Photo AI

Interpretation of Accounts The following information has been taken from the accounts of Munster Ltd for the year ended 31/12/2010: Trading, Profit and Loss Account for year ended 31/12/2010 Credit Sales € Less: Cost of Sales Stock 01/01/2010 73,000 Add: Purchases ? Less: Stock 31/12/2010 64,000 Gross Profit: 547,000 Less: Total Expenses (including interest) 373,000 Net Profit for year ? Balance Sheet as at 31/12/2010 € Fixed Assets 896,000 Current Assets (including Debtors €68,000) 210,000 Less Creditors: amounts falling due within 1 year 83,000 Trade Creditors 127,000 Financed by: Creditors: amounts falling due after more than 1 year 140,000 6% Debentures (2017/2018) 669,000 Capital and Reserves Ordinary Shares 214,000 Profit and Loss Account 1,023,000 (a) You are required to calculate: (i) Net Profit for 2010 (ii) The figure for Purchases (iii) Period of Credit given to Debtors (iv) Return on Capital Employed for 2010 - Leaving Cert Accounting - Question 5 - 2011

Question icon

Question 5

Interpretation-of-Accounts--The-following-information-has-been-taken-from-the-accounts-of-Munster-Ltd-for-the-year-ended-31/12/2010:--Trading,-Profit-and-Loss-Account-for-year-ended-31/12/2010--Credit-Sales------€-Less:-Cost-of-Sales-Stock-01/01/2010-----73,000-Add:-Purchases-----?-Less:-Stock-31/12/2010----64,000-Gross-Profit:------547,000-Less:-Total-Expenses-(including-interest)--373,000-Net-Profit-for-year-----?--Balance-Sheet-as-at-31/12/2010--€-Fixed-Assets------896,000-Current-Assets-(including-Debtors-€68,000)--210,000-Less-Creditors:-amounts-falling-due-within-1-year-83,000-Trade-Creditors------127,000-Financed-by:-Creditors:-amounts-falling-due-after-more-than-1-year-140,000-6%-Debentures-(2017/2018)---669,000-Capital-and-Reserves-Ordinary-Shares-----214,000-Profit-and-Loss-Account---1,023,000--(a)-You-are-required-to-calculate:-(i)-Net-Profit-for-2010-(ii)-The-figure-for-Purchases-(iii)-Period-of-Credit-given-to-Debtors-(iv)-Return-on-Capital-Employed-for-2010-Leaving Cert Accounting-Question 5-2011.png

Interpretation of Accounts The following information has been taken from the accounts of Munster Ltd for the year ended 31/12/2010: Trading, Profit and Loss Accoun... show full transcript

Worked Solution & Example Answer:Interpretation of Accounts The following information has been taken from the accounts of Munster Ltd for the year ended 31/12/2010: Trading, Profit and Loss Account for year ended 31/12/2010 Credit Sales € Less: Cost of Sales Stock 01/01/2010 73,000 Add: Purchases ? Less: Stock 31/12/2010 64,000 Gross Profit: 547,000 Less: Total Expenses (including interest) 373,000 Net Profit for year ? Balance Sheet as at 31/12/2010 € Fixed Assets 896,000 Current Assets (including Debtors €68,000) 210,000 Less Creditors: amounts falling due within 1 year 83,000 Trade Creditors 127,000 Financed by: Creditors: amounts falling due after more than 1 year 140,000 6% Debentures (2017/2018) 669,000 Capital and Reserves Ordinary Shares 214,000 Profit and Loss Account 1,023,000 (a) You are required to calculate: (i) Net Profit for 2010 (ii) The figure for Purchases (iii) Period of Credit given to Debtors (iv) Return on Capital Employed for 2010 - Leaving Cert Accounting - Question 5 - 2011

Step 1

Net Profit for 2010

96%

114 rated

Answer

To calculate the Net Profit for Munster Ltd for the year ended 31/12/2010, we use the formula:

Net Profit=Gross Profit−Total ExpensesNet \, Profit = Gross \, Profit - Total \, Expenses

Substituting the known values:

Net Profit=547,000−373,000=174,000Net \ Profit = 547,000 - 373,000 = 174,000

Thus, the Net Profit for 2010 is €174,000.

Step 2

The figure for Purchases

99%

104 rated

Answer

To find the Purchases for the year, we can rearrange the Cost of Sales equation as follows:

Cost of Sales=Opening Stock+Purchases−Closing StockCost \, of \, Sales = Opening \, Stock + Purchases - Closing \, Stock

Using the figures provided:

547,000=73,000+Purchases−64,000547,000 = 73,000 + Purchases - 64,000

Solving for Purchases:

Purchases=547,000−73,000+64,000=638,000Purchases = 547,000 - 73,000 + 64,000 = 638,000

Therefore, the figure for Purchases is €638,000.

Step 3

Period of Credit given to Debtors

96%

101 rated

Answer

The Period of Credit given to Debtors can be calculated using the formula:

Period of Credit=DebtorsCredit Sales×365Period \, of \, Credit = \frac{Debtors}{Credit \, Sales} \times 365

Given that Debtors are €58,000 and Credit Sales are €920,000:

Period of Credit=58,000920,000×365=23.01 daysPeriod \, of \, Credit = \frac{58,000}{920,000} \times 365 = 23.01 \, days

Thus, the Period of Credit given to Debtors is approximately 23.01 days.

Step 4

Return on Capital Employed for 2010

98%

120 rated

Answer

The Return on Capital Employed (ROCE) can be calculated with the formula:

ROCE=Net Profit+InterestCapital Employed×100ROCE = \frac{Net \, Profit + Interest}{Capital \, Employed} \times 100

Where the Capital Employed is €1,023,000. Plugging in the known values:

ROCE=174,000+01,023,000×100=17.0%ROCE = \frac{174,000 + 0}{1,023,000} \times 100 = 17.0\%

Therefore, the Return on Capital Employed for 2010 is approximately 17.0%.

Step 5

6% Debentures (2017/2018)

97%

117 rated

Answer

6% Debentures are long-term loans that the company takes as a source of finance. They will be repaid in future years (2017/2018) and carry a fixed annual interest rate of 6%.

Step 6

Intangible Assets

97%

121 rated

Answer

Intangible Assets are non-physical assets that provide long-term value to the company. Examples include brand reputation, intellectual property, and goodwill.

Step 7

Ordinary Dividend

96%

114 rated

Answer

The Ordinary Dividend is the portion of the profit that is distributed to the Ordinary Shareholders. The rate is determined by the Board of Directors and is usually paid from the company’s retained earnings.

Step 8

Capital Employed

99%

104 rated

Answer

Capital Employed is the total amount invested into the business. It consists of the issued share capital and reserves that fund long-term liabilities.

Step 9

Acid Test Ratio

96%

101 rated

Answer

The Acid Test Ratio can be calculated using the formula:

Acid Test Ratio=Current Assets−StockCurrent LiabilitiesAcid \, Test \, Ratio = \frac{Current \, Assets - Stock}{Current \, Liabilities}

Substituting the given values:

Acid Test Ratio=(210,000−73,000)83,000=1.76Acid \, Test \, Ratio = \frac{(210,000 - 73,000)}{83,000} = 1.76

This ratio indicates the company's ability to meet its short-term liabilities without relying on inventory.

Step 10

What does this ratio tell us?

98%

120 rated

Answer

An Acid Test Ratio of 1.76 means that for every €1 of current liabilities, the company has €1.76 in easily liquidable assets. This is better than the recommended ratio of 1:1, indicating financial stability.

Step 11

Return on Capital Employed for 2009

97%

117 rated

Answer

The Return on Capital Employed for 2009 was 15%. The increase to 17.0% in 2010 suggests improved profitability and efficient use of capital in 2010 compared to 2009.

Join the Leaving Cert students using SimpleStudy...

97% of Students

Report Improved Results

98% of Students

Recommend to friends

100,000+

Students Supported

1 Million+

Questions answered

;