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problem 1)

Directors of DPK Limited wish to compare the company’s most recent financial statements with those of the previous year. The company’s financial statements are given below:

                                                               DPK Limited                           
                                              Profit and Loss Accounts Year Ended
                                                                         30 June 2002                          30 June 2001
                                                                             Rs 000                                         Rs 000
Sales (note 1)                                                       2,500                                           1,800
Opening stock                                                         200                                              180
Purchases (all on credit)                                         1,960                                            1,220
                                                                             2,160                                            1,400
Less closing stock                                                   (360)                                             (200)
Cost of sales                                                           1,800                                            1,200
Gross profit                                                               700                                               600
Distribution costs                                                      (250)                                            (160)
Administrative expenses                                            (200)                                            (200)
Interest payable                                                         (50)                                               (50)
Profit before tax                                                          200                                               190
Taxation                                                                     (46)                                               ( 44)
Retained profit                                                            154                                                 146
Note 1: 80% of the sales are on credit.

Balance Sheets as at
                                                        30 June 2002             30 June 2001
                                                              Rs 000                           Rs 000
Non Current Assets                                  2,252                            1,886
Current assets Stock                                 360                                200
Debtors – trade                                         750                                400
Cash at bank                                             120                                 100
                                                                1,230                               700
Less current liabilities
Creditors – trade                                       (380)                               (210)
- sundry                                                     (430)                               (260)
Taxation                                                      (50)                                  (48)
                                                                   (860)                               (518)
Net current assets                                         370                                  182
Total assets less current liabilities                  2,622                               2,068
10% debentures                                          (500)                                (500)
                                                                   2,122                               1,568
Capital and reserves
Issued ordinary share capital                        1,200                                 1,000
Share premium account                                 600                                     400
Profit and loss account                                   322                                     168
                                                                   2,122                                  1,568
Required:

(a) Compute, for each of the two years, the following accounting ratios that must assist the directors for comparison.

(i) Current Ratio

(ii) Quick Ratio

(iii) Debtors Collection Period

(iv) Creditors Payment Period

(v) Gross Profit Margin

(vi) Return on Capital Employed

(vii) Return on Equity

(viii) Average Stock Turnover

(ix) Earnings per share

Demonstrate all your workings for each computations.

(b) Evaluate the liquidity position and the financial performance of the company at 30 June 2001 and 2002.

(c) Suggest possible reasons for changes in the ratios between the two years.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M96366

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