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An extract from XYZ plc’s Statement of Comprehensive Income for the year ended 30 April
2018 was as follows:
$000 $000
Operating profit 1 000
Debenture interest (12.5%) (250)
750
Ordinary dividend paid and proposed 350
Preference dividend paid and proposed 120
Transfer to General Reserve 200 (670)
Retained profit for the year 80
XYZ plc’s issued share capital and reserves at 30 April 2018 consisted of:
$000
Ordinary shares of $10 4 000
8% Preference shares of $5 1 500
Capital and revenue reserves 900
The market price of the ordinary shares at 30 April 2018was $30.
REQUIRED
(a) Calculate the following ratios for XYZ plc.
(i) interest cover
(ii) dividend cover
(iii) earnings per share
(iv) price earnings ratio
(v) dividend yield
(vi) gearingk
(b) Explain why each of the ratios in (a) is important for investors in ordinary shares in the
company.
REQUIRED
(c) Compare the ratios for 2017 with the same ratios in 2018 as calculated in (a), and comment
on the changes that you find.
(d) State, with reasons, any further information you might require and what other documents
you might wish to see to enable you to assess the likely future performance of XYZ plc. [6]
QUESTION 2
The following information is available about XYZ plc:
- In 2010 it issued at $0.75 a number of ordinary shares with a nominal value of $0.50
each. At the same time it issued at par a number of 5% preference shares of $1 each.
- During 2018 XYZ Ltd issued $200 000 6% debentures repayable in 2018.
- On 1 January 2018 the balance on the profit and loss account was $62 000.
- On 31 December 2018 the non-current (fixed) assets had a value of $610 000.
REQUIRED
(a) Prepare a Statement of Changes in Equity for the year ended 31 December 2018.
(b) Giving as much detail as possible, prepare the balance sheet at 31 December 2018
(c) Calculate:
ABC Pvt Ltd is a company in the same line of business as XYZ plc and is in a similar location.
The following ratios have been calculated for XYZ plc:
REQUIRED
(d) Compare and comment on the performance of XYZ plc and ABC plc in the light of these
ratios.
QUESTION 3
The Summarised Statement of Financial Position at 30 April 2018 of CBD Pvt Ltd was as
follows:
PPE 2550
3350
6% debentures 150
Further information:
1. The market price of the ordinary shares at 30 April 2018 was $1.60.
2. The dividend yield on ordinary shares was 2 1/2 per cent.
3. The creditor for taxation at 30 April 2017 was $25 000. Taxation paid in the year ended
30 April 2018 amounted to $22 000. The liability for taxation on the profit of the year
ended 30 April 2018 is $31 000 and is carried forward on the Taxation account.
4. The retained profit for the year ended 30 April 2018 was $60 000.
5. The debentures were issued in 2017. The preference shares were issued at par.
REQUIRED
(a) Prepare CBD Pvt Ltd’s Statement of comprehensive income for the year ended 30 April
2018 in as much detail as possible. It should commence with the operating profit.
QUESTION 4
The following are the summarised Statement of Comprehensive Income and Statement of
Financial Position for Greens Pvt Ltd, a manufacturing company, and Reds Ltd, a retailer.
Greens Ltd Reds Ltd
Statement of Comprehensive Income for the years ended 31 March
2017 2018 2017 2018
$000 $000 $000 $000
Sales 500 610 425 460
Cost of sales (245) (355) (210) (230)
Operating costs (225) (230) (190) (200)
Loan interest paid (7) (10) (7) (3)
Net profit 23 15 18 27
REQUIRED
(a) Use six ratios to compare the management’s performance from 2017 to 2018 for each
company. Use year end figures, not averages, to calculate ratios.
Give answers to a maximum of one decimal place. Show all workings.
(b) Comment on your findings.
(c) State six shortcomings or dangers in using ratio analysis.
QUESTION 5
Several different categories of users are traditionally considered as having an interest in the financial
statements of a company. The importance of the financial statements to each category will vary with
the nature and size of the company and with the type of use made of the company's accounts by that
category.
Required:
Describe the ways in which the needs of users of the financial statements vary with the size of the
company, for each of the following categories of user:
(a) Investors and their advisers
(b) Loan creditors
(c) Employees
(d) Customers, suppliers and other business contacts
(e) The Government
(f) The public.
QUESTION 6
You are the management accountant of SR. PQ is a competitor in the same industry and it has
been operating for 20 years. Summaries of PQ’s statement of profit or loss and statement of
financial positions for the previous three years are given below:
Summarised statement of profit or loss for year ended 31 December
2017 2018 2019
$m $m $m
Revenue 840 981 913
Cost of sales 554 645 590
–––– –––– ––––
Gross profit 286 336 323
Selling, distribution and administration expenses 186 214 219
–––– –––– ––––
Profit before interest 100 122 104
Interest 6 15 19
–––– –––– ––––
Profit before tax 94 107 85
Tax 45 52 45
–––– –––– ––––
Profit for the year 49 55 40
–––– –––– ––––
Summarised statement of financial positions at 31 December
2017 2018 2019
$m $m $m
Non-current assets:
Intangibles 36 40 48
Property, plant and equipment 176 206 216
–––– –––– ––––
212 246 264
––––
Current assets:
Inventory 237 303 294
Receivables 105 141 160
Bank 52 58 52
–––– –––– ––––
394 502 506
–––– –––– ––––
Total assets 606 748 770
–––– –––– ––––
Ordinary shares 100 100 100
Retained earnings 299 330 346
–––– –––– ––––
Equity 399 430 446
–––– –––– ––––
Non-current liabilities:
Long-term loans 74 138 138
–––– –––– ––––
Current liabilities:
Trade payables 53 75 75
Other payables 80 105 111
–––– –––– ––––
133 180 186
–––– –––– ––––
Total equity and liabilities 606 748 770
–––– –––– ––––
Each year PQ has declared and paid an annual dividend of $24 million.
Required:
Write a report to the finance director of SR:
(a) analysing the performance of PQ and showing any calculations in an appendix to this
report
(b) summarising five areas which require further investigation, including reference to other
pieces of information which would complement your analysis of the performance of
PQ.
QUESTION 7
The following information relates to the draft financial statements of Regis for the year to
31 March 2019 together with the comparative figures for the year to 31 March 2018:
Statement of profit or loss for the year to: 31 March 2019 31 March 2018
$000 $000 $000 $000
Revenue 2,400 2,500
Cost of sales (1,440) (1,800)
––––– –––––
Gross profit 960 700
Research and development costs (300) (80)
Selling and distribution costs (195) (95)
Administration (125) (620) (85) (260)
––––– ––––– ––––– –––––
340 440
Profit on sale of property 50 Nil
Interest expense (70) (80)
––––– –––––
320 360
Taxation – on income (200) (120)
– deferred tax 190 (10) (30) (150)
––––– ––––– ––––– –––––
Profit for the year 310 210
––––– –––––