The following information relates to the business of Lozon Ltd for the year ended 31 March 2015.

Required

a. Working to the nearest dollar, prepare an income statement for the year ended 31 March 2015 in as much detail as possible and an extract from a statement of changes in equity at 31 March 2015.

The directors of Lozon Ltd have decided to invest in Zeng Ltd. The following information relates to Zeng Ltd for the year ended 31 March 2015.

Required

b. Calculate the following ratios for Zeng Ltd, giving your answer to two decimal places.

Required

c. Based on these calculations, were the directors of Lozon Ltd correct to invest in Zeng Ltd? Explain your answer.

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Rate of inventory turnover (calculated using average inventory) 8 times Gross margin 35% Profit margin 12% Income gearing 40% Administrative expenses 2 x distribution costs Dividends paid $0.05 per share Issued share capital 250 000 ordinary shares of $0.50 each Inventory at 1 April 2014 $28 000 Inventory at 31 March 2015 $34 000 Retained earnings at 1 April 2014 $39 000