The following information has been taken from the accounts of Robinson Ltd for the year ended 31/12/2013: Trading and Profit and Loss Account for the year ended 31/12/2013: Credit Sales €10,000 Less: Cost of Sales Stock 01/01/2013 €98,000 Add: Credit Purchases €358,000 Less: Stock 31/12/2013 €?? Gross Profit €336,000 Less: Total Expenses (including interest) €94,000 Net Profit for year €?? Balance Sheet as at 31/12/2013: Fixed Assets €?? Current Assets €63,000 Less: Creditors amounts falling due within 1 year Trade Creditors €36,000 €80,000 Financed by: Creditors: amounts falling due after more than 1 year 4% Debentures (2019/2020) €100,000 Capital and Reserves Ordinary Shares at €1 each €500,000 Retained Profits €80,000 Profit and Loss Account €80,000 (a) You are required to calculate (to 2 decimal places where appropriate): (i) The figure for Closing Stock (ii) The figure for Gross Profit (iii) Rate of Stock Turnover (iv) Period of Credit received from Trade Creditors (b) Explain the following terms and state how they apply to the above Balance Sheet: (i) 4% Debentures (2019/2020) (ii) Shareholders Funds (iii) Authorised Share Capital (iv) Trade Creditors (c) Would Robinson Ltd have difficulty paying its bills as they fall due? Explain your answer - Leaving Cert Accounting - Question 5 - 2014

Gross Profit can be calculated by subtracting Cost of Sales from Sales:

Substituting the values:

Thus, the figure for Gross Profit is €174,000.

The Rate of Stock Turnover is calculated using the formula:

Where Average Stock is:

Substituting the values yields:

1. Calculate Average Stock:

   • Opening Stock = €98,000
   • Closing Stock = €22,000
   • Average Stock = rac{€98,000 + €22,000}{2} = €60,000

2. Calculate Rate of Stock Turnover:

   • Cost of Sales = €336,000
   • Rate of Stock Turnover = rac{336,000}{60,000} = 5.6 times.

The Period of Credit received from Trade Creditors can be calculated using the formula:

Substituting the values gives:

• Trade Creditors = €36,000
• Credit Purchases = €260,000
• Period of Credit = rac{36,000}{260,000} imes 365 = 0.54 ext{ days}.

These are long-term loans that must be paid back during the specified period (2019/2020). The annual fixed rate of interest on these debentures is 4%. This means that for every €100 borrowed, €4 must be paid as interest each year.

Shareholders Funds refer to the total amount of capital that shareholders have contributed to the business. This includes issued share capital and retained profits. It represents the net worth of the company from the perspective of the shareholders.

This is the amount of shares that Robinson can issue, specifically €500,000 worth of ordinary shares, which represents the maximum amount of capital that can be raised from issuing shares to shareholders.

Trade Creditors are individuals or entities from whom goods or services have been purchased on credit. They are owed money by the company and appear under liabilities in the balance sheet.

To evaluate this, we can examine the Acid Test Ratio:

This company has:

• Current Assets: €63,000
• Current Liabilities: €36,000
• Closing Stock: €220,000

The Acid Test Ratio is 1.14, which means that for every €1 owed, the company has €1.14 in liquid assets. Hence, Robinson Ltd is in a position to pay its bills as they fall due.

The profitability can be assessed by the Return on Capital Employed (ROCE), which is calculated as follows:

Using:

• Net Profit: €80,000
• Capital Employed: €500,000 + €80,000 = €580,000

We find:

This shows that the profitability is satisfactory, as it exceeds the 12% from the previous year.