INTERMEDIATE FINANCIAL ACCOUNTING ASSIGNMENT November 2017 Cigalles Ltd. has car

Question

INTERMEDIATE FINANCIAL ACCOUNTING ASSIGNMENT November 2017 Cigalles Ltd. has carried on business for a number of years as a retailer of a wide variety of consumer products. The entity operates from a number of stores around the country. In recent years the entity has found it necessary to provide credit facilities to its customers in order to maintain growth in revenue. As a result of this decision the liability to its bankers has increased substantially. The statutory financial statements for the year ended 30 June 2016 have recently been published and extracts are provided below, together with comparative ligures for the previous two years. STATEMENTS OF PROFIT OR T.OSS FOR THE YEARS ENDED 30 JUNF 2016 Em 2015 2017 Sales revenue Cost ol sales Gross profit Other operating costs Operating proft Interest revenue from credit sales Profit before interest and tax Interest expense Profit before taxation Taxation Profit for the year 1,850 (1,250) 2,200 (1,500) 700 (640) (1,750) 750 (700) (550) 50 45 60 120 90 (110) (25) 70 (23) STATEMENTS OF FINANCIAL POSITION AT 30 JUNE 2017 Em 2015 2016 Im Property, plant and equipment Inventories Trade receivables Cash Total assets 278 400 492 290 540 550 12 1,392 322 620 633 15 1,590 1,182 90 372 90 90 Share capit Reserves Total equity 382 Bank loans Other interest bearing borrowings Trade payables Tax payable Total liabilities and equity 320 200 270 520 200 270 20 1,392 610 320 280 1,590

Explanation / Answer

Gross Profit margin and profit margin before interest and tax Gross Profit margin Gross Profit /Sales 2015 2016 2017 A Gross Profit 600 700 750 B Sales 1850 2200 2500 C=A/B Gross profit margin 0.324324 0.318182 0.3 Gross profit margin( %) 32.43% 31.82% 30.00% Margin before interest and tax=Profit before interest and taxes/Sales 2015 2016 2017 A Profit before interest & taxes 95 120 140 B Sales 1850 2200 2500 C=A/B Profit margin before interest & taxes 0.051351 0.054545 0.056 Profit margin before interest & taxes(%) 5.14% 5.45% 5.60% ROCE(Return on capital employed)=(Earning before interest and taxes/Capital Employed Capital Employed=Total assets minus current liabilities A Total assets 1182 1392 1590 B Current liabilities 290 290 288 C=A-B Capital employed 892 1102 1302 D Earning before interest and taxes 95 120 140 E=D/C ROCE 0.106502 0.108893 0.107527 ROCE(%) 10.65% 10.89% 10.75% OPERATING COST TO SALES=Operating cost/Sales A Sales 1850 2200 2500 B Cost of sales 1250 1500 1750 C other operating costs 550 640 700 D interest expenses 25 60 110 E=B+C+D Operating Costs 1825 2200 2560 F=E/A Cperating cost to sales 0.986486 1 1.024 INVENTORY TURNOVER=Cost of Sales/Average inventory A Cost of sales 1250 1500 1750 B Beginning inventory 400 540 C Closing inventory 400 540 620 D=(B+C)/2 Average inventory 400 470 580 2015=Average inventory assumed =400 since beginning inventory is not known A/D Inventory Turnover 3.125 3.191489 3.017241 Inventory turnover is also calculated based on sales Inventory turnover=Sales/Average inventory E Sales 1850 2200 2500 F=E/D Inventory Turnover(based on Sales) 4.625 4.680851 4.310345

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