QUESTION ONE a)L Deacon sets up a new business. Before he actually sells anything he has bought Motor Vehicles of Ksh 3,000,000, Premises of Ksh...
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QUESTION ONE a)     L Deacon sets up a new business. 



Before he actually sells anything he has bought Motor Vehicles of Ksh 3,000,000, Premises of Ksh 7,000,000, Stock of goods Ksh 2,000.000 He still owes Ksh 800,000 in respect of them. He had borrowed Ksh 4,000,000 from D Evans. After the events just described and before trading starts, he had Ksh 300,000 Cash in hand and Ksh 600,000 Cash at bank.

 Required:

 (i) Calculate the amount of his capital.                                                  

 

 b) The role of financial statements analysis is to use financial reports prepared by companies combined with other information, to evaluate the past, current and potential performance and financial position of a company for the purpose of making investment, credit and other economic decisions.

In relation to the above statements, analyze two types of economic decisions that a financial analyst could make from the financial statement s of a company


c) The company's earnings for the past three years indicated the following pattern

Year                                       Amount ( Shs)

2018                                        20 Million

2019                                       60 million

2020                                         140 Million

2021                                          ?

Other things remaining the same, compute possible earnings for year 2021 (1 mark)


d) Explain two possible risks to a company that makes losses regularly?


 e)You have given the following extracts of accounts of company ABC ltd


                                                                       2020 (SHS)    2019 (SHS)

Sales                                                         10,000,000          6,000,000

Purchases                                                4,000,000           2,000,000

Stock                                                      2,500,000            1,000,000

Debtors                                                   4,000,000             1,000,000

Creditors                                                  1,500,000             2,000,000

Accruals                                                    1,000,000             800,000

Bank overdraft                                              -                         500,000

Cash                                                       2,500,000            1,500,000

Noncurrent asset                                     8,000,000            5,000,000


Required:   compute for each year:


i) Current ratio                                                                                

ii) Debtors holding period                                             

iii) Non - Asset Turnover                                                               



e) i) Comment on implication of having very high cost of sales to the profits of a company                                                                                         

   ii) Explain one strategy that a company can put in place to manage high cost of sales                                                                                               

 

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