Martha is the accountant of a trading business. During the past year she produced interim accounts for the six months ended 30 November 2005, and draft final accounts for the year ended 31 May 2006, as follows:

1 Average stock was £14,000 eaueg the first six months.
2 Current assets were:

3 Current liabilities consisted entirely of trade creditors.
Martha informs you that the business leased additional premises from 1 December 2005, and that sales arising therefrom totalled £70,000 for the six months to 31 May 2006, with an average markup on cost prices of 150 per cent being made on those goods.
Expenses relating to these additional premises totalled £21,000 for the period. Two-fifths of the closing stock of the business was located at these premises.
Prepare a report, using appropriate accounting ratios, to explain the changes in the financial situation of the business during the year ended 31 May 2006.

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Sales (all on credit terms) Cost of sales (Note 1) Gross profit Less Expenses Net profit Fixed assets Current assets (Note 2) Current liabilities (Note 3) Share capital Retained earnings Interim accounts Draft final accounts 140,000 336,000 42,000 112,000 98,000 224,000 56,000 168,000 42,000 56,000 70,000 63,000 42,000 71,000 (22,000) ( 30,000) 90,000 104,000 30,000 30,000 60,000 74,000 90,000 104,000