QUESTION TWO The chief accountant of Masaba Trading Enterprise Limited has 1sented the appended extracts of final accounts for the year ended September 2005. Trading, profit and loss account For the year ended 30th September 2005 Sales 30,000,000 Cost of sales (24,000,000) Gross profit 6,000,000 Expenses: Administrative 1,350,000 Establishment 1,265,000 Financial 485,000 (3,000,000) Net profit for the year 3,000,000 Corporation Tax at 40% 1,200,000 Proposed dividend 800,000 Transfer to General Reserve 600,000 ( 2,600,000) Retained profit 400,000 Retained profit brought forward 2,500,000 Retained profit carried forward 2,900,000

Balance sheet as at 30th September 2005 Liabilities Sh Sh Sh Sh Share capital fixed assets ( WDV) 5,500,000 80,000 ordinary Share of sh20 each Fully paid 1,600,000 Reserves: General reserve 2,000,000 Current assets: Stock in hand 1,900,000 Sundry debtors 2,100,000 Cash at bank 2,600,00 Profit and loss Account 2,900,000 4,900,000 Loan capital 15% debenture stock 1,200,000 Current liabilities Trade creditors 2,400,000 Corporate tax 1,200,000 Proposed dividend 800,000 4,400,000 12,100,000 12,100,00 Required: Compute and comment on the significance of the fo1lowing ratios: (a) Gross profit to sales; (b) Net profit (before tax) to sales; (c). Net profit (after tax) to sales; (d) Dividend rate on total profit; (e )Dividend amount per share; (f )Earnings per share; (g )Current ratio; (h )Acid test ratio; (i )Capital gearing