does not add up to 20,000). Current liabilities = 8,000. Capital employed = 58,000 − 8,000 = 50,000.
(a) Current ratio = 20,000 ÷ 8,000 = 2.5 : 1.
(b) Quick ratio = (20,000 − 4,400) ÷ 8,000 = 15,600 ÷ 8,000 = 1.95 : 1.
(c) Working capital = 20,000 − 8,000 = 12,000.
(d) Return on capital employed = 8,000 ÷ 50,000 × 100 = 16%.
(e) Dividend per share = 4,000 ÷ 40,000 shares = N0.10 (10 kobo).
(f) Net profit margin = 8,000 ÷ 96,000 × 100 = 8.3% (gross profit margin = 16,000 ÷ 96,000 = 16.7%).
Write each formula first, then substitute the figures.