Reference no: EM133093545

Question - Tshepiso Motors has been trading for a year and so it is time to draw up a profit and loss account and a balance sheet. (All amounts are in P'000.) Sales for the year were P400,470. Stock at the beginning of the year was P13,000 and at the end of the year was valued at P50,000. Stock purchases during the year came to P300,000. Other expenses appearing in the profit and loss account were P100,000. Depreciation for the year was calculated at P24,000. The tax owed to the government is P20,000. The company owns a small area of freehold land valued at P110,000.

The equipment (cost less depreciation) is P20,000. Creditors total P60,000, and the bank balance is P3,000. Cash in the till is P2,000. There are debtors at P45,000. The car wash is owned by the company and its depreciated value is P60,000. The retained profit is P40,000. The company has not declared a dividend.

Use the financial information to produce the profit and loss account and the balance sheet, year ending 31 December.

When you have drawn up the financial statements, answer the questions about the analysis of performance.

You will need to separate out the items into those which appear in a profit and loss account and those which are found in a balance sheet.

Remember that the retained profit of P40,000 is transferred to the balance sheet from the profit and loss statement, so you need to produce the profit and loss account first and then the balance sheet.

Now answer the following questions.

1 What is the working capital for Tshepiso Motors?

2 What is the quick ratio or acid test based on this year's performance?

3 Why is the ratio important?

4 What is the capital employed in Tshepiso Motors? (The capital employed is made up of fixed assets plus current assets minus current liabilities.)

5 What is the return on the capital employed?