Conday and Co. Ltd has been in operation for three years and produces antique reproduction furniture for the export market. The most recent set of financial statements for the business is set out as follows:

Balance sheet as at 30 November

£000 Non-current assets Property, plant and equipment (Cost less depreciation)

Land and buildings 228 Plant and machinery 762 990 Current assets Inventories 600 Trade receivables 820 1,420 Total assets 2,410 Equity Ordinary shares of £1 each 700 Retained earnings 365 1,065 Non-current liabilities Borrowings – 9% loan notes (Note 1) 200 Current liabilities Trade payables 665 Taxation 48 Short-term borrowings (all bank overdraft) 432 1,145 Total equity and liabilities 2,410 Income statement for the year ended 30 November

£000 Revenue 2,600 Cost of sales (1,620)

Gross profit 980 Selling and distribution expenses (Note 2) (408)

Administration expenses (194)

Operating profit 378 Finance expenses (58)

Profit before taxation 320 Taxation (95)

Profit for the year 225 Notes:

1 The loan notes are secured on the freehold land and buildings.

2 Selling and distribution expenses include £170,000 in respect of bad debts.

3 A dividend of £160,000 was paid on the ordinary shares during the year.

7.3 270 EXERCISES