A You are presented with the following information relating to Messiter plc:

\begin{tabular}{|c|c|c|}

\hline Year to 31 December & \begin{tabular}{c}

2007 \\

$\mathrm{fm}$

\end{tabular} & \begin{tabular}{c}

2008 \\

$\mathrm{fm}$

\end{tabular} \\

\hline \multicolumn{3}{|l|}{ Income statements } \\

\hline Revenue, all on credit terms & 1,300 & \\

\hline Cost of sales & -650 & $\underline{770}$ \\

\hline Gross profit & $\underline{\underline{650}}$ & 630 \\

\hline Profit before taxation & 115 & 130 \\

\hline \multicolumn{3}{|c|}{ Statements of financial position at 31 December: } \\

\hline Non-current assets at cost & 850 & 850 \\

\hline Less Accumulated depreciation & 510 & 595 \\

\hline Net book value & 340 & 255 \\

\hline Inventory at cost & 105 & 135 \\

\hline Trade accounts receivable & 142 & 190 \\

\hline

\end{tabular}

Required:

(a) Using the historical cost financial statements and stating the formulae you use, calculate the following accounting ratios for both 2013 and 2014:

(i) Gross profit percentage;

(ii) Net profit percentage;

(iii) Inventory turnover, stated in days;

(iv) Trade accounts receivable collection period, stated in days; and

(v) Non-current asset turnover.

(b) Using the following additional information:

(i) Restate the turnover for 2013 and 2014 incorporating the following average retail price indices:

Year to 31.12.2013 85 Year to 31.12.2014 111

(ii) Calculate the additional depreciation charge required to finance the replacement of noncurrent assets at their replacement cost. The company's depreciation policy is to provide $10 \%$ per annum on original cost, assuming no residual value.

The replacement cost of non-current assets at 31 December was as follows:

2013 2014

\section*{$£$ millions}

1,140 1,200

(iii) Based upon these two inflation adjustments, why may it be misleading to compare a company's results for one year with that of another without adjusting for changes in general (RPI) or specific inflation?