The financial statements for Harridges Ltd are given below for the two years ended 30 June 2006 and 2007. Harridges Limited operates a department store in the centre of a small town.

Harridges Ltd Income statement for the years ended 30 June 2006 2007

£000 £000 Sales revenue 2,600 3,500 Cost of sales (1,560) (2,350)

Gross profit 1,040 1,150 Wages and salaries (320) (350)

Overheads (260) (200)

Depreciation (150) (250)

Operating profit 310 350 Interest payable (50) (50)

Profit before taxation 260 300 Taxation (105) (125)

Profit for the year 155 175 Balance sheet as at 30 June 2006 2007

£000 £000 Non-current assets Property, plant and equipment 1,265 1,525 Current assets Inventories 250 400 Trade receivables 105 145 Cash at bank 380 115 735 660 Total assets 2,000 2,185 Equity Share capital: £1 shares fully paid 490 490 Share premium 260 260 Retained earnings 350 450 1,100 1,200 Non-current liabilities Borrowings – 10% loan notes 500 500 Current liabilities Trade payables 300 375 Other payables 100 110 400 485 Total equity and liabilities 2,000 2,185 7.7 274 EXERCISES Dividends were paid on ordinary shares of £65,000 and £75,000 in respect of 2006 and 2007, respectively.

Required: