Question
The scenario Imagine Print Limited is a small printing company. It had been highly profitable for a number of years and its growth had been
The scenario Imagine Print Limited is a small printing company. It had been highly profitable for a number of years and its growth had been quite remarkable. The Chairman and Managing Director, Chris Lord, had always been meticulous in supervising all company activities, but in recent years he has been finding it increasingly difficult to maintain day-to-day control. Chris has been careful to minimise the companys administrative costs. The annual financial accounts had always confirmed his intuitions about the companys progress, so there seemed to be no need for more frequent reporting. However, because of the recent pandemic, Imagine Print Ltd has been finding it very difficult to win new contracts. It is company policy to depreciate all company vehicles at 20% per annum on a reduced-balance basis. The companys premises are listed buildings, and accordingly, there are restrictions on refurbishment. Chris had noticed some deterioration, and he was relieved that these buildings are depreciated annually at 1% on a straight-line basis. It is company policy to pay a total dividend of 10,000, and Chris is proposing to retain this policy, but is not convinced it will be possible. Chris has explored various ways to improve the sales of the company, and the Marketing Manager, Meghan McCall, has also outlined a number of ideas. Meghan is proposing to start an online service for the local community; according to her business plan, the sales revenue would increase by 20%. However, Meghan estimates that there will be an initial cost of 50,000, and operating costs will increase by 5%. Her second proposal is to allow discounts to students, which she forecasts will yield a 2% increase in revenue, after any additional costs. However, Chris is not convinced that providing service directly to students will increase the revenue. Chris is looking to approach local companies in an effort to promote his business. Chris decides to review the financial position of the company before making any decisions about future plans, and the company accountant prepare the Trial Balance for 31 December 2022 (see over). Trial Balance for Imagine Print for the year ended 31 December 2022 Sales 350,000 Sales returns 20,000 Premises : cost 200,000 : opening cumulative depreciation 5,000 Vehicle : cost 120,000 : opening cumulative depreciation 12,000 Purchases 110,000 Purchase returns 10,000 Light and heat 15,000 Rent 15,000 Bank 100,000 Insurance 6,000 Trade debtors 15,000 Bad debts written off during the year 4,000 Bad debt provision (1 January 2022) 250 Trade Creditors 20,000 Loan interest paid 5,000 Long term loan 110,000 Notes
1. The vehicles are depreciated at 20% per annum on a reduced-balance basis.
2. Premises are depreciated at 1% per annum on a straight-line basis.
3. The trade debtors figure of 15,000 includes the bad debts of 4,000 and is before any provision. Analysis of the debts shows that additional bad debt of 500 should be written off. 4. After dealing with (3) the bad debt provision is to be maintained at 5% of debts.
5. Imagine Print propose to pay a dividend of 10,000.
6. The tax for the year is 13,250, of which 6,600 was outstanding at 31 December 2022
7. The above rent is paid yearly in advance on 1 February.
8. On 1 January 2022, there were 100,000 inventories and on 31 December 2022 there were inventories valued 80,000 unsold.
Q 1. Prepare the Income Statement for Imagine Print for the period ended 31 December 2022
Q2. Prepare the Statement of financial position as at year ended 31 December 2022
Q3. Prepare a brief report on the profitability of the business compared to the previous year with some recommendations as to possible courses of future action. Chris has provided the following information about the year ended 31 December 2021 to assist with this task.
Income Statement Extract from 31st December 2021
| |
Sales | 300,000 |
Gross profit | 190,000 |
Total expenses | 60,000 |
Net profit | 120,000 |
you may use the following ratios for comparison:
Gross profit margin = gross profit / sales x 100;
Net profit margin = net profit / sales x 100;
You may also use percentage changes for comparison
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