Extracts of the Statement of Comprehensive Income for the year ended 31 December 2019 and the...

  

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Extracts of the Statement of Comprehensive Income for the year ended 31 December 2019 and the Statement of Financial Position as at 31 December 2019 are given below for two companies viz. Leo Limited and Virgo Limited Extract of Statement of Comprehensive Income for the year ended 31 December 2019: Leo Limited Virgo Limited R R Sales 6 600 000 4 620 000 2 160 000 864 000 1 296 000 12 000 Cost of sales Gross profit 1 980 000 Depreciation Other expenses 270 000 240 000 45 000 Operating profit Interest on loan Profit before tax Income tax Profit after tax 1 239 000 75 000 1470 000 174 000 1 296 000 1 164 000 388 800 349 200 907 200 814 800 Extract of Statement of Financial Position as at 31 December 2019: Leo Limited Virgo Limited R R Assets 1 980 000 1 260 000 190 000 180 000 20 000 Non-current assets Inventories 695 000 Accounts receivable Bank 1 000 000 3 675 000 1650 000 Equity and Liabilities 2 000 000 1 000 000 80 000 480 000 Ordinary share capital Retained earnings Non-current liabilities (18% p.a.) Accounts payable Bank overdraft 250 000 1 020 000 360 000 90 000 45 000 3675 000 1 650 000 Additional Information: • Inventories as at 31 December 2018 are as follows: Leo Limited R800 000 Virgo Limited R230 000 • All sales and purchases of inventories are on credit. Required: Compare the performance of Leo Limited and Virgo Limited (both in same industry) with regard to the following ratios and in each case state your observations: 2.1 The ability of each company to repay its short term debts without relying on sale of its inventories. (5) 2.2 The return earned by shareholders on their investment. (5) 2.3 The operational effectiveness of each company before considering interest income, interest expense and income tax. (5) 2.4 The effectiveness with which the goods for sale have been managed. (5) 2.5 An evaluation of each company's performance with regard to the management of its trade creditors. (5) Extracts of the Statement of Comprehensive Income for the year ended 31 December 2019 and the Statement of Financial Position as at 31 December 2019 are given below for two companies viz. Leo Limited and Virgo Limited Extract of Statement of Comprehensive Income for the year ended 31 December 2019: Leo Limited Virgo Limited R R Sales 6 600 000 4 620 000 2 160 000 864 000 1 296 000 12 000 Cost of sales Gross profit 1 980 000 Depreciation Other expenses 270 000 240 000 45 000 Operating profit Interest on loan Profit before tax Income tax Profit after tax 1 239 000 75 000 1470 000 174 000 1 296 000 1 164 000 388 800 349 200 907 200 814 800 Extract of Statement of Financial Position as at 31 December 2019: Leo Limited Virgo Limited R R Assets 1 980 000 1 260 000 190 000 180 000 20 000 Non-current assets Inventories 695 000 Accounts receivable Bank 1 000 000 3 675 000 1650 000 Equity and Liabilities 2 000 000 1 000 000 80 000 480 000 Ordinary share capital Retained earnings Non-current liabilities (18% p.a.) Accounts payable Bank overdraft 250 000 1 020 000 360 000 90 000 45 000 3675 000 1 650 000 Additional Information: • Inventories as at 31 December 2018 are as follows: Leo Limited R800 000 Virgo Limited R230 000 • All sales and purchases of inventories are on credit. Required: Compare the performance of Leo Limited and Virgo Limited (both in same industry) with regard to the following ratios and in each case state your observations: 2.1 The ability of each company to repay its short term debts without relying on sale of its inventories. (5) 2.2 The return earned by shareholders on their investment. (5) 2.3 The operational effectiveness of each company before considering interest income, interest expense and income tax. (5) 2.4 The effectiveness with which the goods for sale have been managed. (5) 2.5 An evaluation of each company's performance with regard to the management of its trade creditors. (5)

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