Iris Dr £ Cr £

Revenue   300,000
Opening inventory: at 1 January 20,000  
Cost of Purchases 170,000  
Distribution costs 35,000  
Administration expenses 45,000  
Finance expenses (8% loan notes) 8,000  
Tax expense (20%) 0 
Land 200,000  
Buildings 500,000  
Buildings: accumulated depreciation at 1
January   140,000
Plant and equipment 650,000  
Plant and equipment: accumulated
depreciation at 1 January   364,000
Trade receivables and payables 70,000 50,000
Cash at bank 25,000  
Ordinary shares of £1each: at 1 January   350,000
(shares outstanding=400000 )
Share premium account: at 1 January   210,000
Retained earnings   221,000
Interest payable   8,000
Tax payable   0
8% loan notes ­_______ 80,000
  1,723,000 1,723,000

Building Depreciation % 4
P&E Depreciation % 8
Closing 0
AnuAL i tax 20

Depreciations of buildings =5%*600k= 30k 20000

depreciation of P&E=10%* 500k= 50k 52000

Journal entries:
Depreciation expense of buildings (Admin
expenses) 30k Dr 20000
Accumulated Depreciation of buildings 30k Cr 20000

cost of sales = opening 40000 + purchases 180000 –

closing 25000 + depreciation 50000 of P&E of note
1= 245000 242,000

tax expense = 24000 profit before tax * 20% = 4800 10000 Tax paid due check, always +ve
Tax expense
Tax payable
Revenues
Minus: cost of sales (40000 opening
+180000 purchases – 25000 closing +
Depreciation of P&E 50000 )
Gross profit
Minus: selling and distribution
Minus: administration (original 30000 +
buildings depreciation 30000)
Operating profit – EBIT
Minus: finance costs
Profit before tax
Minus: tax expense (20% * 24000 =
4800)
Net profit
10000 Dr
10000 Cr
£ 300,000
£ 242,000
£ 58,000
£ 35,000
£ 65,000
£ -42,000
£ 8,000
£ -50,000
£ 10000
£ 40,000 remove abs to know if
remove abs to know if profit or loss
Iris Dr £ Cr £
Revenue   360,000
Opening inventory: at 1 January 40,000  
Cost of Purchases 180,000  
Distribution costs 25,000  
Administration expenses 30,000  
Finance expenses (8% loan notes) 6,000  
Tax expense (20%) 0 
Land 400,000  
Buildings 600,000  
Buildings: accumulated depreciation at
1 January   120,000
Plant and equipment 500,000  
Plant and equipment: accumulated
depreciation at 1 January   200,000
Trade receivables and payables 80,000 60,000
Cash at bank 40,000  
Ordinary shares of £1each: at 1
January   400,000
(shares outstanding=400000 )
Share premium account: at 1 January   500,000
Retained earnings   180,000
Interest payable   6,000
Tax payable   0
8% loan notes ­_______ 75,000
  1,901,000 1,901,000

Building Depreciation % 5
P&E Depreciation % 10
Closing 25000
AnuAL i tax 20

Depreciations of buildings =5%*600k= 30k 30000

depreciation of P&E=10%* 500k= 50k 50000

Journal entries:
Depreciation expense of buildings (Admin
expenses) 30k Dr 30000
Accumulated Depreciation of buildings 30k 30000

cost of sales = opening 40000 + purchases

180000 – closing 25000 + depreciation 50000
of P&E of note 1= 245000 245,000
tax expense = 24000 profit before tax * 20% =
4800 4800 Tax paid due check, always +ve

Tax expense 4800 Dr

Tax payable 4800 Cr

Revenues £ 360,000

Minus: cost of sales (40000 opening

+180000 purchases – 25000 closing
+ Depreciation of P&E 50000 )
Gross profit
Minus: selling and distribution
Minus: administration (original
30000 + buildings depreciation
30000)
Operating profit – EBIT
Minus: finance costs
Profit before tax
Minus: tax expense (20% * 24000 =
4800)
Net profit
£ 245,000
£ 115,000
£ 25,000
£ 60,000
£ 30,000
£ 6,000
£ 24,000 If +ve profit, if -ve loss
£ 4800
£ 19,200

Operating Profits 170,000

  Pre, Trial balance Adjustments

  Dr £ Cr £ Dr

Revenue   360,000  
Opening inventory: at 1 January 40,000    
Cost of Purchases (plus depreciation
expense of P&E) 180,000   50000
Distribution costs 25,000    
Administration expenses (plus
depreciation expense of buildings) 30,000   30000
Finance expenses (8% loan notes) 6,000    
Tax expense (20%) 0  4800
Land 400,000    
Buildings 600,000    
Buildings: accumulated depreciation at
1 January   120,000  
Plant and equipment 500,000    
Plant and equipment: accumulated
depreciation at 1 January   200,000  
Trade receivables and payables 80,000 60,000  
Cash at bank 40,000    
Ordinary shares of £1each: at 1
January   400,000  
(shares outstanding=400000 )
Share premium account: at 1 January   500,000  
Retained earnings   180,000  
Interest payable   6,000  
Tax payable   0 
8% loan notes ­_______ 75,000  
  1,901,000 1,901,000  

  Sub-total Total
-       Assets    
Non-current Assets    
Land 400,000  
Buildings 600,000
Buildings: accumulated
deprecation 150,000
Building, net book value 450,000  
Plant & equipment 500,000  
Plant & equipment: accumulated
depreciation 250,000  
Plant & equipment, net book value 250,000  
Total non-current Assets   1,100,000
     
Current Assets    
Inventory (closing, n#3) 25000  
Trade receivables 80000   Tax Recievible
Cash at bank 40000  
Total current Assets   145000
Total Assets; also call total worth   1245000
     
-       Liabilities and equity capital    
Non-current liabilities    
8% loan notes   75,000
     
Current liabilities    
Trades payables 60,000  
Tax payable 4800  
Interest payable 6000  
Total current liabilities   70,800
Total liabilities   145,800
     
Equity capital    
Share capital (Ordinary shares of
£1; shares outstanding= 400000 ) 400,000  
Share premium 500000  
Retained earnings (180000 + 19200
net profit) 199,200  
Total equity capital; also call net
worth   1,099,200
Total liabilities and equity capital   1,245,000

Ratios 2019
Profitability
Return on Equity= (Net
Return on Equity 1.746724891 Profit)/Equity×100 1.74672
Return on Capital Employed=
(Operating profit)/(Equity+Non current
ROCE (ROI) 2.554931017 liabilities)×100 2.55493
Gross Profit Margin= (Gross
Gross Profit Margin 31.94444444 profit)/Revenue×100 31.9444
Operating Profit Margin= (Operating
Operating Profit Margin 8.333333333 profit)/Revenue×100 8.33333
Efficiency
Inventories Turnover= Inventory/(-
A. Inventory turnover period in days 37.24489796 Cost of sales)×365 37.2449
B. Trade receivables collection period Trade receivables settlement period=
in days 81.11111111 (Trade receivables)/Revenue×365 81.1111
Trade payables settlement period=
C. Trade payables payment period in (Trade payables)/(-Purchases or cost of
days 89.3877551 sales)×365 89.3878
cashing out the investment of working
Working Capital Cycle /Cash capital takes 29 days which is healthy
conversion cycle (A+B-C) 28.96825397 indicator of efficency 28.9683
Asset Turnover= Revenue/(Total
Asset turnover 0.306591722 Assets - current liabilities) 0.30659
Working Capital Turnover= Revenue/
Working Capital turnover 4.851752022 (Current Assets - current liabilities) 4.85175
the working capital turnover seems to
be healthy but the asset turnover shows
very low efficency mostly from non-
current assets which explains why
ROCE is relatively low at 2.55%
Liquidity
Current ratio (do not include assets Current ratio= (Current
held for sale) 2.048022599 assets)/(Current liabilities) 2.04802
Acid test ratio= (Current assets
Quick ratio (or acid test) 1.694915254 -inventory)/(Current liabilities) 1.6949
the current and quick ratios are solvent
and healthy enough
Gearing
Financial gearing= (Non current
liabilities)/(Equity+ Non current
Financial Gearing/Leverage 6.387327542 liabilities)×100 6.38733
Interest cover= (Operating profit)/(-
interest Cover 5 Interest expense) 5
If +ve profit, if -ve loss

Adjusted Trial
Adjustments Balance
Cr Dr Cr
add new
  things 360,000
  40,000  

  230,000  
  25,000  

  60,000  
  6,000  
  4800  
  400,000  
  600,000  

30000   150,000
  500,000  

50000   250,000
  80,000 60,000
  40,000  
     400,000

    500,000
    180,000
    6,000
4800   4800
    75,000
  1,985,800 1,985,800

Tax Recievible
Iris Dr £ Cr £
Revenue   300,000
Opening inventory: at 1 January 20,000  
Cost of Purchases 170,000  
Distribution costs 35,000  
Administration expenses 45,000  
Finance expenses (8% loan notes) 8,000  
Tax expense (20%) 0 
Land 200,000  
Buildings 500,000  
Buildings: accumulated depreciation at
1 January   140,000
Plant and equipment 650,000  
Plant and equipment: accumulated
depreciation at 1 January   364,000
Trade receivables and payables 70,000 50,000
Cash at bank 25,000  
Ordinary shares of £1each: at 1
January   350,000
(shares outstanding=400000 )
Share premium account: at 1 January   210,000
Retained earnings   221,000
Interest payable   8,000
Tax payable   0
8% loan notes ­_______ 80,000
  1,723,000 1,723,000

Building Depreciation % 4
P&E Depreciation % 8
Closing 0
AnuAL i tax 20

Depreciations of buildings =5%*600k= 30k 20000

depreciation of P&E=10%* 500k= 50k 52000

Journal entries:
Depreciation expense of buildings (Admin
expenses) 30k Dr 20000
Accumulated Depreciation of buildings 30k 20000

cost of sales = opening 40000 + purchases

180000 – closing 25000 + depreciation 50000
of P&E of note 1= 245000 242,000
tax expense = 24000 profit before tax * 20% =
4800 10000 Tax paid due check, always +ve

Tax refund 10000 Dr

Tax asset/recievible 10000 Cr

Revenues £ 300,000

Minus: cost of sales (40000 opening

+180000 purchases – 25000 closing
+ Depreciation of P&E 50000 )
Gross profit
Minus: selling and distribution
Minus: administration (original
30000 + buildings depreciation
30000)
Operating loss – EBIT
Minus: finance costs
Loss before tax
Minus: tax Refund (20% * 24000 =
4800)
Net Loss
£ 242,000
£ 58,000
£ 35,000
£ 65,000
£ -42,000
£ 8,000
£ -50,000
£ 10000
£ 40,000

Operating Profits 138,000

  Pre, Trial balance Adjustments

  Dr £ Cr £ Dr

Revenue   300,000  
Opening inventory: at 1 January 20,000    
Cost of Purchases (plus depreciation
expense of P&E) 170,000   52000
Distribution costs 35,000    
Administration expenses (plus
depreciation expense of buildings) 45,000   20000
Finance expenses (8% loan notes) 8,000    
Tax expense or refund (20%) 0 
Land 200,000    
Buildings 500,000    
Buildings: accumulated depreciation at
1 January   140,000  
Plant and equipment 650,000    
Plant and equipment: accumulated
depreciation at 1 January   364,000  
Trade receivables and payables 70,000 50,000  
Cash at bank 25,000    
Ordinary shares of £1each: at 1
January   350,000  
(shares outstanding=400000 )
Share premium account: at 1 January   210,000  
Retained earnings   221,000  
Interest payable   8,000  
Tax Recieviable   0 10000
8% loan notes ­_______ 80,000  
  1,723,000 1,723,000  

  Sub-total Total
-       Assets    
Non-current Assets    
Land 200,000  
Buildings 500,000
Buildings: accumulated
deprecation 160,000
Building, net book value 340,000  
Plant & equipment 650,000  
Plant & equipment: accumulated
depreciation 416,000  
Plant & equipment, net book value 234,000  
Total non-current Assets   774,000
     
Current Assets    
Inventory (closing, n#3) 0 
Trade receivables 70000   Tax Recievib
Cash at bank 25000  
Total current Assets   105000
Total Assets; also call total worth   879000
     
-       Liabilities and equity capital    
Non-current liabilities    
8% loan notes   80,000
     
Current liabilities    
Trades payables 50,000  
Tax payable 0 
Interest payable 8000  
Total current liabilities   58,000
Total liabilities   138,000
     
Equity capital    
Share capital (Ordinary shares of
£1; shares outstanding= 400000 ) 350,000  
Share premium 210000  
Retained earnings (180000 + 19200
net profit) 181,000 Difference if loss
Total equity capital; also call net
worth   741,000
Total liabilities and equity capital   879,000

Ratios 2019
Profitability

Minus
multiplied
Return on Equity= (Net by value
Return on Equity -5.39811066 Profit)/Equity×100 if loss
Return on Capital Employed=
(Operating profit)/(Equity+Non current
ROCE (ROI) -5.11571255 liabilities)×100
Gross Profit Margin= (Gross
Gross Profit Margin 19.33333333 profit)/Revenue×100
Operating Profit Margin= (Operating
Operating Profit Margin -14 profit)/Revenue×100
Efficiency
Inventories Turnover= Inventory/(-
A. Inventory turnover period in days 0 Cost of sales)×365
B. Trade receivables collection period Trade receivables settlement period=
in days 85.16666667 (Trade receivables)/Revenue×365
Trade payables settlement period=
C. Trade payables payment period in (Trade payables)/(-Purchases or cost of
days 75.41322314 sales)×365
cashing out the investment of working
Working Capital Cycle /Cash capital takes 29 days which is healthy
conversion cycle (A+B-C) 9.753443526 indicator of efficency
Asset Turnover= Revenue/(Total
Asset turnover 0.365408039 Assets - current liabilities)
Working Capital Turnover= Revenue/
Working Capital turnover 6.382978723 (Current Assets - current liabilities)
the working capital turnover seems to
be healthy but the asset turnover shows
very low efficency mostly from non-
current assets which explains why
ROCE is relatively low at 2.55%
Liquidity
Current ratio (do not include assets Current ratio= (Current
held for sale) 1.810344828 assets)/(Current liabilities)
 Acid test ratio= (Current assets
Quick ratio (or acid test) 1.810344828 -inventory)/(Current liabilities)
the current and quick ratios are solvent
and healthy enough
Gearing
Financial gearing= (Non current
liabilities)/(Equity+ Non current
Financial Gearing/Leverage 9.744214373 liabilities)×100
Interest cover= (Operating profit)/(-
interest Cover -5.25 Interest expense)
 Adjusted Trial
Adjustments Balance
Cr Dr Cr
add new
  things 300,000
  20,000  

  222,000  
  35,000  

  65,000  
  8,000  
10000 10000
  200,000  
  500,000  

20000   160,000
  650,000  

52000   416,000
  70,000 50,000
  25,000  
    350,000

    210,000
    221,000
    8,000
10000
    80,000
  1,805,000 1,805,000

10000