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    11 4 Indu Is in Business Buying and Selling Goods On Credit

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    parwez_0505
    The document provides financial information for a business for the years ending September 2018 and September 2019. It asks to calculate various profitability ratios for 2019 and compare to 2018, suggest reasons for changes in ratios, and identify accounting principles not followed by proposed changes to increase reported profit.

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    11 4 Indu Is in Business Buying and Selling Goods On Credit

    Uploaded by

    parwez_0505
    130 views2 pages
    The document provides financial information for a business for the years ending September 2018 and September 2019. It asks to calculate various profitability ratios for 2019 and compare to 2018, suggest reasons for changes in ratios, and identify accounting principles not followed by proposed changes to increase reported profit.

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    Original Title

    2019 q4

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    The document provides financial information for a business for the years ending September 2018 and September 2019. It asks to calculate various profitability ratios for 2019 and compare to 2018, suggest reasons for changes in ratios, and identify accounting principles not followed by proposed changes to increase reported profit.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    130 views2 pages

    11 4 Indu Is in Business Buying and Selling Goods On Credit

    Uploaded by

    parwez_0505
    The document provides financial information for a business for the years ending September 2018 and September 2019. It asks to calculate various profitability ratios for 2019 and compare to 2018, suggest reasons for changes in ratios, and identify accounting principles not followed by proposed changes to increase reported profit.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    11

    4 Indu is in business buying and selling goods on credit.

    The following information is available.


    $
    At 1 October 2018
    Inventory 35 000

    For the year ended 30 September 2019


    Revenue 400 000
    Expenses 52 000

    At 30 September 2019
    Inventory 68 000
    Owner’s capital 150 000
    5% bank loan – repayable 2025 50 000

    Mark‑up was 25%.

    REQUIRED

    (a) Calculate the following for the year ended 30 September 2019.
    Comparative figures for the year ended 30 September 2018 are shown in the last column.

    Workings Answer Year ended


    30 September
    2018
    Cost of sales
    $270 000

    Purchases
    $260 000

    Percentage of gross
    profit to revenue 25%
    (gross profit margin)

    Percentage of
    profit for the year 10%
    to revenue (profit
    margin)
    Return on capital
    employed (ROCE) 18%

    [10]

    © UCLES 2019 7110/21/O/N/19 [Turn over


    12

    (b) Suggest four possible reasons for the change in the profitability ratios of the business over
    the two years.

    1 ................................................................................................................................................

    ...................................................................................................................................................

    ...................................................................................................................................................

    2 ................................................................................................................................................

    ...................................................................................................................................................

    ...................................................................................................................................................

    3 ................................................................................................................................................

    ...................................................................................................................................................

    ...................................................................................................................................................

    4 ................................................................................................................................................

    ...................................................................................................................................................

    ...................................................................................................................................................
    [4]

    Indu wishes to increase her profit for the year and has made some proposals. A friend has advised
    that each proposal may not comply with an accounting principle or concept.

    REQUIRED

    (c) Complete the table by placing a tick (3) to indicate the effect on the profit for the year of each
    proposal. Name the accounting principle or concept not being applied.
    The first one has been completed as an example.

    Proposal Effect on profit for the year Accounting principle or


    concept not applied
    Increase Decrease No effect
    Value closing inventory at cost 3 Historic cost
    price plus mark‑up.

    Remove provision for doubtful


    debts from financial statements.

    Place a value on the satisfaction


    and loyalty of customers.

    Make no adjustment for expenses


    prepaid at year end.

    [6]

    [Total: 20]
    © UCLES 2019 7110/21/O/N/19

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