Adrian Frampton was considering the purchase of one of two businesses. However, Frampton had only been provided with limited information about the businesses, as follows:

Summarised Financial Information for the year ended 31 December 2012

\begin{tabular}{lrr}

Information & Business & Business \\

& $X$ & $Y$ \\

Cost of goods sold & $£ 400,000$ & $£ 600,000$ \\

Administrative expenses & $£ 50,000$ & $£ 60,000$ \\

Average inventory at cost & $£ 40,000$ & $£ 50,000$ \\

Working capital as at 31 December 2012 & $£ 90,000$ & $£ 250,000$ \\

Selling and distribution expenses & $£ 15,000$ & $£ 35,000$ \\

Proprietor's capital at 1 January 2012 & $£ 200,000$ & $£ 350,000$ \\

Gross profit percentage mark-up on cost & 20 & 25

\end{tabular}

\section*{Additional information:}

1 Average inventory had been calculated by using the year's opening and closing inventories. Subsequently it was discovered that Business $Y$ had overvalued its inventory on 31 December 2012 by $£ 10,000$.

2 Business X's administrative expenses included a payment for rent of $£ 15,000$ which covered a three-year period to 31 December 2014.

3 A sum of $£ 2,500$ was included in the administrative expenses of Business $Y$ in respect of a holiday taken by the owner and his family.
4 Cash drawings for the year ended 31 December 2012 were:
\begin{tabular}{lc}
Business $X$ & $£$ \\
Business $Y$ & 20,000 \\
\hline \end{tabular}
5 The owners of the businesses had stipulated the following prices for their businesses:
\begin{tabular}{lc}
& $£$ \\
Business X & 190,000 \\
Business Y & 400,000 \end{tabular}
\section*{Required:}

(a) Based on the information available prepare comparative income statements for the year ending 31 December 2012.

(b) Using the information provided and the accounting statements prepared in (a), calculate relevant accounting ratios in order to give Frampton a basis for assessing the performances of the two businesses. Comment on the results.

(c) What additional information is needed in order to assess more accurately (i) the liquidity of the businesses;
(ii) the future prospects of the businesses?
(AQA (Associated Examining Board): GCE A-level)