“A” LEVEL ACCOUNTING

ACCOUNTING RATIOS

REVISION QUESTIONS

BOOKLET

Tinofamba nevanofamba

1|Page TINOFAMBA NEVANOFAMBA

 QUESTION 1

On 31 March 2016, the accountant of Shumi Power Ltd provided the following balances:

Debit Credit
$000 $000
Sales 900
Cost of sales
Operating expenses 490
Interest paid 30
Ordinary shares of $0,75 each 10 750
8% Preference shares of $1 each 100
7,5% Debentures 200
Interim ordinary dividend paid 4

Notes
1. The market price of each ordinary share was $1,50.
2. Corporation tax charged for the year was $22 000.
3. Ordinary dividends of $0,15 per share was paid.

Required
a. Prepared an Income Statement together with a Profit and Loss Appropriation Account
for the year ended 31 March 2016. [8]

b. Calculate, correct to two decimal places, the following ratios for the year ended 31
March 2016:

i. Net profit percentage

ii. Interest cover
iii. Earnings per share
iv. Price earnings ratio
v. Dividend cover
vi. Dividend yield [12]

c. i. How can a company use ratios to assess its own performance? [3]
ii. Why is return on capital employed an important measure of performance of a
company? [2]

2|Page TINOFAMBA NEVANOFAMBA

 QUESTION 2

The Statement of financial position of Boyd Limited on 31 December 2007 showed the
following information:

$ (000)
Ordinary shares of $2 each 36 000
8% Preference shares of $1 each 18 000
General reserve 3 600
Profit and loss account 7 440
12% Debentures 24 000

During the year ended 31 December 2008, Boyd made an operating profit of $10 080 000.
The directors made the following recommendations on 31 December 2008:

1. An amount of $1 200 000 was to be transferred to the general reserve.

2. An ordinary dividend of 20 cents per share was to be paid.
The market value of ordinary shares was $4,80 on 31 December 2008.
Required
a. Boyd’s appropriation account for the year ended 31 December 2008. [6]

b. Calculate the following ratios for 2008 showing all workings.

i) Return on ordinary shareholders’ funds [2]

ii) Gearing [2]
iii) Earnings per share [2]
iv) Interest cover [2]
v) Dividend cover [2]
vi) Price earnings ratio [2]
vii) Dividend yield [2]

3|Page TINOFAMBA NEVANOFAMBA

 QUESTION 3

Ali operates a small trading business.

For the year ended 31 December 2014 he provides the following information:
Gross profit margin 54%
Profit margin 18%
Current ratio 1.6 : 1
Trade receivables turnover 40 days
Return on capital employed 5.4%
Cost of sales $248 400
Closing inventory $38 000
Cash and cash equivalents $30 308
Long-term loan $1 000 000

REQUIRED
(a) Prepare for Ali’s business in as much detail as possible:

(i) the income statement for the year ended 31 December 2014 [5]
(ii) the statement of financial position at 31 December 2014. [6]

Note: Calculations should be to the nearest $ where appropriate.

(b) State two advantages and two disadvantages of ratio analysis. [4]

Additional information

For the year ended 31 December 2013 Ali has calculated the following ratios:
Current ratio 1.3 : 1
Trade receivables turnover 30 days
Gross profit margin 48%
Profit margin 12%

REQUIRED
(c) Assess the performance of the business in respect of liquidity and profitability. [7]

4|Page TINOFAMBA NEVANOFAMBA