QUESTION ONE (40 MARKS)

(a) The following finance statements belong to J. Masoke

Trading and profit and loss account for the year ended 31^st Dec. 2005.

Sales				415,300
Less sales return				3,600
Net sales				411,700
Less cost of sales:
Opening stock		46,100
Purchases	284,400
+ carriage in	27,900
	312,300
Returns one	6,700	305,600
Cost of good available		351,700
Less closing stocks		55,300		296,400
				115,300
Discount received				1,900
Rent income				23,300
				140,500
Less expenses:
Carriage outwards	10,000
Wages and salaries	47,200
Discount allowed	3,400
General expenses	31,700			92,300
Net profit				48,000

Masoke Balance Sheet

as at 31^st Dec. 2005

F. Assets:
Premises	100,000
Furniture	25,000
Motor vehicles	60,000	185,000
Current assets:
Closing stock	55,300
Sundry debtors	48,500
Cash at bank	29,100
Cash in hand	600	133,500
		318,500
Capital	250,000
+ Net profit	48,200
	298,200
Drawings	32,500	265,700
Sundry creditors		52,800
		318,500

Required:

Calculate the following ratios: [20 marks]

1. Mark-up.
2. Margin.
3. Rate of stuck turnover.
4. Current ratio.
5. Acid test ratio.
6. Return on capital.
7. Average collection period.
8. Total assets turnover.
9. Debt ratio.
10. Working capital ratio.

(b) Explain how the following terms are useful in accounting:

[20 marks]

1. Substance over form.
2. Materiality.
3. Prudence.
4. Dual aspect.
5. Time interval concept.