Durham Limited had an authorised capital of £200,000 divided into 100,000 ordinary shares of £1 each and 200,000 8% preference shares of 50p each. The following balances remained in the accounts of the company after the trading and profit and loss accounts had been prepared for the year ended 30 April 19X1.

Debit Credit

£ £

Premises at cost 86,000 General reserve 4,000 Ordinary shares: fully paid 100,000 8% Preference shares: fully paid 50,000 Electricity 100 Cash at bank 13,100 Profit and loss account balance 1 May 19X0 14,500 Debtors and creditors 20,000 12,900 Net profit (year ended 30 April 19X1) 16,500 Machinery and plant at cost 60,000 Provision for depreciation on machinery and plant 40,000 Stock 60,000 Provision for bad debts 4,000 Insurance 900 Preference share dividend paid 2,000

%

The Directors have recommended:

a transfer of £5,000 to general reserve;

242,000 242,000 an ordinary dividend of £0.15p per share; and a provision for the unpaid preference share dividend.

{a) Prepare the profit and loss appropriation account for year ended 30 April 19X1.

(b) Prepare the balance sheet as at 30 April 19X1, in a form which shows clearly the working capital and the shareholders’ funds.

(c) Identify and calculate:

(i) one ratio indicating the firm’s profitability;

(ii) two ratios indicating the firm’s liquidity position.

(d) Make use of your calculations in

(c) above to comment on the firm’s financial position.

(e) Name two points of comparison which are not available from the information above in this question but which could make your comments in {d) above, more meaningful.

(London East Anglian Group: GCSE)