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47.10 You are to study the following financial statements for two furniture stores and then answer the questions which follow. Financial Statements Statements of Profit
47.10 You are to study the following financial statements for two furniture stores and then answer the questions which follow. Financial Statements Statements of Profit or loss Sales 555,000 750,000 Less Cost of goods sold Opening inventory Add Purchases 100,000 80,000 200,000 320,000 300,000 400,000 Less Closing inventory (60,000) (240,000) (70,000) (330,000) Gross profit 315,000 420,000 Less Depreciation 5,000 15,000 Wages, salaries and commission 165,000 220,000 Other expenses 45,000 (215,000) 35,000 Net profit 100,000 (270,000) 150,000 Statements of financial position Non-current assets Equipment at cost 50,000 100,000 Less Depreciation to date (40,000) 10,000 (30,000) 70,000 Current assets Inventory 60,000 70,000 Accounts receivable 125,000 100,000 Bank 25,000 210,000 12,500 182,500 Total assets Current liabilities Net assets 220,000 252,500 (104,000) (100,500) 116,000 152,000 Accounts payable Financed by: Capitals Balance at start of year Add Net profit Less Drawings 76,000 72,000 100,000 150,000 176,000 222,000 (60,000) (70,000) 116,000 152,000 Total capital Required: (a) Calculate the following ratios for each business: (1) gross profit as percentage of sales; (ii) net profit as percentage of sales; (iii) expenses as percentage of sales; (iv) inventory turnover; (v) rate of return of net profit on capital employed (use the average of the capital account for this purpose); (vi) current ratio; (vii) acid test ratio; (viii) accounts receivable/sales ratio; (ix) accounts payable/purchases ratio. (b) Drawing upon all your knowledge of accounting, comment upon the differences and similar- ities of the accounting ratios for A and B. Which business seems to be the most efficient? Give possible reasons
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