QUESTION 2 Financial Accounting

REQUIRED Use the information provided below to answer the following questions. Answers to the ratios must be expressed to two decimal places.

2.1 Calculate the percentage profit on sales after the cost of sales only have been accounted for. (2 marks)

2.2 Has the liquidity of the company improved? Use two relevant ratios to motivate your answer. (6 marks)

2.3 Use the relevant ratios to comment on the effectiveness with which the company has employed the inventory and debtors during 2022. (6 marks)

2.4 Use TWO (2) appropriate ratios that shareholders would use to assess the profitability of the company for 2022 by examining the after-tax returns earned. Comment on your calculations. (6 marks)

INFORMATION

Extracts of the financial statements of Ultra Limited are presented below:

Additional information

The authorised share capital of the company consists of 1 500 000 ordinary shares of which 1 000 000 have been issued.

\begin{tabular}{|c|c|c|} \hline \multicolumn{3}{|l|}{ ULTRA LIMITED } \\ \hline \multicolumn{3}{|c|}{ STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2022} \\ \hline & & R \\ \hline Sales (90% on credit) & & 8800000 \\ \hline Cost of sales & & 4000000 \\ \hline Operating profit & & 2400000 \\ \hline Profit after tax & & 1400000 \\ \hline \multicolumn{3}{|c|}{ STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER: } \\ \hline & 2022 (R) & 2021 (R) \\ \hline Non-current assets & 6800000 & 5600000 \\ \hline Inventory & 380000 & 300000 \\ \hline Trade and other receivables (Accounts receivable only) & 520000 & 460000 \\ \hline Cash and cash equivalents & 320000 & 400000 \\ \hline Shareholders' equity & 5000000 & 3800000 \\ \hline Non-current liabilities & 2400000 & 1900000 \\ \hline Current liabilities & 620000 & 1060000 \\ \hline \end{tabular}