Financial information of Innovation Ltd, a shoe manufacturer, for the year ended 31st December 202X as follow:

Account	Debit	Credit
Capital	70,000
Cash at Bank	8,000
Machinery	70,000
Provision for depreciation – Machinery	10,000
Warehouse	65,000
Provision for depreciation – Warehouse	12,000
Stock at 1st Jan 202X	12,200
Purchases	25,000
Sales	84,000
Trade debtors	22,000
Trade creditors	18,500
Selling and distribution expenses	9,000
Provision for doubtful debts at 1st Jan 202X	3,200
Administrative expenses	8,300
Bank loan to be repaid in 2025	40,000
Operating expenses	12,200
Interest	6,000
Total	237,700	237,700

Notes:

1. Stock at 31^st December 202X £9,000.
2. Operating expenses £1,000 prepaid.
3. Selling and administrative expenses £2,500 accrued.
4. Provision for doubtful debts adjusted to 5% of debtors.
5. Warehouse and machinery to be depreciated at 10% straight-line method.

a) Prepare an Income Statement for Innovation Ltd for the year ended 31^st December 202X.

(18 marks)

b) Prepare a Financial Position Statement for Innovation Ltd as at 31^st December 202X.

(17 marks)

c) Prepare a ratio analysis. The analysis should include:

• Current ratio
• Debt-to-equity ratio
• Debtor collection period
• Gross profit margin
• Net profit margin

(10 marks)

d) Comment on the financial position and performance of Innovation Ltd using the list of industry benchmarks below:

Ratio	Industry
Current ratio	1.25
Debt-to-equity ratio	0.58
Debt collection period	100 days
Gross profit margin	60%
Net profit margin	12%

Answer rating: 100% (QA)

Solution a Income Statement for Innovation Ltd for the year ended 31st December 202X Revenue Sales 84000 Total Revenue 84000 Cost of Goods Sold Cost of Goods Sold 62800 70000 12200 Gross Profit 21200 ... View the full answer