12.5 The following information is obtained in connection with the affairs of two companies, manufacturing specialized metal products, in respect of the year ended 31 December 20X5:

Metalmax Precision Ltd Products Ltd

£000 £000 Sales 800 950 Administration expenses 30 30 Selling expenses (including promotional costs) 45 60 Plant and machinery at cost 360 360 Depreciation to 31 December 20X4 110 110 Current assets 240 400 Trade creditors 120 320 Share capital (£1 ordinary shares) 200 200 It is also established that both companies incur variable costs of sales, excluding depreciation, of 80 per cent on sales. Depreciation should be charged at 15 per cent on the cost of machinery. Reserves may be treated as the balancing figure in the balance sheets.

(a) Summary trading and profit and loss accounts for the year ended 31 December 20X5 and balance sheets at that date for each company to facilitate comparison.

(b) A comparison of the profitability of the two companies during 20X5 and of their respective financial positions at the end of the year. Relevant accounting ratios should be used to support the discussion.