Q. 1 Adeel Gul is interested in obtaining shares in Gadwal Wood Company Ltd. (GWCL). and is at present examining financial data in respect of the past three years, derived from published accounts. Before acquiring shares he approaches you for assistance in obtaining the answers to the following questions concerning the trend over the period. (a). (b) (c). (d). (e). (f). (g). Do the shareholders gain any advantage from financial leverage? Are debtors settling their accounts quickly? Are the total A/C Receivable increasing? What has happened to the price/earning ratio over the period? Is earning per share increasing? What trend can be seen in the movement of the market price of company shares? What movement is there on the level of Inventory held? You are required to answer each of the above questions, using the following data, giving reasons with calculation for your answer. Financial data for three years: 2008 Sales trend (as percentages) 120 Inventory turnover 4.7 times 2007 107 5.3 times 2006 100 6.4 times Dividend per share unchanged over three year period Dividend yield 5% 4% 3% Dividend payout ratio 35% 45% 55% A/C Receivable turnover 8.3 times 9.1 times 10 times Return on total asset 6.3% 5.6% 5.2% Acid-test ratio 0.5:1 0.7:1 1.2:1 Return on shareholders capital employed 7.6% 5.5% 4.4% Current Ratio 2.4:1 2.1:1 1.7:1 (10 Marks) Q. 2. Fecto Cement has its subsidiary in Egypt. Fecto Cement purchases its material at current market costs and resells the product at a price 20 cents higher. Its inventory costs are constant throughout the current year. Data on the number of units in inventory at the beginning of the year, unit purchases, and unit sales are shown here: Number of units in inventory-beginning of year (@S1 per unit cost) 1,000 units Number of units purchased during year @ $1.50 per unit cost 1,000 units Number of units sold during year @ $1.70 per unit selling price 1,000 units The beginning-of-year balance sheet for Fecto Cement reports the following: Inventory (1,000 units @ $1)... $1,000 Total equity Required: $1,000 a. Compute the after-tax profit of Fecto Cement separately for both the (1) FIFO and (2) LIFO methods of inventory valuation assuming the company has no expenses other than cost of goods sold and its income tax rate is 50%. Taxes are accrued currently and paid the following year. b. If all sales and purchases are for cash, construct the balance sheet at the end of this year separately for both the (1) FIFO and (2) LIFO methods of inventory valuation. c. Describe the significance of each of these methods of inventory valuation for income determination and financial position in a period of increasing costs. (4+4+2 Marks) Page 1 of 2