1.

Working notes

Depreciation for the year

Land and building =$ 400000 x 5%

=$20000

Motor vehicles = 20% x ($125000-$30000)

=$19000

Equipment = $85000 x 10%

= $8000

Accumulated deprecation

Land and building =$ 70000+$ 20000

= $90000

Motor vehicles = $30000 + $ 19000

= $ 49000

Equipment = $10000+ $ 8500

= $ 18500

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Jones Ltd
Income statement for the year ended 31 December 2020 $ $
Sale 670000
(-) Return in (6500)
(-) Cost of sales: purchase 55000
Opening inventory 19500
(-) Closing inventory (28500)
Carriage in 650
(-) Return out (7600)
Gross profit 129450
Other income: Discount received 2500
(-) operating expenses
Wages and salaries (34750+2900) 37650
Depreciation (20000+ 19000+ 8500) 47500
Carriage out 1200
Increase in allowance 600
(-) rates paid in advanced (3000)
Rent and rates 19000
Insurance 6500
Telephone and telecommunication 4600
Discount allowed 4500
Motor vehicle expenses 6600
Repairs to buildings 16700 (141850)
Net loss (9900)

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Balance Sheet
Financial position statement as at 31 Cost Accumulated NBV
December 2020 Depreciation
Non-current assets
Land and buildings 400000 90000 310000
Motor vehicle 125000 49000 76000
Equipment 85000 18500 66500
long-term investments 75000 - 75000

685000 157500 527500

Current Assets
Trade receivable (120000-3600) 116400
Closing inventory 28500
Rates paid in advance 3000
Short-term deposit 20000 167900

Total asset 695400

Equity & Liabilities
Equity

Share capital 500000

Retained loss (9900) 490100
Long Term liabilities

Long-term loan
50000

Current liabilities

Trade payable 148000

Bank overdraft 4400
Wages and salaries 2900
155300 Page 3 of 8

Share Capital & Reserves 695400

2. (a) (1). Return on capital employed for 2010 = operating profit / capital employed x 100%
= 234/756 x 100%
= 30.95%

Return on capital employed for 2011= operating profit / capital employed x 100%

= 167/865 x 100%

= 19.31%

(2) operating profit margin for 2010 = operating profit/ sales x 100%

= 234/1300 x 100%

= 18%

Operating profit margin for 2011=operating profit / sales x 100%

= 167/1500 x 100%

= 11.1%

(3) gross profit margin for 2010 = gross profit/ sales x 100%

= 500/1300 x 100%

= 38.64%

Gross profit margin for 2011 = gross profit/ sales x 100%

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 = 450/1500 x 100%

= 30%

(4) Current ratio for 2010 = current asset / current liability

= 253/199

= 1.27:1

Current ratio for 2011 = current asset / current liability

= 396/238

= 1.66:1

(5) Acid test ratio for 2010 = current asset -inventory/ current liability

= 253-148/238

= 0.53:1

Acid test ratio for 2011 = current asset – inventory /current liability

= 396-236/238

= 0.67:1

(6) Settlement period for trade receivable for 2010 = debtor / credit sales per day

= 102/1300 x 365

= 29 days

Settlement period for trade receivable for 2011 = debtor / credit sales per day

=156/1500 x 365

= 38 days

(7) Settlement period for trade payable for 2010 = creditor / credit purchase per day

= 60/680 x 365

= 32 days

Settlement period for trade payable for 2011 = creditor / credit purchase per day

= 76/750 x 365

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 = 37 days

(8) Inventories turnover period for 2010 = inventory / cost of sales per day

= 148/680 x 365

= 79 days

Inventories turnover period for 2011 = inventory / cost of sales per day

= 236/750 x 365

= 115 days

(b) Return on capital employed

Return on capital employed of Threads Limited manufactures nuts and bolts in 2010 is 30.91 % and
that of in 2011 is 19.35%. One can see that the difference is about two times. So the return on
capital employed in 2010 is greater than 2011 and made more profit.

Operating profit margin

Operating margin for 2010 is 18% and that of 2011 is 11.1%. The difference between them is about
1.6 times. The difference of operating margin occurs because of the difference in operating profit.

Gross profit margin

The gross profit margin of 2010 is 38.46% and that of 2011 is 30%. The difference between them is
about 1.28. Gross profit margin is different because of the difference in gross profit. The gross profit
may be different because of the more cost of sales or less sales amount.

Current ratio

Current ratio of 2010 is 1.27:1 and that of 2011 is 1.66:1. The current ratio for 2 years is different
because of the different assets or liabilities. The current asset of 2011 is less than 2010 and also the
current liabilities of 2011 is less than 2010. Looking at the comparison, the current ratio of 2011 is
better than that of 2010.

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Acid test

Acid test ratio of 2010 is 0.53:1 and that of 2011 is 0.67:1. The difference may occur due to the
factors such as current assets, inventory and current liabilities. By looking at the ratios, one can see
that the acid test ratio of 2011 is better than 2010.

Settlement period for trade receivable

Settlement period for trade receivable for 2010 is 29 days and that of 2011 is 38 days. This occurs
because of the difference of debtors and credit sales per day. By looking at the comparison, one can
say that settlement period of 2010 is less than that of 2011. So, in conclusion, in 2011 the company
have to wait more days to receive the trade than that of 2010.

Settlement period for trade payable

Settlement period for trade payable for 2010 is 32 days and that of 2011 is 37 days. These are
different because of the difference in amount of creditors and credit purchase per day. By looking at
the comparison, one can see that in 2010, the company has to pay to the creditor in 32 days but in
2011 the company has to pay to the creditor in 37. This seems that the company has developed a
great relation with the creditors.

In conclusion, by looking at the Settlement period for trade receivable for 2010 and 2011, the
company has downside because debtors don’t pay on time and they delay the time. But when
looking at the Settlement period for trade payable for 2010 and 2011, the company has a great
advantage in relationships with creditors.

Inventories turnover period

Inventories turnover period for 2010 is 79 days and that of 2011 is 115 days. These ratios’
differences are great because of the inventories’ difference. The amount of inventories of 2011 is
almost 2 times the amount of inventories in 2010, so there is a great impact on the inventories
turnover period. There may be obsolete inventory which also make a great impact on inventories
turn over period.

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