Question One

You have been approached by the owner of a local retailer Berrimah Stores Pty Ltd to give

them advice on how their business is performing. You have been provided with a copy of

the following draft financial statements.

Berrimah Stores Pty Ltd

Statement of profit or loss

For the year ended 30th June 2021

Sales revenue $607,500

Cost of sales 440,100

Gross profit 167,400

Expenses 97,200

Profit (after interest expenses $3,402 and income

tax $34,020)

$70,200

Berrimah Stores Pty Ltd

Statement of financial position

as at 30th June 2021

Current assets

Cash $9,612

Accounts receivables $161,595

Less: Allowance for doubtful debts 10,206 151,389

Inventories 136,080

Total current assets 297,081

Non-current assets

Land 34,020

Building 122,040

Less: Accumulated depreciation 20,412 101,628

Fixtures and fittings 25,515

Less: Accumulated depreciation 14,714 10,801

Total non-current assets 146,449

Total assets $443,530

Asia Pacific College of Business and Law ACT507 Accounting for Managers Semester 1, 2021 Pag4 of 7

Current liabilities

Accounts payable $146,286Income tax payable 15,650Accruals 6,804Total current liabilities 168,740Non-current liabilities

Mortgage loan 34,020Total liabilities $202,760Equity

Share capital: 6% preference shares $27,000Ordinary shares 136,080Retained earnings 77,690Total equity 240,770Total liabilities and equity $443,530

You have also been provided with the following additional information:

Statement of financial position (extract)

as at 30th June 2020

Required:

Perform a ratio analysis to identify:

a. the entity's earning ability by calculating the ROE, ROA, Profit margin and the Gross

profit margin,

b. how the business has financed its asset purchases by using equity with the debt ratio,

c. the length of time in days that it takes to collect the accounts receivable,

d. how long measured in days the inventory stays on the shelves before it is sold,

e the ability of the business to use short term resources to meet its immediate liabilities if

there are unanticipated financial demands,

f. the ability of the entity's profits to cover the interest payments.