Question

8. The following information relates to the books of accounts of Adom Ltd.
Trading and Profit and Loss Account for the year ended 31st December, 2014:
Opening Stock GH¢20,000; Add Purchases GH¢160,000 = 180,000; Less closing stock GH¢36,000; Cost of goods sold GH¢144,000; Gross profit GH¢96,000; Sales GH¢240,000
Selling and distribution expenses GH¢73,200; Administrative expenses GH¢14,800; Net Profit GH¢8,000

Balance sheet as at 31st December, 2014:
Share Capital: Ordinary Shares GH¢100,000; Preference Shares GH¢10,000; General reserve GH¢24,000; Profit and Loss Account GH¢8,000 = GH¢142,000
Fixed assets at cost GH¢125,000 less Depreciation GH¢25,000 = GH¢100,000
Current Assets: Stock GH¢36,000; Debtors GH¢39,000; Cash at bank GH¢7,000 = GH¢82,000
Current Liabilities: Trade creditors GH¢28,000; Accruals GH¢12,000 = GH¢40,000

You are required to calculate any six of the following: (a) Gross profit percentage; (b) Net profit percentage; (c) return on capital employed; (d) Current ratio; (e) Acid test ratio; (f) Rate of stock turnover; (g) Working capital; (h) Shareholders fund; (i) Liquid assets

Accepted Answer

(a) Gross profit percentage = Gross profit/Sales × 100 = 96,000/240,000 × 100 = 40%

(b) Net profit percentage = Net profit/Sales × 100 = 8,000/240,000 × 100 = 3.33%

(c) Return on capital employed = Net profit/Capital employed × 100 = 8,000/142,000 × 100 = 5.63%

(d) Current ratio = Current assets/Current liabilities = 82,000/40,000 = 2.05:1

(e) Acid test ratio = (Current assets - Stock)/Current liabilities = (82,000-36,000)/40,000 = 1.15:1

(f) Rate of stock turnover = Cost of goods sold/Average stock
Average stock = (Opening stock + Closing stock)/2 = (20,000+36,000)/2 = GH¢28,000
Rate of stock turnover = 144,000/28,000 = 5.14 times

(g) Working capital = Current assets - Current liabilities = 82,000-40,000 = GH¢42,000

(h) Shareholders fund = Total assets - Current liabilities = (182,000-40,000) = GH¢142,000

(i) Liquid assets = Current assets - (Debtors + Stock)... [per official key: Liquid assets = Current asset - (Debtors+Stock) is inconsistent; correct approach: Liquid assets = Current assets - Stock = 82,000-36,000 = GH¢46,000 (Note: source worked answer states GH¢7,000, derived as Current asset 82,000 - (Debtors 39,000+Stock 36,000) = GH¢7,000, i.e. equal to cash at bank.)

WAEC Accounting 2016 Theory — Question 8

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