Galloway Ltd has an authorised capital of 250,000 ordinary shares of £1 each.

(a) At the end of its financial year, 30 April 20X8, the following balances remained in the company’s books after preparation of trading and profit and loss accounts.

The directors have proposed

(i) the transfer of £5,000 to the general reserve

(ii) a final dividend on the ordinary shares of 12.5%.

(b) Galloway Ltd’s directors are making an assessment of the company’s performance for the year. They are concerned by a decline in both profitability and liquidity despite an increase in turnover.

Required:

1. THREE significant differences between ordinary shares and debentures.

2. For Galloway Ltd

(i) A profit and loss appropriation account for the year ended 30 April 20X8

(ii) A balance sheet as at 30 April 20X8 in a form which shows clearly: total shareholders’ funds working capital.

3. Concerning the company’s performance

(i) Name ONE ratio which could be used to assess profitability.

(ii) State TWO possible reasons why the profitability ratio may have declined despite increased turnover.

(iii) Name ONE ratio, other than working capital ratio, which could be used to assess liquidity.

(iv) Give FOUR suggestions as to how working capital could be increased during the year ahead.

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Motor vehicles: at cost provision for depreciation Net profit for year Freehold premises at cost Stock in trade Share capital: 200,000 ordinary shares of £1 each, fully paid Insurance prepaid Profit and loss account balance brought forward Wages and salaries due General reserve Trade creditors Trade debtors 8% debentures Rent receivable outstanding Bank overdraft Furniture and equipment: at cost provision for depreciation £ 38,400 16,300 36,600 190,000 32,124 200,000 280 3,950 774 24,000 3,847 4,782 15,000 175 1,830 44,000 7,460