Reference no: EM132379681
Question
The following financial statements were prepared for the management of Morgan Ltd. The statements contain some information that will be disclosed in note form in the general purpose external financial statements to be issued to the investors.
Morgan Ltd
Income Statement
For the year ended 30 June 2018
Revenues (Note 2) $850,500
Expenses, excluding finance costs (Note 4) 686,700
Finance costs 6,300
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Profit before income tax 157,500
Income tax expense 63,000
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Profit $ 94,500
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Morgan Ltd
Statement of Financial Position
As at 30 June 2018
Current assets
Cash and cash equivalents $ 37,800
Accounts receivables $299,250
Less: Allowance for doubtful debts 18,900
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280,350
Inventories 252,000
_______
Total current assets 570,150
_______
Non-current assets
Land 63,000
Building $189,000
Less: Accumulated Depreciation 37,800
_________ 151,200
Store equipment 47,250
Less: Accumulated Depreciation 22,050
_________ 25,200
_______
Total Non-current assets 239,400
_______
Total assets 809,550
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Current liabilities
Accounts payables 270,900
Preference dividends payable 3,780
Ordinary dividends payable 25,200
Other current liabilities 12,600
_______
Total current liabilities 312,480
_______
Non-current liabilities
Long-term borrowings (Note 5) 63,000
_______
Total Non-current liabilities 63,000
_______
Total liabilities 375,480
_______
Net assets 434,070
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Equity
Share capital $315,000
Retained earnings 119,070
_______
Total equity 434,070
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Morgan Ltd
Statement of Changes in Equity
For the year ended 30 June 2018
Share capital
Ordinary:
Balance at start of period $252,000
________
Balance at end of period 252,000
________
Preference (Note 6):
Balance at start of period 63,000
_______
Balance at end of period 63,000
________
Total share capital $315,000
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Retained earnings
Balance at start of period $53,550
Total profit for the period 94,500
Dividends - preferences (3,780)
Dividends - ordinary (25,200)
________
Balance at end of period $119,070
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Notes to the financial statements
Note 2: Revenue
Sales $850,500
Note 4: Expenses
Cost of sales 567,000
Selling and distribution expenses 89,000
Administration expenses 30,700
Note 5: Long-term borrowings
10% mortgage payable 63,000
Note 6: Preference shares
6% preference shares 63,000
Additional information:
1. The balance of certain accounts at the beginning of the year are:
Accounts receivables $315,000
Allowance for doubtful debts (26,350)
Inventories 220,500
2. Total assets and total equity at the beginning of the year were $756,000 and $368,550 respectfully.
REQUIRED:
A. Name the ratios that a financial analyst might calculate to give some indication of the following cases:
1. A company's earning power
2. The extent to which internal resources have been used to finance acquisition of assets
3. Rapidity with which accounts receivables are collected
4. The ability of the entity's earnings to cover its interest commitments
5. The length of time taken by the business to sell its inventories
B. Calculate and briefly discuss the suitability of the ratios mentioned for each of the above cases.
C. Given the above financial statements, comment on the company's profitability and liquidity.