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Ratio 1

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Ratio 1

  • This topic has 2 replies, 2 voices, and was last updated 8 years ago by MikeLittle.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • May 24, 2017 at 11:46 am #387819
    kengara
    Member
    • Topics: 197
    • Replies: 107
    • ☆☆☆

    Both questions have been taken from Bpp

    Second example

    Shown below are the recently issued (summarised) financial statements of Harbin, a listed company, for the year ended 30 September 2007, together with comparatives for 2006 and extracts from the Chief Executive’s report that accompanied their issue.
    Income statement
    —————————————————————————–2007——- 2006
    —————————————————————————–RM’000—– RM’000
    Revenue—————————————————————– 250,000—— 180,000
    Cost of sales————————————————————- (200,000)—— (150,000) —————————————————————————————–––––––– ––––––––
    Gross profit—————- ———————————————–50,000——— 30,000 Operating expenses—————————————————— (26,000)—— (22,000) Finance costs—————————————————————- (8,000)——– (nil) ————————————————————————————————–––––––– –––––––– Profit before tax—————————————————————– 16,000—– 8,000 Income tax expense (at 25%)————————————————– (4,000)— (2,000) ———————————————————————————————-–––––––– ––––––––
    Profit for the period—————————————————————– 12,000—– 6,000

    Property, plant and equipment ————————————————210,000— 90,000 Goodwill —————————————————————————-10,000—– nil
    ————————————————————————————-–––––––– –––––––– ———————————————————————————————220,000—- 90,000 —- Current assets
    Inventory—————————————————————————- 25,000—— 15,000 Trade receivables—————————————————————– 13,000—– 8,000 Bank———————————————————————————— nil——- 14,000 ———————————————————————————————––––––––– –––––––– ——————————————————————————————–38,000—- 37,000 ——————————————————————————————––––––––– –––––––– Total assets—————————————————————————– 258,000– 127,000

    Equity shares of RM1 each———————————————————– 100,000 100,000 Retained earnings ———————————————————————— 14,000 12,000 ——————————————————————————————–––––––– ––––––––
    ————————————————————————————————114,000 112,000

    Non-current liabilities
    8% loan notes—————————————————————————– 100,000—– nil

    Current liabilities
    Bank overdraft——————————————————————————– 17,000 nil Trade payables—————————————————————————– 23,000 13,000 Current tax payable————————————————————————– 4,000 2,000 ——————————————————————————————––––––––– –––––––– ————————————————————————————————–44,000 15,000 Total equity and liabilities————————————————————– 258,000 127,000

    Extracts from the Chief Executive’s report: ‘Highlights of Harbin’s performance for the year ended 30 September 2007:

    an increase in sales revenue of 39%

    gross profit margin up from 16•7% to 20%

    a doubling of the profit for the period.

    In response to the improved position, the Board paid a dividend of 10 sen per share in September 2007; an increase of 25% on the previous year.’

    You have also been provided with the following further information. On 1 October 2006, Harbin purchased the whole of the net assets of Fatima (previously a privately owned entity) for RM100 million, financed by the issue of $100,000 *% loan notes
    The contribution of the purchase to Harbin’s results for the year ended 30 September 2007 was:

    Revenue———– 70,000
    Cost of sales (40,000)
    —————- –––––––
    Gross profit 30,000
    Operating expenses (8,000)
    —————————–––––––
    Profit before tax 22,000

    Interest-8000
    Loan note-100000
    tax charge 5500-does this beling to Fatima?((2000*25%=2000-500=1500+4000)
    Without fatima
    First 3 ratios

    ROCE(24000-22000)/114000-(22000-5500)*100%=2.05

    NEt asset(250000-70000)/114000-(22000-5500)=1.85

    Net profit(before tax) margin=24000-22000/(250000-70000)*100=1.1

    If we see in the second example it has only 22000 profit before tax which has been deducted from PBT of 20×7(profit before tax 16000+8000=24000) but finance cost 8000 has not been deducted why?

    Also, if we see 22000-5500why?also why the resul of this is deducted from equity part 114000?

    In the first example 5000 deducted which has not Profit before tax? -ROCE–((16250+1750)-5000 interest)/150000-50000 0r 95000+5000)*100%=13%

    Also in the first example only nothing deducted from equity part when calculating due to not having any profit before tax?

    Please I really need explanation?

    (a) Calculate ratios for Harbin for the year ended 30 September 2007 equivalent to those calculated for the year ended 30 September 2006 (showing your workings). (8 marks)

    (b) Assess the financial performance and position of Harbin for the year ended 30 September 2007 compared to the previous year. Your answer should refer to the information in the Chief Executive’s report and the impact of the purchase of the net assets of Fatima

    May 24, 2017 at 12:25 pm #387828
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23309
    • ☆☆☆☆☆

    “tax charge 5500-does this beling to Fatima?”

    yes, it’s 25% of fatima’s $22,000 profit before tax

    “ROCE(24000-22000)/114000-(22000-5500)*100%=2.05”

    Why are you deducting Fatima’s profit after tax (22000-5500) from capital employed?

    “but finance cost 8000 has not been deducted why?”

    Because we’re looking at profit BEFORE interest and tax so that’s why we have added back the $8,000 interest to the $16,000 profit before tax

    Where have you got these figures from?

    “ROCE(24000-22000)/114000-(22000-5500)*100%=2.05

    NEt asset(250000-70000)/114000-(22000-5500)=1.85

    Net profit(before tax) margin=24000-22000/(250000-70000)*100=1.1”

    because, basically, they don’t make sense!

    “Also in the first example” – which first example?

    May I suggest something here?

    May I put it to you that your time would be much more profitably employed working endlessly through multiple choice questions together with getting fully on top of consolidations and preparation of single company financial statements

    You have spent so much time on this one question alone that it realistically cannot be worth the investment

    The calculation of ratios in an interpretation question is normally worth just 1 mark per ratio

    If you get the denominator wrong in a ratio and you use that same wrong denominator in the calculation of another ratio, that’s only 1 mark lost, not 2

    Move on! Open a revision kit and go over ALL those mcqs and mtqs again

    And again

    May 24, 2017 at 5:57 pm #387820
    kengara
    Member
    • Topics: 197
    • Replies: 107
    • ☆☆☆

    This is my first example the above is my second example.

    Hi My dear Tutor, I have a question which is important.PLease do not close thread, make it open i can’t look at it anytime, it took about more than 1 hour to post it(((((((((

    Statements of profit or loss for the year ended 31 March:
    2014——— 2013
    $’000——— $’000
    Revenue ——————————————————————–150,000—– 110,000
    Cost of sales—————————————————————-(117,000)—- (85,800)
    ———————————————————————————––––––––– ––––––––
    Gross profit ———————————————————————–33,000 ——-24,200
    Distribution costs—————————————————————-(6,000)——- (5,000)
    Administrative expenses——————————————————-(9,000)—— (9,200)
    Finance costs – loan note interest———————————————(1,750)——- (500)
    —————————————————————————————-–––––––– ––––––––
    Profit before tax——————————————————————–16,250——– 9,500
    Income tax expense—————————————————————-(5,750)—— (3,000)
    ————————————————————————————––––––––– ––––––––
    Profit for the year ———————————————————————10,500—— 6,500

    Statements of financial position as at 31 March:
    —————————————————————————— 2014——— 2013
    ——————————————————————————$’000——– $’000

    Property, plant and equipment————————————118,000—– 85,000
    Goodwill———————————————————————30,000——– nil
    ——————————————————————————–––––––– ––––––––
    ———————————————————————————148,000—– 85,000

    Current assets
    Inventory——————————————————————–15,500——— 12,000
    Trade receivables———————————————————-11,000———– 8,000
    Bank—————————————————————————–500————– 5,000
    ———————————————————————————––––––––– ––––––––
    ————————————————————————————27,000——— 25,000
    —————————————————————————————–––––––– ––––––––
    Total assets ———————————————————————–175,000——- 110,000

    Equity shares of $1 each —————————————————-80,000——– 80,000 Retained earnings ————————————————————-15,000 10,000
    ————————————————————————————- –––––––– ––––––––
    —————————————————————————————–95,000—- 90,000
    Non-current liabilities
    10% loan notes ———————————————————————-55,000—- 5,000

    Current liabilities
    Trade payables————————————————————————- 21,000— 13,000 Current tax payable ———————————————————————-4,000 2,000
    ——————————————————————————————–––––––– ––––––––
    ————————————————————————————————25,000 15,000
    ——————————————————————————————–––––––– ––––––––
    Total equity and liabilities ———————————————————–175,000 110,000

    Note

    The following information is available:
    (i) On 1 January 2014, Woodbank purchased the trading assets and operations of Shaw for $50 million and, on the same date, issued additional 10% loan notes to finance the purchase. Shaw was an unincorporated entity and its results (for three months from 1 January 2014 to 31 March 2014) and net assets (including goodwill not subject to any impairment) are included in Woodbank’s financial statements for the year ended 31 March 2014 .There were no other purchases or sales of non-current assets during the year ended 31 March 2014.

    (ii) Extracts of the results (for three months) of the previously separate business of Shaw, which are included in Woodbank’s statement of profit or loss for the year ended 31 March 2014, are:
    ————————————$’000
    Revenue———————-30,000
    Cost of sales ————–(21,000)
    ——————————- –––––––
    Gross profit—————– 9,000
    Distribution costs———- (2,000)
    Administrative expenses- (2,000)

    Required: (a) Calculate for the year ended 31 March 2014:

    (ii) equivalent ratios to the first FOUR only for Woodbank excluding the effects of the purchase of Shaw. Note: Assume the capital employed for Shaw is equal to its purchase price of $50 million

    loan interest 5000
    loan note-50000

    Without Shaw
    first four ratios include
    ROCE–((16250+1750)-5000 interest)/150000-50000)*100%=13%
    Asset turnover–(150000-30000)/100000=1,2
    Gross profit margin=(33000-9000)/(150000-30000)*100%=20%
    PBIT margin=18000-5000/(150000-30000)=10.8%

    My question here has 5000 interest been included in finance cost of 20×4(1750)?

    Main question will be based on second example.

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