The summarised financial statements of Gregory Co as a single entity at 31 March 20X5 and as a group at 31 March 20X6 are:
Gregory Gregory Co
group single entity
STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 31 March 31 March
Revenue 46,500 28,000
Cost of sales (37,200) (20,800)
Gross profit 9,300 7,200
Operating expenses (1,800) (1,200)
Profit before tax (operating profit) 7,500 6,000
Income tax expense (1,500) (1,000)
Profit for the year 6,000 5,000
Profit for year attributable to:
Equity holders of the parent 5,700
Non-controlling interest 300
STATEMENTS OF FINANCIAL POSITION AS AT 31 March 20X6 31 March 20X5
Property, plant and equipment 54,600 41,500
Goodwill 3,000 nil
Current assets 44,000 36,000
Total assets 101,600 77,500
Equity and liabilities
Equity shares of $1 each 46,000 40,000
Other component of equity
(share premium) 6,000 nil
Retained earnings 18,700 13000 attributable to owners of the parent 70,700 53,000
Non-controlling interest 3,600 nil
Current liabilities 27,300 24,500
Total equity and liabilities 101,600 77,500
1. Each month since the acquisition, Gregory Co's sales to Tamsin Co were consistently $2m. Gregory Co had chosen to only make a gross profit margin of 10% on these sales as Tamsin Co is part of the group
2. The values of property, plant and equipment held by both companies have been rising for several years.
3. On reviewing the above financial statements, Gregory Co's chief executive officer (CEO) made the following observations: - I see the profit for the year has increased by $1m which is up 20% on last year, but I thought it would be more as Tamsin Co was supposed to be a very profitable company
- I have calculated the earnings per share (EPS) for 20X6 at 13 cents (6,000/46,000 × 100) and for 20X5 at 12.5 cents (5,000/40,000 × 100) and, although the profit has increased 20%, our EPS has barely changed.
- I am worried that the low price at which we are selling goods to Tamsin Co is undermining our group's overall profitability.
- I note that our share price is now $2.30, how does this compare with our share price immediately before we bought Tamsin Co?