Theory question 108
Interpretation of AccountsThe following information relates to the books of accounts of Adom Ltd.
Trading and Profit and Loss Account for the Year Ended 31st December, 2014 (GH¢)
Sales 240,000
Opening Stock 20,000; Add Purchases 160,000 = 180,000; Less closing stock 36,000; Cost of goods sold 144,000; Gross profit c/d 96,000
Gross Profit b/d 96,000; Selling and distribution expenses 73,200; Administrative expenses 14,800; Net Profit 8,000
Balance sheet as at 31st December, 2014 (GH¢)
Share Capital: Ordinary Shares 100,000; Preference Shares 10,000; General reserve 24,000; Profit and Loss Account 8,000 (32,000); total 142,000
Current Liabilities: Trade creditors 28,000; Accruals 12,000 (40,000); total 182,000
Fixed assets at cost 125,000; Less: Depreciation 25,000 = 100,000
Current Assets: Stock 36,000; Debtors 39,000; Cash at bank 7,000 = 82,000; total 182,000
You are required to calculate any six of the following: (a) Gross profit percentage; (b) Net profit percentage; (c) Return on capital employed; (d) Current ratio; (e) Acid test ratio; (f) Rate of stock turnover; (g) Working capital; (h) Shareholders fund; (i) Liquid assets.
Show the model answer
(a) Gross profit % = 96,000 ÷ 240,000 × 100 = 40%.
(b) Net profit % = 8,000 ÷ 240,000 × 100 = 3.33%.
(c) ROCE = net profit 8,000 ÷ capital employed 142,000 × 100 = 5.63%.
(d) Current ratio = 82,000 ÷ 40,000 = 2.05 : 1.
(e) Acid test ratio = (82,000 - 36,000) ÷ 40,000 = 1.15 : 1.
(f) Rate of stock turnover = cost of goods sold 144,000 ÷ average stock ((20,000 + 36,000) ÷ 2 = 28,000) = 5.14 times.
(g) Working capital = 82,000 - 40,000 = GH¢42,000.
(h) Shareholders' fund = 100,000 + 10,000 + 24,000 + 8,000 = GH¢142,000.
(i) Liquid assets = debtors 39,000 + cash 7,000 = GH¢46,000.
Show the formula, the figures and the answer for each ratio.