owards the end of 19 X 1 the directors of wholesale Merchants Ltd., decided to expand their business. The annual accounts of the company for 19 X 1 may be summarized as follows WHOLESALE MERCHANTS LTD Financial statements ) Year 19X1 (Rs) Year 19X2 Sales Cash Credit Cost of sales 42,000 3,78,000 44,800 4.78.800 4,20,000 3,30,400 89600 5,23,600 4,17,200 1.06.400 Gross margin 18,200 8.400 19,600 14,000 Expenses : Warehousing Transport Administration Selling Debenture Interest 26,600 15,400 26,600 19,600 2,800 82,600 68,600 21.000 Net profit 23.800 5 On 31″ Dec. 19X1 42.000 On 31 Dec. 19X2 56.000 84.000 70,000 14.000 1,68,000 70,000 1,31,600 1,14,800 9.800 2,56.200 1.06.400 Fixed assets (Less depreciation) Current assets: Stock Debtors Cash Less : Current liabilities Net current assets Net assets Share capital Reserves and undistributed profit Debenture loan Capital employed 98,000 1.40,000 1,05,000 35.000 1,49,800 205.800 1,05,000 58,000 1,40,000 42,000 2,05,800 You are informed that (a) All sales were from stocks in the company’s ware house. (b) The range of merchandise was not changed buying prices remained steady throughout the two years (c) Budgeted total sales for 19×2 were Rs. 3,90,000 (d) The debenture loan was received on 1 January 19X2, and additional fixed assets were purchased on that date. You are required to state the internal accounting ratios that you would use in this type of business to assist the management of the company in measuring the efficiency of its operation, including its use of capital Your answer should name the ratios and give the figures (calculated to one decimal place) for 19X1 and 19X2, together with possible reasons for changes in the ratios for the two years. Ratios relating to capital employed should be based on the capital at the end, Ignore taxation (C.A. adapted)
