Question
INFORMATION Extracts of the statement of comprehensive income and statement of financial position of Silverstone Limited for 2021 and 2020 are as follows: Statement of
INFORMATION | ||
Extracts of the statement of comprehensive income and statement of financial position of Silverstone Limited for 2021 and 2020 are as follows: | ||
Statement of Comprehensive Income for the year ended 31 December: | ||
2021 (R) | 2020 (R) | |
Sales | 6 400 000 | 5 440 000 |
Cost of sales | 4 000 000 | 3 264 000 |
Gross profit | 2 400 000 | 2 176 000 |
Operating expenses | 960 000 | 1 056 000 |
Operating profit | 1 440 000 | 1 120 000 |
Profit before tax | 1 280 000 | 1 040 000 |
Profit after tax | 896 000 | 728 000 |
Statement of Financial Position as at 31 December: | ||
Assets | 2021 (R) | 2020 (R) |
Non-current assets | 7 600 000 | 6 400 000 |
Current assets | 5 240 000 | 4 400 000 |
Inventory | 2 440 000 | 1 600 000 |
Accounts receivable | 1 000 000 | 1 680 000 |
Cash and cash equivalents | 1 800 000 | 1 120 000 |
Total assets | 12 840 000 | 10 800 000 |
Equity and liabilities | ||
Shareholders equity | 9 880 000 | 8 800 000 |
Non-current liabilities | 1 600 000 | 800 000 |
Current liabilities (Accounts payable only) | 1 360 000 | 1 200 000 |
Total equity and liabilities | 12 840 000 | 10 800 000 |
Use the information provided below to answer the following questions: | ||
2.1 | Comment on the financial result of the company. | (2 marks) |
2.2 | Is the company efficient in its collection of debts arising from credit sales? Motivate your answer by using an appropriate ratio. | (3 marks) |
2.3 | Will creditors allow credit under distress business conditions to Silverstone Limited? Explain your answer with the relevant ratio. | (3 marks) |
2.4 | Would the shareholders be happy with the profitability of the company? Use an appropriate ratio to motivate your answer. | (4 marks) |
2.5 | Calculate the ratio for 2021 that reflects how the stock market is judging the companys earnings performance and prospects. | (4 marks) |
2.6 | Explain the impact on the cost of sales in the statement of comprehensive income if LIFO rather than FIFO method of valuing inventories is used during periods of rising prices. | (4 marks)
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