LMTC plc sells face shields to hospitals in Cranfieldshire County. You have been provided with the following information of the company for the year ended 31 December 2020.

Furniture and fittings at cost acquired during the year 20,000 Delivery trucks at cost acquired during the year 6,500 Vehicle running expenses 1,200 Inventory of finished goods as at 31 December 2020 3,000 Trade receivables 12,000 Rent expenses (see note 4 below) 7,000 General expenses 2,100 Sales 100,000 Purchases 68,350 Salaries and wages (see notes 5 & 6 below) 4,400 Inventory of finished goods as at 1 January 2020 4,000 Trade payables outstanding 58,350 Notes: 1. The furniture and fittings were purchased on 31 October 2020. The company applies 5% depreciation charge using the reducing balance method on all furniture and fittings. When assets are acquired, a full annual charge is made in the first year irrespective of the month of purchase. 2. The delivery trucks were purchased on 30 April, 2020. The company applies 15% depreciation charge on a pro-rata basis using the straight-line method for all trucks. 3. Tax is charged at the rate of 25%. The tax for the year was paid in full. 4. Additional sum of £2 million relating to rent was unpaid as at 31 December 2020. This amount is not included above. The company has arranged to make full payment together with the 2021 rent in the 4th quarter of 2021. 5. A senior manager of the company was given £50,000 worth of shares as part payment of her annual salary. The company has a share-based payment scheme and this amount has been included in the total Salaries and wages amount above. 6. Included in the salaries and wages is £150,000 being a salary advance paid to one of the senior managers. The company has agreed to deduct this amount from his salary in 2021. 7. A provision for doubtful debts is to be made at 14.5% of the trade receivables. 8. On January 1, 2020, the company obtained a loan of £16,696,000 from Barclays Bank which is repayable in 2030. The interest payable on this loan is £896,000 per annum. The interest for 2020 was paid on 31 December. 9. On March 5th 2020, the company made a share split of 2:1 of its ordinary shares. The share price fell to £12 following the split. 10. On August 14th 2020, the company made rights issue of 2:4 of ordinary shares at a discount of 20% [the shares were trading at £15 per share before the rights]. The rights issue was fully subscribed as at December 31, 2020. 11. The company declared dividend as follows: a) 2p dividend per ordinary share which was fully paid as at 31 December 2020. The additional shares from the share rights and splits above are entitled to dividends. b) A total of £500,000 was paid as full dividend to the preference shareholders. 12. Assume that depreciation is tax-deductible. Additional information: The company had the following balances as at 31 December 2019: £’000 40 million ordinary shares of 50 pence per share 20,000 5% Preference shares of 5,000 Capital redemption reserve 2,000 Merger reserves 195,334 Other reserves 159,269 Share premium 11,000 Furniture and fittings at cost 50,000 Accumulated depreciation of furniture and fittings 5,000 Delivery truck at cost 10,000 Accumulated depreciation of delivery truck 3,000 Bank balance 10,976 Land 325,577 

Required: 

1. Prepare the Statement of Financial Performance (Income Statement) of LMTC plc for the year ended 31 December 2020.

2. Prepare the Statement of Financial Position of LMTC plc as at 31 December 2020. [Showing all workings including your cash balance].

3. All other things remaining the same, what will be the immediate effect, if any, of the following on the specified ratios? Give your reasons.

 i. Revaluation (i.e. upwards) of land and buildings on the ROCE and gearing ratio?

 ii. Overstatement of closing inventory on the gross profit margin and acid test? 

iii. a bonus issue on ROE and EPS 

iv. Conversion of a convertible bond (loan) to ordinary share on gearing ratio and ROCE (ignore the subsequent reduction on interest paid). 

v. Write off of bad debts on ROCE and a current ratio

Answer rating: 100% (QA)

1 Revenue Gross sales 100000 Less Cost of goods sold 68350 Gross profit 31650 Operating expenses Ren... View the full answer