You are presented with the following information relating to Messiter plc:

Required:
(a) Using the historical cost financial statements and stating the formulae you use, calculate the following accounting ratios for both 2017 and 2018:
(i) Gross profit percentage;
(ii) Net profit percentage;
(iii) Inventory turnover, stated in days;
(iv) Trade accounts receivable collection period, stated in days; and
(v) Non-current asset turnover.
(b) Using the following additional information:
(i) Restate the turnover for 2017 and 2018 incorporating the following average retail price indices:

(ii) Calculate the additional depreciation charge required to finance the replacement of noncurrent assets at their replacement cost. The company’s depreciation policy is to provide 10% per annum on original cost, assuming no residual value.
The replacement cost of non-current assets at 31 December was as follows:

(iii) Based upon these two inflation adjustments, why may it be misleading to compare a company’s results for one year with that of another without adjusting for changes in general (RPI) or specific inflation?

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Year to 31 December Statements of profit or loss Revenue, all on credit terms Cost of sales Gross profit Profit before taxation Statements of financial position at 31 December: Non-current assets at cost Less Accumulated depreciation Net book value Inventory at cost Trade accounts receivable 2017 £m 1,300 650 650 115 850 510 340 105 142 2018 £m 1,400 770 630 130 850 595 255 135 190