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You are required to calculate the following for 2021: (where appropriate calculations should be made to two decimal places) - Leaving Cert Accounting - Question 5 - 2022
Question 5
You are required to calculate the following for 2021: (where appropriate calculations should be made to two decimal places). (i) Cash purchases if the period of cre... show full transcript
Worked Solution & Example Answer:You are required to calculate the following for 2021: (where appropriate calculations should be made to two decimal places) - Leaving Cert Accounting - Question 5 - 2022
Step 1
Cash purchases if the period of credit received from trade creditors is 3.6 months and 20% of total purchases are cash purchases.
Answer
To calculate cash purchases, we use the formula:
[ \text{Cash Purchases} = \text{Credit Purchases} \times 0.20 ]
Given that trade creditors receive payment in 3.6 months and that total purchases based on sales are derived from:
[ \text{Total Purchases} = \text{Cost of Goods Sold} + \text{Expenses} = 682,000 + 192,000 = 874,000 ]
First, calculate the credit purchases:
[ \text{Credit Purchases} = \frac{874,000 \times (3.6 / 12)}{3.6} = 70,000 ]
Thus, the cash purchases are:
[ \text{Cash Purchases} = 70,000 \times 0.20 = 17,500 ]
Step 2
Price earnings ratio.
Answer
The Price Earnings (P/E) ratio is calculated using the formula:
[ \text{P/E Ratio} = \frac{\text{Market Price of Share}}{\text{Earnings per Share (EPS)}} ]
Given that:
- Market Price = 1.40
- EPS = \frac{41,000 - 18,000}{365,000} = 8.77
Thus, the P/E Ratio is:
[ \text{P/E Ratio} = \frac{1.40}{8.77} \approx 15.96 ]
Step 3
The return on shareholders’ funds.
Answer
Return on Shareholders' Funds is calculated as:
[ \text{Return on Shareholders' Funds} = \frac{\text{Net Profit}}{\text{Shareholder's Funds}} \times 100 ]
Where:
- Net Profit = 41,000
- Shareholders' Funds = 365,000 + 101,000
So, [ \text{Return on Shareholders' Funds} = \frac{41,000}{466,000} \times 100 \approx 8.77% ]
Step 4
Step 5
Gearing.
Answer
Gearing is calculated using the formula:
[ \text{Gearing} = \frac{\text{Debt}}{\text{Debt} + \text{Equity}} \times 100 ]
Here,
- Debt = 500,000 (Debenture)
- Equity = 150,000 (Preference) + 101,000 (Ordinary) = 616,000
Thus, [ \text{Gearing} = \frac{500,000}{500,000 + 616,000} \times 100 \approx 44.7% ]