CIMA CO2 Official Learning System - Fundamentals of Financial Accounting
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THE INTERPRETATION OF FINANCIAL STATEMENTS
REVISION QUESTIONS C2
520
1.14 A summary of the statement of fi nancial position of M Ltd at 31 March 20X0 was
as follows:
$’000
Ordinary share capital 40
Share premium account 10
Retained earnings 10
6 0
5% debentures 60
120
If the operating profi t for the year ended 31 March 20X0 was $15,000, what is the
return on capital employed (ROCE)?
per cent
1.15 The annual sales of a company are $235,000 including sales tax at 17.5 per cent.
Half of the sales are on credit terms; half are cash sales. The receivables in the state-
ment of fi nancial position are $23,500.
What are the receivable days (to the nearest day)?
days
1.16 The draft statement of fi nancial position of B Ltd at 31 March 20X0 is set out below.
Assets $ $
Non-current assets 450
Current assets
Inventories 65
Receivables 110
Prepayments 30
205
655
Equity and liabilities
Ordinary share capital 400
Retained earnings 100
500
Non-current liability
Loan 75
Current liabilities
Payables 30
Bank overdraft 50
8 0
655
What is the gearing of the company?
per cent
THE INTERPRETATION OF FINANCIAL STATEMENTS
521
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Question 2
The following information relates to PK, a sole trader.
During the year ended 30 June 20X6, he sold goods to the value of $240,000, which
were all sold at a gross profi t mark-up of 20 per cent. His administration costs during the
year amounted to $32,000.
On 1 July 20X5 his opening inventories were $55,000 and at 30 June 20X6 the number
of days ’ inventories on hand was 40. His receivables days was 30 days and his payables days
were 50 days.
His current ratio was 2.2:1 and his non-current assets turnover ratio was 4:1. His return
on capital employed was 10 per cent. There was a long-term loan with an outstanding bal-
ance of $3,438 at 30 June 20X6.
Requirements
Insert the missing items in the workings, PK’s income statement and statement of fi nancial
position for the year ended 30 June 20X6.
Workings
Cost of sales
Closing inventories
Receivables
Purchases
Payables
Non-current assets
Gross profi t
P r o fi t for the period
Capital employed
Net current assets
Current assets
Bank balance
THE INTERPRETATION OF FINANCIAL STATEMENTS
REVISION QUESTIONS C2
522
Income statement of PK for the year ended 30 June 20X6
$ $
Sales
Less : cost of sales
Opening inventories
Purchases
Less : closing inventories
Gross profi t
Administration costs
P r o fi t for the period
Statement of fi nancial position of PK as at 30 June 20X6
Assets $ $ $
Non-current assets
Current assets
Inventories
Receivables
Bank
Capital and liabilities
Opening capital
P r o fi t for the year
Closing capital
Non-current liability
Long-term loan
Current liabilities
Payables
THE INTERPRETATION OF FINANCIAL STATEMENTS
523
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Question 3
DEX Stores sells three different types of product. The business is made up of three dif-
ferent departments, each having its own manager, who is responsible for buying/selling a
particular type of product. The owner determines the pricing policy of the entire operation
and adds the following percentages to the cost of the goods to arrive at the selling prices:
Department A 40%
Department B 25%
Department C 100%
The takings during April 20X2 were:
Department A $18,750
Department B $11,750
Department C $147,000
The opening inventories on 1 April 20X2, which the owner verifi ed by a physical inven-
tory count, were valued at cost:
Department A $4,200
Department B $7,800
Department C $22,500
At the end of April, the owner decided to carry out a physical inventory count, but unfor-
tunately could not do this until Sunday 3 May 20X2. The physical inventories held on
that day, valued at cost, were:
Department A $3,700
Department B $8,100
Department C $21,600
The following transactions occurred between the end of April and the physical inventories
count:
Department A ($) Department B ($) Department C ($)
Sales 420 250 1,500
Purchases – 1,500 –
Returns inwards – – 300
Returns outwards 270 – 800
Purchases during April 20X2 amounted to:
Department A $14,200
Department B $8,400
Department C $74,000
The owner has recently become concerned that the gross profi t shown by the fi nancial
statements does not reconcile with these gross profi t mark-ups and suspects that some of
the inventories may be stolen.
THE INTERPRETATION OF FINANCIAL STATEMENTS
REVISION QUESTIONS C2
524
Requirements
(a) Insert the missing items into the following table in order to determine the value of
inventories at 30 April 20X2.
Department A ($) Department B ($) Department C ($)
Physical inventories at
3 May 20X2
Add : sales at cost
Less : purchases
Less : returns inwards
Add : returns outwards
Theoretical inventories
(b) Insert the missing items into the following table in order to determine the amount of
inventories lost.
Department A ($) Department B ($) Department C ($)
Opening inventories
(1 April 20X2)
Purchases in April 20X2
Closing inventories
(3 May 20X2)
Cost of sales
Add : mark-up
Sales
Actual takings
Difference
THE INTERPRETATION OF FINANCIAL STATEMENTS
525
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Question 4
GH has the following statement of fi nancial position at 30 April 20X5, with correspond-
ing fi gures for the previous year:
20X5 20X4
Assets $ $ $ $
Non-current assets 277,000 206,000
Current assets
Inventories 46,000 42,000
Receivables 37,500 36,000
Cash and bank 12,500 54,000
96,000 132,000
373,000 338,000
Capital and liabilities
Capital at start 265,000 214,000
Capital introduced 20,000 –
P r o fi t for the year 92,000 78,000
377,000 292,000
Drawings (30,000) (27,000)
347,000 265,000
Non-current liability
Long-term liabilities 10,000 50,000
Current liabilities
Payables 16,000 23,000
373,000 338,000
The following information concerning the year to 30 April 20X5 is also available:
(i) Non-current assets were sold for $30,000. Their original cost had been $48,000 and
depreciation of $12,000 had been charged in previous years.
(ii) Non-current assets costing $120,000 were purchased during the year.
THE INTERPRETATION OF FINANCIAL STATEMENTS
REVISION QUESTIONS C2
526
Requirements
Insert the missing items in the workings and a statement of cash fl ows for the year to
30 April 20X5.
(a) Initial workings:
$
(i) Profi t for year
loss on disposal
P r o fi t for year before loss on disposal
(ii) Carrying amount at 1 May 20X4
206,000
Depreciation charge for year
Cash fl ow from operating activities
P r o fi t for year before loss on disposal
Add : depreciation charge
in inventories
in receivables
in payables
Statement of cash fl ows of GH for year ended 30 April 20X5
$ $
Cash fl ow from operating activities
Cash fl ows from investing activities
Purchases of non-current assets
Sale of non-current assets
Cash fl ows from fi nancing activities
Long-term loan paid off
Capital introduced
Capital withdrawn
Net decrease in bank and cash
Bank and cash at the start of the period
Bank and cash at the end of the period
THE INTERPRETATION OF FINANCIAL STATEMENTS
527
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Question 5
The following trial balance has been extracted from the ledgers of JK Ltd at 31 March
20X3:
$ $
Sales (all on credit) 647,400
Inventories (1 April 20X2) 15,400
Trade receivables and payables 82,851 41,936
Purchases (all on credit) 321,874
Carriage in 13,526
Carriage out 32,460
Electricity 6,994
Local business tax 8,940
Wages and salaries 138,292
Postages and stationery 6,984
Rent 14,600
Sales tax control 16,382
Employees ’ income tax control 4,736
Motor vehicles
At cost 49,400
Cumulative depreciation 21,240
Bank deposit account 90,000
Bank current account 77,240
Ordinary shares of $1 each 50,000
Retained earnings 76,597
858,291 858,291
The following notes are also relevant:
(i) Inventories at 31 March 20X3 $19,473.
(ii) Prepaid rent amounted to $2,800.
(iii) Accruals are estimated as follows:
Electricity $946
Wages and salaries $2,464
(iv) Depreciation on motor vehicles is to be calculated at 25 per cent per annum using the
reducing-balance method.
(v) Accrued interest on the bank deposit account amounts to $7,200.
(vi) An accrual for income tax of $30,000 is to be made on the profi ts of the year.
Requirements
(a) Insert the missing items in: JK Ltd’s income statement for the year ended 31 March
20X3.
(b) Insert the missing items in: JK Ltd’s statement of fi nancial position at 31 March 20X3.
(c) Calculate the:
Receivables days days
Payables days days
Inventories days (use average inventories) days
THE INTERPRETATION OF FINANCIAL STATEMENTS
REVISION QUESTIONS C2
528
(a) Income statement of JK Ltd for the year ended 31 March 20X3
$’000 $’000 $’000
Sales
Gross profi t
Electricity
Add : accrual
Wages and salaries
Add : accrual
Rent
Less : repaid
THE INTERPRETATION OF FINANCIAL STATEMENTS
529
FUNDAMENTALS OF FINANCIAL ACCOUNTING
(b) Statement of fi nancial position of JK Ltd as at 31 March 20X3
Cost Acc. Depreciation Carrying Amount
Assets ($’000) ($’000) ($’000)
Non-current assets
Current assets
Equity and liabilities
Current liabilities
Question 6
The following fi gures have been extracted from the published fi nancial statements of MBC
plc, at 31 October 20X5:
$ m
Ordinary share capital 30
Share premium 3
Reserves 5
3 8
6% debentures 10
4 8
The profi t for the period (after tax of $1 m) for the year to 31 October 20X5 was $4 m and
dividends paid amounted to $0.5 m. The company is considering raising a further $10m
in the next fi nancial year to fi nance research and development.