The trading stock of Joan Street, retailer, has been reduced during the year ended 31 March 19X8

Question:

The trading stock of Joan Street, retailer, has been reduced during the year ended 31 March 19X8 by £6,000 from its commencing figure of £21,000.

A number of financial ratios and related statistics have been compiled relating to the business of Joan Street for the year ended 31 March 19X8; these are shown below alongside comparative figures for a number of retailers who are members of the trade association to which Joan Street belongs:

Joan Trade Street association

% %

Net profit as % Net capital employed* 15 16 Net profit Sales 9 8 Sales 166^3 200 Net capital employed Fixed assets Sales Working capital ratio:

45 35 Current assets Current liabilities 400 287V2 Acid test ratio:

Bank + Debtors Current liabilities 275 1871^

Gross profit Sales Debtors collection period:

25 26 Debtors x 365 Sales 36V2 days 3217/20 days Stock turnover (based on average stock for the year) 10 times 8 times Joan Street has supplied all the capital for her business and has had no drawings from the business during the year ended 31 March 19X8.

Required:

{a) Prepare the trading and profit and loss account for the year ended 31 March 19X8 and balance sheet as at that date of Joan Street in as much detail as possible.

[b) Identify two aspects of Joan Street’s results for the year ended 31 March 19X8 which compare favourably with the trade association’s figures and identify two aspects which compare unfavourably.

(c) Outline two drawbacks of the type of comparison used in this question.

{Association of Accounting Technicians)

*Note from author: take closing figure at 31 March 19X8.

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