This scenario relates to three requirements.
The summarised consolidated financial statements for the year ended 30 September 20X5 (and the comparative figures) for the Tangier group are shown below.
Consolidated statements of profit or loss for the year ended 30 September:
|
20X5 |
20X4 |
|
$m |
$m |
Revenue |
2,700 |
1,820 |
Cost of sales |
(1,890) |
(1,092) |
Gross profit |
810 |
728 |
Administrative expense |
(345) |
(200) |
Distribution costs |
(230) |
(130) |
Finance costs |
(40) |
(5) |
Profit before taxation |
195 |
393 |
Income tax expense |
(60) |
(113) |
Profit for the year |
135 |
280 |
Consolidated statements of financial position as at 30 September:
|
20X5 |
20X4 |
||
|
$m |
$m |
$m |
$m |
Non-current assets |
|
|
|
|
Property, plant and equipment |
|
680 |
|
310 |
Intangible asset: manufacturing licence |
|
300 |
|
100 |
goodwill |
|
230 |
|
200 |
|
|
1,210 |
|
610 |
Current assets |
|
|
|
|
Inventory |
200 |
|
110 |
|
Trade receivables |
195 |
|
75 |
|
Bank |
0 |
395 |
120 |
305 |
Total assets |
|
1,605 |
|
915 |
|
|
|
|
|
Equity and liabilities |
|
|
|
|
Equity shares of $1 each |
|
330 |
|
250 |
Other components of equity |
|
100 |
|
0 |
Retained earnings |
|
375 |
|
295 |
|
|
805 |
|
545 |
Non-current liabilities |
|
|
|
|
5% secured loan notes |
100 |
|
100 |
|
10% secured loan notes |
300 |
400 |
0 |
100 |
|
|
|
|
|
Current liabilities |
|
|
|
|
Bank overdraft |
110 |
|
0 |
|
Trade payables |
210 |
|
160 |
|
Current tax payable |
80 |
400 |
110 |
270 |
Total equity and liabilities |
|
1,605 |
|
915 |
At 1 October 20X4, the Tangier group consisted of the parent, Tangier Co, and two wholly owned subsidiaries which had been owned for many years. On 1 January 20X5, Tangier Co purchased a third 100% owned investment in a subsidiary called Raremetal Co. The consideration paid for Raremetal Co was a combination of cash and shares. The cash payment was partly funded by the issue of 10% loan notes. On 1 January 20X5, Tangier Co also won a tender for a new contract to supply aircraft engines which Tangier Co manufactures under a recently acquired long-term licence. Raremetal Co was purchased with a view to securing the supply of specialised materials used in the manufacture of these engines. The bidding process had been very competitive and Tangier Co had to increase its manufacturing capacity to fulfil the contract.
Requirements:
Required:
(a) Comment on how the new contract and the purchase of Raremetal Co may have affected the comparability of the consolidated financial statements of Tangier Co for the years ended 30 September 20X4 and 20X5.
(5 marks)
(b) Calculate appropriate ratios and comment on Tangier Co's profitability and gearing. Your analysis should identify where the new contract and the purchase of Raremetal Co have limited the usefulness of the ratios and your analysis.
Note: Your ratios should be based on the consolidated financial statements provided and you should not attempt to adjust for the effects of the new contract or the consolidation. Working capital and liquidity ratios are not required.
(12 marks)
(c) Explain what further information you might require to make your analysis more meaningful.
(3 marks)
Answers submitted
Created by | Ref | Marking | Action |
---|---|---|---|
10210 |
20 | ||
9584 |
20 | ||
9536 |
20 | ||
9514 |
20 | ||
7740 |
20 | ||
7736 |
20 | ||
7742 |
20 | ||
5608 |
20 | ||
7732 |
20 | ||
7734 |
20 | ||
7744 |
20 | ||
7738 |
20 | ||
6472 |
20 | ||
5610 |
20 | ||
5602 |
20 | ||
5604 |
20 | ||
5606 |
20 |
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