Amekom Plc is a public company that would like to acquire (100% of) a suitable private company. It has obtained the following draft financial statements for two companies, Bordiem Plc and Apim Plc. They operate in the same industry and their managements have indicated that they would be receptive to a takeover. Statements of Profit or Loss for the year ended 31st December, 2020 Bordiem Plc Apim Plc GH000 GH000 Revenue 12,000 20,500 Cost of sales (10,500) (18,000) Gross profit 1,500 2,500 Operating expenses (240) (500) Finance costs loan (210) (300) overdraft nil (10) lease nil (290) Profit before tax 1,050 1,400 Income tax expense (150) (400) Profit for the year 900 1,000 Note: dividends paid during the year 250 700 EXAMINERS: DR. C. AGYENIM-BOATENG;DR. EMMANUEL T. ASARE AND MR. A. ADDO 6 OF 10 Statements of financial position as at 31st December, 2020 Assets Non-current assets Freehold factory (note(i)) 4,400 nil Owned plant (note (ii)) 5,000 2,200 Leased plant (note (ii)) nil 5,300 9,400 7,500 Current assets Inventory 2,000 3,600 Trade receivables 2,400 3,700 Bank 600 nil ---------- ---------- 5,000 7,300 Total assets 14,400 14,800 Equity and liabilities Equity shares of GH1 each 2,000 2,000 Property revaluation reserve 900 nil Retained earnings 2,600 800 5,500 2,800 Non-current liabilities Finance lease obligations (note (iii)) nil 3,200 7% loan notes 3,000 nil 10% loan notes nil 3,000 Deferred tax 600 100 Government grants 1,200 nil -------- ---------- 4,800 6,300 -------- --------- Current liabilities Bank overdraft nil 1,200 Trade payables 3,100 3,800 Government grants 400 nil Finance lease obligations (note (iii)) nil 500 Taxation 600 200 4,100 5,700 ------------ ----------EXAMINERS: DR. C. AGYENIM-BOATENG;DR. EMMANUEL T. ASARE AND MR. A. ADDO 7 OF 10 Total equity and liabilities 14,400 14,800 Notes (i) Both companies operate from similar premises. (ii) Additional details of the two companies plant are: Bordiem Plc Apim Plc GH000 GH000 Owned plant cost 8,000 10,000 Leased plant original fair value nil 7,500 There were no disposals of plant during the year by either company. (iii) The interest rate implicit within ABC Plcs finance leases is 75% per annum. For the purpose of calculating ROCE and gearing, all finance lease obligations are treated as long-term interest-bearing borrowings: (iv) The following ratios have been calculated for Bordiem Plc and can be taken to be correct: Return on year end capital employed (ROCE) 148% (capital employed taken as shareholders funds plus long-term interest bearing borrowings see note (iii) above) Pre-tax return on equity (ROE) 191% Net asset (total assets less current liabilities) turnover 12 times Gross profit margin 125% Operating profit margin 105% Current ratio 12:1 Closing inventory holding period 70 days Trade receivables collection period 73 days Trade payables payment period (using cost of sales) 108 days Gearing (see note (iii) above) 353% Interest cover 6 times Dividend cover 36 times You are required to: (a) Calculate for Apim Plc the ratios equivalent to all those given for Bordiem Plc above. 6 marks (b) Assess the relative performance and financial position of Bordiem Plc and Apim Plc for the year ended 30 September 2020 to inform the directors of Amekom Plc in their acquisition decision. 10 marksEXAMINERS: DR. C. AGYENIM-BOATENG;DR. EMMANUEL T. ASARE AND MR. A. ADDO 8 OF 10 (c) Explain the limitations of ratio analysis and any further information that may be useful to the directors of Amekom Plc when making an acquisition decision. 4 marks