QUESTION 3.

Looking at the Income Statement, which one of the following is true

1. The profit should be 2,400 because the electricity has not actually been paid for
2. Halving sales would reduce cost of sales by 5,750
3. Doubling sales would increase operating profit by 16,250
4. The cost of signage and furniture is missing, so there should be a loss of 3,800

QUESTION 4.

Based on the Statement of Financial Position, which one of the following is true:

1. There are no obvious solvency problems
2. There are no obvious liquidity problems
3. If Carl had paid himself a salary of 850 a month (instead of 800) he would have to take 150 less dividend.
4. The 3,000 signage and furniture should be included in current assets

QUESTION 5.

Based on the Statement of Cash Flows and other information about the company, which one of the following is true:

1. The business is not likely to run out of cash in the near future
2. If they had not built up inventory to 10,000 then the cash from operating activities would be positive
3. The business is likely to run out of cash within the next 2 months, unless they offer their customers generous credit terms
4. Buying inventory on 60 days credit (instead of 30) would prevent the company running out of cash in the near future.

QUESTION 6.

Based on the ratios provided, other information about the company and your knowledge of the industry, which one of the following is true:

1. Gearing is too high and the loan should be repaid urgently
2. The company will have no problems paying its liabilities as they fall due
3. Increasing selling prices of computers is likely to increase profit
4. Increasing the amount of repair work is likely to increase profit

Gigabit Ltd Budget Income Statement for the 3 months to 31 March 2022 Sales Revenue: Sale of computers Repairs 26,250 7,200 33,450 (17,200) 16,250 less less Cost of Sales Gross Profit Operating expenses Rent Leasing of equipment Carl's salary Electricity Insurance Rates Utilities (excluding electricity) Advertising Mileage Depreciation 6,000 1,500 2,400 750 350 1,050 900 900 600 150 (14,600) 1,650 Operating profit Opening inventory Purchases Technician salary Closing inventory Cost of Sales 0 21,500 5,700 (10,000) 17,200 Gigabit Ltd Budget Statement of Financial Position as at 31 March 2022 ASSETS Non-Current Assets Fixtures and fittings 2,850 Current Assets Inventory Prepaid expense Cash at Bank 10,000 1,050 2.350 13,400 Total Assets 16,250 EQUITY AND LIABILITIES Equity Share capital Retained profit 5.000 0 5000 Non-Current Liabilities Loan 3,000 Current Liabilities Trade payables Accrued expense 7,500 750 8,250 Total equity and liabilities 16,250 Workings W1 Flxtures and fittings Cost Depreciation Carrying amount at 31 March 2021 3,000 -150 2,850 1,400 Insurance paid Insurance for year Prepaid expense c/f -350 1,050 Gigabit Ltd Budget Statement of Cashflows for the 3 months to 31 March 2022 The Cash flows from operating activities Sales 33,450 Rent Leasing of equipment Computers/components Technician Carl's salary Insurance Rates Utilities (excluding electricity) Advertising Mileage Dividends Net Cash used in Operating Activities (6,000) (1,500) (14,000) (5,700) (2,400) (1,400) (1,050) (900) (900) (600) (1,650) (2,650) Cash flows from investing activities Signage & furniture Net cash used in investing activities (3,000) (3,000) Cash flows from financing activities Issue shares Loan Net cash used in financing activities 5,000 3,000 8000 2,350 Net increase in cash and cash equivalents Cash and cash equivalents at 1/1/21 Cash and cash equivalents at 31/3/21 0 2,350 following ratios have been calculated from the financial statements for the 3 months to 31 March 2022 Acid test: 0.4 Gross profit margin: 48.6% GPM for repairs is 20.8%, GPM for computers is 67.6% Gearing: 37.5%