O’Malley plc requires a bank loan for additional working capital to finance expansion. The bank has requested an audited income statement for the year 2022. The accountant for O’Malley plc provides you with the following income statement, which O’Malley plans to submit to the bank.

Instructions

Indicate the deficiencies in the income statement presented.

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O'Malley plc Income Statement Sales revenue £850,000 Dividends 32,300 Gain on recovery of insurance proceeds from earthquake loss 38,500 920,800 Less: Selling expenses £101,100 Cost of goods sold 510,000 Interest expense 13,700 Loss on obsolescence of inventories 34,000 Loss on discontinued operations 48,600 Administrative expenses 73,400 780,8o0 Income before income tax 140,000 Income tax 56,000 Net income £ 84,000