A Martha is the accountant of a trading business. During the past year she produced interim accounts for the six months ended 30 November 19X5, and draft final accounts for the year ended 31 May 19X6, as follows:

3 Current liabilities consisted entirely of trade creditors.
Martha informs you that the business leased additional premises from 1 December 19X5, and that sales arising therefrom totalled \(£ 70,000\) for the six months to 31 May 19 X6, with an average mark-up 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 19 X6.
(Edexcel Foundation, London Examinations: University of London GCE A-level)

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Sales (all on credit terms) Interim accounts Draft final accounts 140,000 336,000 Cost of sales (note 1) Gross profit 42,000 112,000 98,000 224,000 Less Expenses Net profit 56,000 168,000 42,000 56,000 Fixed 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