Income statement for the year ended 31 December Year before last Last year £000 £000 Sales revenue 1,180 1,200 Cost of sales: (680) (750) Gross profit 500 450 Operating expenses (200) (208) Depreciation (66) (75) Operating profit 234 167 Interest (-) (8) Profit before taxation 234 159 Taxation (80) (48) Profit for the year 154 111 Statement of financial position as at 31 December Year before last Last year £000 £000 ASSETS Non-current assets Property, plant and equipment 702 687 Current assets Inventories 148 236 Trade receivables 102 156 Cash at bank 3 4 253 396 Total assets 955 1083 EQUITY AND LIABILITIES Equity £1 ordinary shares 500 500 Retained earnings 256 295 756 795 Non-current liabilities Borrowings – Bank loan - 50 Current liabilities Trade payables 60 76 Other payables and accruals 18 16 Taxation 40 24 Short-term borrowings – bank overdraft 81 122 199 238 Total equity and liabilities 955 1,083 Dividends were paid on ordinary shares of £70,000 and £72,000 in respect of the year before last and last year, respectively. Required: (a) Calculate the following financial ratios for both years (using year-end figures for statement of financial position items – not average figures): · Return on capital employed · Operating profit margin · Gross profit margin

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter5: The Income Statement And The Statement Of Cash Flows

Section: Chapter Questions

Problem 2RE: Refer to RE5-1. Prepare a single-step income statement for Brandt Corporation for the current year.

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Income statement for the year ended 31 December

	Year before last	Last year
	£000	£000
Sales revenue	1,180	1,200
Cost of sales:	(680)	(750)
Gross profit	500	450
Operating expenses	(200)	(208)
Depreciation	(66)	(75)
Operating profit	234	167
Interest	(-)	(8)
Profit before taxation	234	159
Taxation	(80)	(48)
Profit for the year	154	111

Statement of financial position as at 31 December

	Year before last	Last year
	£000	£000
ASSETS
Non-current assets
Property, plant and equipment	702	687
Current assets
Inventories	148	236
Trade receivables	102	156
Cash at bank	3	4
	253	396
Total assets	955	1083

EQUITY AND LIABILITIES
Equity
£1 ordinary shares	500	500
Retained earnings	256	295
	756	795
Non-current liabilities
Borrowings – Bank loan	-	50
Current liabilities
Trade payables	60	76
Other payables and accruals	18	16
Taxation	40	24
Short-term borrowings – bank overdraft	81	122
	199	238
Total equity and liabilities	955	1,083

Dividends were paid on ordinary shares of £70,000 and £72,000 in respect of the year before last and last year, respectively.

Required:

(a) Calculate the following financial ratios for both years (using year-end figures for statement of financial position items – not average figures):

· Return on capital employed

· Operating profit margin

· Gross profit margin

· Current ratio

· Acid test ratio

· Settlement period for trade receivables

· Settlement period for trade payables

· Inventories turnover period

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Inventories turnover period

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