Reference no: EM132976324

LCBB4001 Accounting Fundamentals - University of South Wales

Learning Outcome 1: Discuss who might be the main users of financial statements and their needs
Learning Outcome 2: Understand the basic principles underlying financial statements
Learning Outcome 3: Recognise the measurement problems arising in financial accounting
Learning Outcome 4: Appreciate the significance of the choices of accounting policies
Learning Outcome 5: Interpret simple financial statements
Learning Outcome 6: Use a set of financial statements to value an organisation for investment purposes

QUESTION 1

The following balances relate to Kedison PLC for the year ended 31st December 2020

	£	£
£1 ordinary shares		310,000
10% £1 preference shares		300,000
4% Debentures		100,000
Plant and equipment	632,730
Stock at 31st December 2020	330,600
Sales		826,650
Cost of sales	578,650
Debtors	170,125
Trade creditors		171,355
Cash and bank	12,900
Retained profits at 1st January 2020		132,000
Ordinary dividend paid	20,000
Preference dividend paid	30,000
Administrative expenses	30,000
Interest paid	2,000
Directors remuneration	5,000
Distribution costs	28,000
	1,840,005	1,840,005

The following information is relevant:

1. Corporation tax for the year is estimated at £68,000.

2. Salesmen are owed commission of £3,000 in respect of December sales. It will be paid on 31st January 2021 and has not been recorded in the ledger accounts yet.

3. Goods valued at £980 were sent to customers on 31st December 2020. Payment is due on 28 February 2021. This has not been recorded in the ledger accounts yet.

4. The preference shares should be included within equity.

Required:
a) Prepare a Profit and Loss statement for the year ended 31st December 2020 for Kedison PLC and a statement of financial position as at that date.

b) Why does the statement of financial position balance?

QUESTION 2

Chocco plc is a long-established chocolate and confectionery manufacturer. All products are manufactured in the UK, but sales are made worldwide. It is a growing but competitive market. Given below are extracts from their financial statements,

Profit and Loss statement for the year ended 31st December

	2020	2019
	£m	£m
Revenue	6,738	6,441
Cost of sales	(3,235)	(3,096)
Gross profit	3,503	3,345
Distribution costs	(437)	(422)
Marketing and selling costs	(1,324)	(1,274)
Administrative expenses	(937)	(950)
Operating profit	805	699
Profit/loss on sale of fixed assets	19	(5)
Investment income	22	26
Interest payable	(226)	(181)
Profit/(loss) before taxation	620	539
Taxation	(189)	(173)
Profit for the year	431	366

Statement of Financial Position as at 31st December

	2020	2019
Non- Current assets	£m	£m
Intangible assets	5,485	5,809
Property, plant and equipment	1,613	1,605
Investments	335	318
	7,433	7,732
Current assets
Inventory	708	659
Trade receivables	1,249	1,287
Investments	145	232
Cash	201	177
	2,303	2,355
Total assets	9,736	10,087
Current liabilities
Trade payables	(583)	(655)
Other creditors	(1,928)	(2,391)
	(2,511)	(3,046)
Non current liabilities
Loans and other borrowings	(4,137)	(4,129)
Net assets	3,088	2,912
Equity
Ordinary share capital (50p shares)	300	300
Share premium	1,071	1,071
Retained profits	1,717	1,541
	3,088	2,912

Additional information:
i. During 2020 a total dividend of £255m was paid (2019: £242m)

ii. The average share price during 2020 was £5.12 (2019: £4.00).

Required:
a. Calculate the following ratios for Chocco plc for 2020 and 2019, showing the formulas and workings:

1- ROCE
2- ROE
3- Earnings per share 4- Net profit margin
5- Asset turnover
6- Stock holding days
7- Debtors collection period 8- Current ratio
9- Gearing ratio
10- Invertor cover

b. Using the information in the financial statements and the ratios you have calculated, comment on the financial performance and position of Chocco plc.