Bairstow Holdings pic is investigating the possibility of investing in one of two companies. The first, Hamilton Engineering Ltd, is a UK company, and the accounts for the year ended 31 December 20X7 are available. The second is an overseas competitor to Hamilton Engineering, called Kriton Manufacturers SA. Kriton is incorporated in the central European country of Ecudia. Bairstow Holdings has also obtained the annual report and accounts for Kriton, but has found that the accounts are significantly dif¬ ferent from those of Hamilton.

In particular, the accounting regulations in Ecudia do not require the publication of an income statement. However, they do require a cash flow statement, although in a non-UK format, and a balance sheet. As assistant accountant for Bairstow Holdings, you have been asked to use the available information about Kriton to redraft the overseas accounts in a format con¬ sistent with generally accepted accounting practice in the UK. Having thus prepared accounts for Kriton which are comparable to those of Hamilton, you are also required to analyse their respective positions and prospects, and so to recommend which company, if either, Bairstow should invest in.

Accounts for Kriton Manufacturers SA All amounts are expressed in the local currency, the 'Euro' (€)

Notes to the accounts

► No fixed assets were sold during the year but £124,844 were bought.
► Research and development expenditure is charged to the profit and loss.
► Stock is valued at historical cost.
► The debentures were redeemed at nominal value.

Required

1 Draft a profit and loss account for Kriton Manufacturers SA for the year ended 31 December 20X7. Refer to Chapter 7 if you need to refresh your knowledge of how to do this.

2 Redraft the income statement for Kriton prepared in answer to part 1, in accordance with UK generally accepted accounting practice (i.e the accounting practice of Hamilton Engineering Ltd).

3 Redraft the balance sheets at both 31 December 20X7 and 31 December 20X6 for Kriton, in accordance with UK generally accepted accounting practice (i.e. the accounting practice of Hamilton Engineering Ltd).

4 Redraft the cash flow statement for the year ended 31 December 20X7 in accordance with best UK practice, adopting the indirect method of reporting. Refer to Chapter 9 if you need to refresh your knowledge of how to do this.

5 Calculate the following ratios for both Kriton, using your newly drafted accounts, and for Hamilton, for both 20X6 and 20X7, as far as the infor¬ mation allows:

(a) Gross profit.

(b) Net profit.

(c) Return on capital employed.

(d) Return on owner's equity.

(e) Gearing.

(f) Current.
(g) Quick.
(h) Debtors' collection.
(i) Creditors' payment.
(j) Stock turnover.
(k) Sales to capital employed.
Refer to Chapter 11 if you need to refresh your knowledge of how to do this.
6 Use the ratios as a basis for your recommendation to the directors of Bairstow Holdings pic on which company, if either, they should invest in. Refer to Chapter 11 if you need to refresh your knowledge of how to do this.

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Receipts From customers Interest received Fixed assets sold Debentures issued CASH FLOW STATEMENT 654,836 12,900 105,040 150,000 922,776 Payments To suppliers for goods purchased To suppliers for other expenses Purchases of fixed assets Costs of debenture issue Tax paid Dividends paid Interest paid Increase in bank balance 362,573 151,353 278,200 2,150 63,045 40,257 5,238 902,816 19,960