Durham Limited had an authorised capital of £200,000 divided into 100,000 ordinary shares of £1 each and 200,000 8% preference shares of 50p each. The following balances remained in the accounts of the company after the trading and profit and loss accounts had been prepared for the year ended 30 April 20X9.

The Directors have recommended:

A transfer of £5,000 to general reserve;

An ordinary dividend of £0.15p per share; and

A provision for the unpaid preference share dividend.

(a) Prepare the profit and loss appropriation account for year ended 30 April 20X9.

(b) Prepare the balance sheet as at 30 April 20X9, in a form which shows clearly the working capital and the shareholders’ funds.

(c) Identify and calculate:

(i) one ratio indicating the firm’s profitability;

(ii) two ratios indicating the firm’s liquidity position.

(d) Make use of your calculations in (c) above to comment on the firm’s financial position.

(e) Name two points of comparison which are not available from the information above in this question but which could make your comments in (d) above more meaningful.

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Premises at cost General reserve Ordinary shares: fully paid 8% Preference shares: fully paid Electricity Cash at bank Profit and loss account balance 1 May 20X8 Debtors and creditors Net profit (year ended 30 April 20X9) Machinery and plant at cost Provision for depreciation on machinery and plant Stock Provision for bad debts Insurance Preference share dividend paid Debit £ 86,000 13,100 20,000 60,000 60,000 900 2,000 242,000 Credit £ 4,000 100,000 50,000 100 14,500 12,900 16,500 40,000 4,000 242,000