Lew Berhad

Comparative Statements of Financial Position

as at $31$ December $2022$ and $2021$

Assets $20222021$

Current Assets

Cash $20,87412,874$

Accounts receivable $5,0002,500$

Inventory $25,59924,359$

Prepaid expenses $2,8631,763$

Short$-$term investments $10,5633,500$

Total current assets $64,89944,996$

Fixed $($Long$-$Term$)$ Assets

Long$-$term investments $1,2081,208$

Property, plant, and equipment $15,34015,340$

$($Less accumulated depreciation$)-4,502-3,805$

Intangible assets $8,9568,956$

Total fixed assets $21,00221,699$

Other Assets

Deferred income tax $14,00014,000$

Other $4,5634,563$

Total Other Assets $18,56318,563$

Total Assets $104,46485,258$

$[42]$ Liabilities and Owner's Equity

Current Liabilities

Accounts payable $8,06015,032$

Short$-$term loans $2,69610,196$

Income taxes payable $3,1453,145$

Accrued salaries and wages $2,8002,300$

Unearned revenue $500500$

Total current liabilities $17,20131,173$

Long$-$Term Liabilities

Long$-$term debt $3,4504,450$

Deferred income tax $10,00010,000$

Other $4,5634,563$

Total long$-$term liabilities $18,01319,013$

Owner's Equity

Owner's investment $63,26032,180$

Net Profits $5,9902,892$

Total owner's equity $69,25035,072$

Total Liabilities and Owner's Equity $104,46485,258$

Additional information:

$1.$ Net Sales for the year ended $2022$ and $2021$ was RM$40,800$ and RM$10,000,$ respectively.

$2.$ Cost of goods sold was $60\%$ and $68\%$ of sales for $2022$ and $2021,$ respectively.

Required:

a$)$ Identify the category of ratio that is suitable for the following purposes:

i$.$ To measure the efficiency of the business in managing its assets to generate revenue.

ii$.$ To measure the performance of a business during an accounting period.

iii. To measure the ability of the business to meet its current obligations when they become due.

$[5$ marks$]$

b$)$ Compute the following ratios as at $31$ December $2022$ and $2021$ and compare the performance based on the ratios computed.

i$.$ Current ratio $($Example$)$

ii$.$ Debt ratio

$[2\mathrm{.}5$ marks$]$

iii. Gross profit ratio

$[2\mathrm{.}5$ marks$]$

iv$.$ Return on assets $[2\mathrm{.}5$ marks$]$

v$.$ Return on capital employed $[2\mathrm{.}5$ marks$]$

vi$.$ Inventory turnover $[3$ marks$]$

Show the answer of the above transactions based on the accounting equation in the form of Tabular table as shown below.

Ratio Purpose Formula $20222021$ Satisfactory Explanation

level

Current Ratio To show short$-$term debt paying ability Current Assets $6489944,9961\mathrm{.}5$ is considered as the norm and acceptable. In $2022,$ For every RM$1$ of the current liabilities, there is RM$3\mathrm{.}77$ of current assets to cover it$.$ In $2022$ the firm is able to cover short$-$term debts.

Current Liabilities $17,20131,173$

$==$

$3\mathrm{.}771\mathrm{.}44$

a$)$ What are the limitations of financial ratios analysis?

b$)$ State THREE $(3)$ objectives of financial statement analysis.