Management at XYZ Ltd

1. Management at XYZ Ltd anticipates an operating profit of £230,000 in 2020. The company had reported an operating loss of £70,000 in 2019. If the UK corporation tax rate is 20%, Calculate XYZ Ltd tax liability for 2020. Show your calculations. (4 marks)

TAX Liability for 2020: 230,000✖ 20％=46000

2. The following information has been extracted from the financial statements of T-Link Ltd. The total assets has been valued at £78,605 and total liabilities at £28,724 as at 31st December 2020. The total revenue is £45,387 and total expenses is £32,117 for year ending 31st December 2020. Calculate the amount of ownership interest of T-Link Ltd as at 1st January 2020. You must show workings / calculation to gain full marks. (4 marks)
3. The directors of Rex Ltd have to repay a loan in July 2020. They propose to make a rights issue on 1 May 2020 on the basis of one new share for every five shares in issue at a premium of 30p per share. The issued share capital of Rex Ltd at 30 April 2020 was:
   ￡
   Ordinary share of 50p each 500,000

How much cash will be received from the rights issue assuming that it is fully subscribed? Show your calculations (4 marks)

4. A firm has £2,400 in inventories, its current ratio is equal to 1.4 and quick ratio equal to 1.1. What is the firm Working Capital? Show your calculations (3 marks)

PART 2: Accounting Preparation and Ratio Analysis (45 marks)
Question 1 – (Total 30 marks)
Below is the Trial Balance of High Table Ltd as at 31st December 2020

Trial Balance as at 31st December 2020
Debit (£) Credit (£)
Sales 1,232,000
Purchases 725,000
Rent Paid 15,900
Inventory as at 1/1/20 28,500
Wages & Salaries 99,850
Insurance 10,500
Electricity 5,200
Stationery 3,500
Office expenses 13,800
Motor Expenses 7,250
Land and Buildings 500,000
Plant and Machinery 200,000
Motor Vehicles 120,000
Trade Receivables / Debtors 11,800
Share premium 100,000
Retained earnings at 1/1/20 36,000
Cash and Bank 221,000
Trade Payables / Creditors 10,500
Bank Loan 120,000
Interest on loan 1,200
Ordinary shares of ￡1 each, fully paid 500,000
Dividends 35,000
1,998,500 1,998,500
Closing inventory as at 31/12/20 31,000
Adjustments:

1. Plant and Machinery are depreciated at 10% per year and Motor Vehicles at 5% per year. All depreciation is to be provided on the straight line basis.
2. Wages & salaries not paid for at the end of the year is £10,150.
3. Electricity prepaid at the end of the year is £600
4. A bad debt of £1,200 to be written off at the year-end.
5. The land and buildings is to be revalued at ￡600,000
   Required to prepare:
   i. the income statement for year ending 31/12/20 (13 marks) and
   ii. the statement of changes in equity for the year ended 31/12/20 (5 marks) and
   iii. the Balance Sheet as at 31/12/20 (12 marks).

Question 2 – (Total 15 marks)

Below are the Financial Statements for Sushi Ltd for year 2019 and 2020.
Income Statement

2019

£ (000) 2020
£(000)
Sales / Revenue 15,020 36,000
Less: Cost of revenue -3,197 -9,720
Gross profit 11,023 26,280
Total operating expenses -6,873 -21,085
Profit before Interest and tax (PBIT) 4,150 5,195
Interest -1,500 -1,125
Profit before tax 2,650 4,070
Taxation -530 -814
Profit after tax 2,120 3,256

Balance Sheet

2019    2020
£ (000) £(000)

Assets
Non-current assets
Land and Buildings 32,000 53,000
Plant and Machinery 8,000 12,000
Computer equipment 1,200 1,200
Current Assets
Inventories 3,345 3,680
Trade receivables 2,460 3,500
Cash and bank 2,927 7,304
Total Assets 49,932 80,684

Liabilities
Non-current liabilities
Long-term loan 10,000 7,500
Current liabilities
Trade payables 2,245 4,290
Taxation (not paid) 530 814
Total liabilities 12,775 12,604
Equity
Ordinary shares of £1 each 28,000 56,000
Profit for the year 2,120 3,256
Retained earnings 7,037 8,824
Total equity and liabilities 49,932 80,684
Inventories at the end of 2018 was £1,830
Below are the financial ratios for Sushi Ltd for year 2019 and 2020:

2019    2020

Profitablity ratios: GPM
NPM ROCE
73.39%
14.11%
8.80%
73.00%
9.04%
6.87%
Liquidity ratios: Current ratio
Acid-test / Quick ratio
3.15
1.94
2.84
2.12
Efficiency ratios: IHP (days) RCP (days) PPP (days)
296
60
257
132
36
162
Capital structure ratios: Leverage ratio Interest coverage ratio
21.2%
2.77
9.92%
4.62

Required to
Comment and conclude on the performance of Sushi Ltd from the viewpoint of potential investors considering investing in Sushi Ltd

Sample Solution