you joined Betterway Company (B Co.), a public limited company involved in manufacturing Cement and related products and supplying all over the country and across borders. Mark Selby (your senior at work) has asked you to prepare a report that outlines the accounting concepts and accounting standards and assess their relevance in preparing the financial statements of a public limited company like B Co.

The reporting period has just ended and Mark has prepared the trial balance of B Co. for the year ended 31^st December, 2020.

Description	Dr ($’000)	Cr ($’000)
Land and buildings (land $20m) (note 1)	80,000
Accumulated Depreciation (Building) till 1st January 2020		16,800
Plant and Equipment- Cost (note 1)	81,250
Accumulated Depreciation (plant and equipment) till 1stJanuary 2020		29,250
Inventory at 31st December 2020 (note 2)	22,740
Trade receivables (note 6)	47,077
Cash at bank	8,678
Revenue		289,000
Cost of sales	203,500
Distribution cost	9,100
Administrative expenses (note 1, 6 and 7)	24,700
Finance cost (note 3)	1,500
Allowance for doubtful debts		500
Income tax (note 4)		700
Trade Payables		22,650
8% Loan notes		25,000
Share capital (par value 50 cents)		60,000
Share premium		15,000
Retained earnings at 1st January 2020 (note 5)		19,645
	478,545	478,545

On 15^th January 2021 you had a meeting with Mark Selby and he provided you with the following additional information in relation to preparing financial statements of B Co. for the year ended 31^st December 2020.

1. Land and buildings were purchased on 1^st January 2013, with buildings being depreciated on straight line basis. On 1^st January 2020, the directors decided to revalue the land and buildings to $79,000,000 ($25million for the land). The buildings were originally depreciated over a useful life of 25 years which has not changed.

No depreciated has yet been charged on any of the non-current assets, plant and equipment is depreciated at 20% reducing balance method. 60% of the depreciation relating to Building is charged to cost of sales with the rest being charged to administrative expenses. All of the depreciation relating to plant and equipment is charged to cost of sales.

2. The inventory includes goods with a cost of $1,280,000 but shortly after the year end, it was discovered that their net realisable value will only be $930,000.
3. Finance cost relates to the interest paid on 8% loan notes with interest being paid quarterly in arrears. the interest payment for the last quarter was still outstanding at the reporting date.
4. The directors estimated the current year tax liability to be $11,230,000. the income tax balance in the trial balance represent the overprovision for tax liability relating to the year ended 31^st December 2019.
5. A dividend of 7 cents per shares was declared on 30^th December 2020.
6. The directors have decided to write off irrecoverable debts amounting to $827,000 and make and allowance for doubtful debts of 2% of remaining receivables. Irrecoverable debts expense in movement in allowance for doubtful debts is reported as part of administrative expenses.
7. Included in the administrative expenses figure is the rent of $7,000,000. this amount was paid on 1^st January 2020 for the 14 months period ending 28^th February 2021.
8. the market price of B Co.’s shares stood at $1.75/share at reporting date.

Mark told you to look up the qualitative characteristics of financial statements and their importance to make financial statement more useful to stakeholders. “Currently there are no intangible assets in the financial statements but if we do have some, how will they be accounted for under IAS38 intangible assets”, mark inquired.

Information about one of the competitors of B Co. for the year 2020 is as follows.

gross profit margin                                 30.00%

operating profit margin                        15.00%

net profit margin                                      10.00%

asset turnover                                            1.70 times

return on capital employed                  25.50%

current ratio                                               1.5:1

quick ratio                                                     0.9:1

inventory holding period                       31.2 days

receivables collection period              29.2 days

payables payment period                         38.6 days

interest cover                                               6.00 times

dividends cover                                            4.00 times

earnings per share                                      33.3 cents/share

dividends yield                                               8.33%

price earnings ratio                                   10.00 times

average market price per share            $3.33

please answer both questions:

P7 . Calculate the shareholder ratios for Betterway company (similar ratios of a competitor are provided in scenario 1) and discuss the merits and limitations of ratio analysis for a limited company.

M4 . analyse the results of ratios calculated for Betterway company in P7 compared to competitor and then evaluate the financial position of Betterway company for current and potential shareholders, using shareholder ratio analysis.

Answer rating: 100% (QA)

P7 Calculate the shareholder ratios for Betterway Company similar ratios of a competitor are provided in scenario 1 and discuss the merits and limitations of ratio analysis for a limited company Share... View the full answer