1
Galloway Ltd has an authorised capital of 250,000 ordinary shares of £1 each.
(a) At the end of its financial year, 30 April 2008, the following balances remained in the company’s
books after preparation of trading and profit and loss accounts.
£
Motor vehicles:
at cost 38,400
provision for depreciation 16,300
Net profit for year 36,600
Freehold premises at cost 190,000
Stock in trade 32,124
Share capital: 200,000 ordinary shares of £1 each, fully paid 200,000
Insurance prepaid 280
Profit and loss account balance brought forward 3,950
Wages and salaries due 774
General reserve 24,000
Trade creditors 3,847
Trade debtors 4,782
8% debentures 15,000
Rent receivable outstanding 175
Bank overdraft 1,830
Furniture and equipment:
at cost 44,000
provision for depreciation 7,460
The directors have proposed
(i
) the transfer of £5,000 to the general reserve
(ii
) a final dividend on the ordinary shares of 12.5%.
(b) Galloway Ltd’s directors are making an assessment of the company’s performance for the year.
They are concerned by a decline in both profitability and liquidity despite an increase in
turnover.
Required:
1 THREE significant differences between ordinary shares and debentures.
2 For Galloway Ltd
(i) a profit and loss appropriation account for the year ended 30 April 2008
(ii) a balance sheet as at 30 April 2008 in a form which shows clearly:
total shareholders’ funds
working capital.
3 Concerning the company’s performance
(i) Name ONE ratio which could be used to assess profitability.
(ii) State TWO possible reasons why the profitability ratio may have declined despite increased
turnover.
(iii) Name ONE ratio, other than working capital ratio, which could be used to assess liquidity.
(iv) Give FOUR suggestions as to how working capital could be increased during the year
ahead.
(Southern Examining Group: GCSE)