Answering Questions

  • Read each question carefully.
  • When you answer a question, your answer will automatically be saved.
  • You can revisit questions and change your answers at any time during the exam.
  • The only permitted characters for numerical answers are:
    • Numbers
    • One full stop as a decimal point if required
    • One minus symbol at the front of the figure if the answer is negative.

              For example: -10234.35

No other characters, including commas, are accepted.

Navigating between questions

  • Click Next Button to move to the next question.
  • Click Previous Button to move back to the previous question.
  • Click on a question number from the Exam Progress Details panel (see next page) to move directly to that question.
  • A message will be displayed when you click to move away from a question which has been partially attempted. You can choose to stay on the question and review your answer(s) or continue.
  • When reviewing your answer(s) for partially attempted questions ensure you read any message displayed in red text below the question in Section A or below the question
    part(s) in Section B
    .

Zrappa CoZrappa sells jewellery through stores in retail shopping centres throughout the country. Over the last two years it has experienced declining profitability and is wondering if this is related to the sector as whole. It has recently subscribed to an agency that produces average ratios across many businesses. Below are the ratios that have been provided by the agency for Zrappa’s business sector based on a year end of 30 June 20X2. Zrappa sells jewellery through stores in retail shopping centres throughout the country. Over the last two years it has experienced declining profitability and is wondering if this is related to the sector as whole. It has recently subscribed to an agency that produces average ratios across many businesses. Below are the ratios that have been provided by the agency for Zrappa’s business sector based on a year end of 30 June 20X2.
 

Sector

Return on year‐end capital employed (ROCE)

16.80%

Net asset (total assets less current liabilities) turnover

1.4 times

Gross profit margin

35%

Operating profit margin

12%

Current ratio

1.25:1 

Average inventory turnover

3 times 

Trade payables payment period

64 days

Debt to equity

38% 

The financial statements of Zrappa for the year ended 30 September 20X2 are shown below.

Statement of profit or loss    
  $000  $000 
Revenue             56,000
     
Opening inventory          8,300  
Purchases         43,900  
          52,200  
Closing inventory       (10,200)  
           (42,000)
Gross profit            14,000
Operating costs             (9,800)
Finance costs                (800)
Profit before tax             3,400
Income tax expense             (1,000)
Profit for the year              2,400
     


Statement of financial position    
  $000  $000 
Assets    
Non-current assets    
Property and shop fittings             25,600
Deferred development expenditure             5,000
             30,600
Current assets     
Inventories         10,200  
Bank          1,000          11,200
Total assets             41,800
     
Equity and liabilities    
Equity     
Equity shares of $1 each            15,000
Property revaluation surplus              3,000
Retained earnings             8,600
             26,600
     
Non-current liabilities     
10% loan notes             8,000
     
Current liabilities     
Trade payables          5,400  
Current tax payable          1,800           7,200
Total equity and liabilities            41,800

Note: The deferred development expenditure relates to an investment in a process to manufacture artificial precious gems for future sale by Zrappa in the retail jewellery market.

Required:

A. Prepare the ratios for Zrappa equivalent to those of the sector.                  
B. Assess the financial and operating performance of Zrappa in comparison to its sector averages.  

Leave a Reply

Your email address will not be published. Required fields are marked *