Leagrave Ltd is a wholesaler of bags and accessories that has been operating for
ID: 2596411 • Letter: L
Question
Leagrave Ltd is a wholesaler of bags and accessories that has been operating for a number of years. The ledger of Leagrave Ltd. contains the following account balances as at 31 May 2017, the end of the financial year.
LEAGRAVE Ltd
TRIAL BALANCE AS AT 31 MAY 2017
Debit
Credit
€
€
Property, at cost
120,000
Equipment, at cost
80,000
Accumulated depreciation (as at 1 June 2016)
on property
20,000
on equipment
38,000
Purchases
235,000
Sales
402,200
Inventory, as at 1 June 2016
50,000
Wages and salaries
58,800
Selling expenses
22,600
Loan interest
5,100
Other operating expenses
17,700
Trade payables
36,000
Trade receivables
38,000
Cash in hand and at bank
1,600
Dividends paid
24,000
17% long-term loan
30,000
Ordinary shares €1, as at 1 June 2016
80,000
Retained profits, as at 1 June 2016
46,600
652,800
652,800
The following additional information as at 31 May 2017 is available:
Closing inventory has been valued at cost at €42,000.
Depreciation for the year ended 31 May 2017 has still to be charged as follows: Property: 1.5% per annum using the straight-line method
Equipment: 25% per annum using the reducing balance method
Profit and Loss Statement
Particulars
Details $
Amount in $
Particulars
Details $
Amount in $
Opening stock
$ 50,000
sales
$ 402,200
Purchases
$ 235,000
Wages and salaries
$ 58,800
Selling expenses
$ 22,600
Closing Stock
$ 42,000
Loan interest
$ 5,100
Other operating expenses
$ 17,700
Depreciation
$ 12,300
Net Profit
$ 42,700
Total
$ 444,200
Total
$ 444,200
Statement of Changes in Equity
Particulars
Details $
Amount in $
Particulars
Details $
Amount in $
Opening balance
$ 46,600
Dividend Paid
$ 24,000
Profit
$ 42,700
Closing Balance
$ 65,300
Total
$ 89,300
Total
$ 89,300
Balance sheet
Liabilities and Equity
Details $
Amount in $
Assets
Details $
Amount in $
Share capital
$ 80,000
Property
$ 120,000
Reatined Earnings
$ 65,300
Less : Accu Dep
$ (20,000)
Less : Current year Dep
$ (1,800)
$ 98,200
Equipment, at cost
$ 80,000
Less : Accu Dep
$ (38,000)
Trade payable
$ 36,000
Less : Current year Dep
$ (10,500)
$ 31,500
17% long-term loan
$ 30,000
Trade receivable
$ 38,000
Cash in hand
$ 1,600
Inventory in hand
$ 42,000
Total
$ 211,300
Total
$ 211,300
REGUIRED:
Calculate the following ratios based on the financial statements prepared in Requirement 1):
-ROCE
-Gross profit margin
-Operating profit margin
-Current ratio
-Acid test ratio
-Trade receivable days1
-Trade payable days2
-Inventory days
LEAGRAVE Ltd
TRIAL BALANCE AS AT 31 MAY 2017
Debit
Credit
€
€
Property, at cost
120,000
Equipment, at cost
80,000
Accumulated depreciation (as at 1 June 2016)
on property
20,000
on equipment
38,000
Purchases
235,000
Sales
402,200
Inventory, as at 1 June 2016
50,000
Wages and salaries
58,800
Selling expenses
22,600
Loan interest
5,100
Other operating expenses
17,700
Trade payables
36,000
Trade receivables
38,000
Cash in hand and at bank
1,600
Dividends paid
24,000
17% long-term loan
30,000
Ordinary shares €1, as at 1 June 2016
80,000
Retained profits, as at 1 June 2016
46,600
652,800
652,800
Explanation / Answer
Answer 1:
Current Liabilities = Trade Payable
Current Liabilities = $36,000
Capital Employed = Total Assets – Current Liabilities
Capital Employed = $211,300 - $36,000
Capital Employed = $175,300
ROCE = Net Operating Profit / capital Employed
ROCE = $42,700 / $175,300
ROCE = 24.36%
Answer 2:
Cost of goods sold = Opening stock + Purchases – Closing stock
Cost of goods sold = $50,000 + $235,000 - $42,000
Cost of goods sold = $243,000
Gross Profit = Sales – Cost of goods sold
Gross Profit = $402,200 - $243,000
Gross Profit = $159,200
Gross Profit Margin = Gross Profit / Sales *100
Gross Profit Margin = $159,200 / $402,200 *100
Gross Profit Margin = 39.58%
Answer 3:
Operating Profit Margin = Operating profit / Sales *100
Operating Profit Margin = $42,700 / $402,200 *100
Operating Profit Margin = 10.62%
Answer 4
Current Assets = Trade Receivable + Cash in hand + Inventory in hand
Current Assets = $38,000 + $1,600 + $42,000
Current Assets = $81,600
Current Liabilities = Trade payable
Current Liabilities = $36,000
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $81,600 / $36,000
Current Ratio = 2.27 : 1
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