Interpretation of Accounts The following information has been taken from the accounts of Larchfield Ltd for the year ended 31/12/2017: Trading and Profit and Loss Account for the year ended 31/12/2017 Credit sales € 660,000 Less: Cost of sales Stock 01/01/2017 € 6,000 Add: credit purchases ????? Less: Stock 31/12/2017 14,000 Cost of sales € ????? Gross profit € 352,000 Total expenses (including interest paid €5,400) € 98,000 Net profit for year € 254,000 Balance Sheet as at 31/12/2017 € € € Fixed Assets 980,000 0 917,000 Current Assets (including trade debtors €65,000) 93,000 Less: Creditors: amounts falling due within 1 year 26,000 Trade creditors 41,000 Financed by: Creditors: amounts falling due after more than 1 year 6% Debentures (2022/2023) 90,000 Capital and Reserves Authorised Issued Profit and loss account Ordinary shares at €1 each 900,000 614,000 254,000 Total 958,000 (a) You are required to calculate: (to 2 decimal places where appropriate) (i) The figure for purchases - Leaving Cert Accounting - Question 5 - 2018

The net profit margin can be calculated using the formula:

[ \text{Net Profit Margin} = \left( \frac{\text{Net Profit}}{\text{Sales}} \right) \times 100 ]

Substituting the values:

[ \text{Net Profit Margin} = \left( \frac{254,000}{660,000} \right) \times 100 \approx 38.48% ]

Therefore, the net profit margin is approximately 38.48%.

The period of credit given to debtors can be calculated using the formula:

[ \text{Period} = \left( \frac{\text{Debtors}}{\text{Credit Sales}} \right) \times 365 ]

Substituting the values:

[ \text{Period} = \left( \frac{65,000}{660,000} \right) \times 365 \approx 35.95 \text{ days} ]

Thus, the period of credit given to debtors is approximately 35.95 days.

The acid test ratio can be calculated using the formula:

[ \text{Acid Test Ratio} = \frac{\text{Current Assets} - \text{Stock}}{\text{Current Liabilities}} ]

Given the values:

• Current Assets = €93,000
• Stock = €14,000
• Current Liabilities: Trade creditors = €41,000

[ \text{Current Liabilities} = 41,000 + 26,000 = 67,000 ]

Thus,

[ \text{Acid Test Ratio} = \frac{93,000 - 14,000}{67,000} = \frac{79,000}{67,000} \approx 1.52 ]

Therefore, the acid test ratio is approximately 1.52.

6% Debentures are long-term loans that the company will repay in the years 2022 and 2023. They carry a fixed interest rate of 6%. Larchfield Ltd has a debenture worth €90,000, which reflects its borrowing cost for the specified term.

Interest paid is the expense incurred by the company for borrowing money. It represents the cost associated with the loan that Larchfield Ltd takes from the bank, which in this case is €5,400.

Tangible fixed assets are physical items that hold value and can be seen. They typically include properties, buildings, and equipment. For Larchfield Ltd, tangible fixed assets include assets with a total value of €980,000.

An ordinary dividend is the portion of profit paid to shareholders, determined by the board of directors based on the issued ordinary share capital of the company.

No, Larchfield Ltd would not face difficulty in meeting its short-term obligations, as indicated by the acid test ratio of approximately 1.52, which exceeds the ideal of 1. This means the company has €1.52 available for every €1 owed in short-term liabilities.

To calculate the return on capital employed (ROCE), use the following formula:

[ \text{ROCE} = \left( \frac{\text{Net Profit} + \text{Interest}}{\text{Capital Employed}} \right) \times 100 ]

Given that:

• Net Profit = €254,000
• Interest = €5,400
• Capital Employed = Total Assets - Current Liabilities = €958,000 - €67,000 = €891,000

Now substituting the values:

[ \text{ROCE} = \left( \frac{254,000 + 5,400}{891,000} \right) \times 100 \approx 28.95% ]

Thus, the return on capital employed for Larchfield Ltd in 2017 is approximately 28.95%.

In comparison to the return on capital employed in 2016 (19%), the return for 2017 at approximately 28.95% indicates a significant increase in profitability. The advantage of this rise suggests improved operational efficiency and a stronger profit generation capability, making Larchfield Ltd a more attractive investment compared to previous performance.