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

(a) At the end of its financial year, 30 April 19X8, the following balances remained in the Company’s books after preparation of trading and profit and loss accounts.

£

Motor vehicles:

at cost 38,400 provision for depreciation 16,300 Net profit for year 36,600 Freehold premises at cost 190,000 Stock in trade 32,124 Share capital: 200,000 ordinary shares of £l each,

, fully paid 200,000 Insurance prepaid 280 Profit and loss account balance brought forward 3,950 Wages and salaries due 774 General reserve 24,000 Trade creditors 3,847 Trade debtors 4,782 8% Debentures 15,000 Rent receivable outstanding 175 Bank overdraft 1,830 Furniture and equipment:

at cost 44,000 provision for depreciation 7,460 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 19X8

(ii) a balance sheet as at 30 April 19X8 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 EOUR suggestions as to how working capital could be increased during the year ahead.

{Southern Examining Group: GCSE)