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 inventory was £14,000 during the first six months.
2 Current assets were:

3 Current liabilities consisted entirely of trade accounts payable.
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 mark-up on cost prices of 150% being made on those goods.
Expenses relating to these additional premises totalled £21,000 for the period. Two-fifths of the closing inventory 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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Revenue (all on credit terms) Interim accounts Draft final accounts 336,000 140,000 Cost of sales (Note 1) 42,000 112,000 Gross profit 98,000 224,000 Less Expenses 56,000 168,000 Net profit 42,000 56,000 Non-current assets 70,000 63,000 Current assets (Note 2) 42,000 71,000 Current liabilities (Note 3) (22,000) (30,000) 90,000 104,000 Share capital 30,000 30,000 Retained earnings 60,000 74,000 90,000 104,000