Question 3 (30 marks) Harrison Ltd was incorporated three years ago and has grown growth difficult to handle. The Finance Director has s difficulties faced by the business are symptoms of an underlying problem of overtrading rapidly. The rapid has created problems for the business, which the directors have found uggested that most of the The most recent financial statements of the business are set out below Harrison Ltd Income statement for the years ended 30 June 2015 E'000) Sales revenue Cost of sales (Note 1) Gross proft Wages and salaries Administrative expenses Operating profit Interest payable Profit before taxation Taxation Profit for the year 1,390 966) 424 (104) (62) 258 44) 214 150 . Cost of sales '000 Opening inventories Purchases 60 1,050 (144) Closing inventories 966 2. All purchases and sales were on credit 3. A dividend was paid during the year on ordinary shares of 24,000 Page 7 of 10 Statement of financial position as at 30 June 2015 (E000) 2015 ('000) ASSETS Non-current assets Land and buildings at cost Less: Accumulated Dep 530 442 Fixtures and fittings at cost Less: Accumulated Dep. 208 (M 156 Motor vans at cost Less: Accumulated Dep 118 (54) 64 662 Current assets Inventories Trade receivables 144 194 338 1,000 Total assets EQUITY AND LIABILITIES Equity Ordinary 0.50 shares General reserves Retained earnings 60 50 50 160 Non-current liabilities Loan-interest @ 10% Current liabilities Trade payables Overdraft Taxation 150 184 436 70 690 ,000 Total equity and liabilities Required Explain the term overtrading' and explain how overtrading might arise for a business. a. (5 Marks) Calculate and discuss five ratios that might be used to establish whether the business is overtrading. b. 15 Marks) c. State the ways in which a business may overcome the problem of overtrading 10 Marks) TOTAL: 30 Marks