Interpretation of Accounts The following information has been taken from the accounts of Brophy Ltd for the year ended 31/12/09: Trading and Profit and Loss Account for year ended 31/12/2009 Credit Sales € 670,000 Less: Cost of Sales Stock 01/01/2009 € 46,000 Add: Purchases € 510,000 Less: Stock 31/12/2009 € 58,000 Gross Profit € 172,000 Less: Total Expenses (including debenture interest) € 104,000 Net Profit for year € ? Balance Sheet as at 31/12/2009 Fixed Assets € 754,000 Current Assets € 130,000 Less Creditors: amounts falling due within 1 year € 64,000 € 66,000 Financed by: Creditors: amounts falling due after more than 1 year 7% Debentures (2016/2017) € 120,000 Capital and Reserves Ordinary Shares € 632,000 Profit/Loss Account € 820,000 (a) You are required to calculate: (i) The figure for cost of sales (ii) The profit (iii) The stock turnover ratio (iv) The period of credit received for credit purchases from Creditors (v) The Acid Test ratio - Leaving Cert Accounting - Question 5 - 2010

The profit can be found using:

Using the provided numbers:

To find the stock turnover ratio, the formula is:

Here, we consider:

• Cost of goods sold = €498,000
• Average Stock = rac{(46,000 + 58,000)}{2} = 52,000

Thus:

The formula for the period of credit is:

Substituting the values:

The Acid Test Ratio can be calculated using:

Assuming the Current Assets are €130,000 and Inventories (Stock) €46,000, and Current Liabilities €64,000:

Shareholders' Funds refer to the total amount of capital provided by the shareholders. It includes both the issued capital (ordinary shares) and reserves, representing the net worth of the company.

Interest Paid refers to the cost incurred by a company for borrowed funds, typically outlined in loan agreements such as debentures or bank loans. This payment represents a liability and decreases profits on the profit and loss statement.

Depreciation is an accounting method to allocate the cost of tangible assets over their useful lives. It reflects the reduction in value of assets as they are used over time, ensuring accurate accounting of asset value and expenses.

7% Debentures refer to long-term loans with a fixed interest rate of 7%. These debentures must be repaid at the maturity date, typically in a single lump sum, affecting the company’s cash flow and financial commitments.

The liquidity of the firm as of the end of 2009 can be assessed using both the current ratio and the acid test ratio. With a current ratio of 1.81 and an acid test ratio of 1.41, the firm demonstrates a strong liquidity position, indicating its ability to cover short-term liabilities.

The Return on Capital Employed (ROCE) for the year 2008 was 12.5%. This indicates the efficiency and profitability of the company in generating returns from its capital employed.