Match Ltd and Box Ltd both began operations on 1

Match Ltd and Box Ltd both began operations on 1 January 2017. For illustrative purposes, assume that at that date their statement of financial positions were identical and that their operations during 2017 were also identical. The only difference between the two companies is that they elected to use different accounting methods as can be seen below:



Match Ltd


Box Ltd

Inventories

Property, plant and equipment

FIFO

Straight-line depreciation


Weighted average cost

Diminishing balance depreciation


Summary financial information for both companies at the end of 2017 is presented below.


Statement of Profit or Loss

for the year ended 31 December 2017



Match Ltd


Box Ltd


Revenue

Less: Cost of sales

$

250 000

138 000


$

250 000

150 000



GROSS PROFIT

Other expenses*


112 000

  43 000



100 000

  53 000



PROFIT

$

  69 000


$

  47 000



* Includes finance costs of $8000. Depreciation expense was $10 000 for Match Ltd and $20 000 for Box Ltd. Assume no income tax.


Statement of Financial Position

as at 31 December 2017



Match Ltd


Box Ltd


Cash

Receivables

Inventories

Property, plant and equipment (net)

$

20 000

50 000

52 000

  55 000


$

20 000

50 000

40 000

  45 000




$

177 000


$

155 000



Current liabilities

Non-current liabilities

Equity

$

30 000

45 000

102 000


$

30 000

45 000

  80 000




$

177 000


$

155 000



Required

A.   Calculate and interpret the following ratios for each company:

1.   Return on assets

2.   Return on ordinary equity

3.   Profit margin

4.   Current ratio

5.   Receivables turnover

6.   Inventory turnover

7.   Debt ratio.

B. Comment on the impact that use of different accounting methods can have on the calculation of ratios

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