Lai Yee provided the following information. Profit from operations (before bank loan interest) $36000 Capital $200000 Trade payables $50000 Trade receivables $45000 8% Bank loan (repayable 2024) $100000 Bank $60000 Dr Closing inventory $75000 Cost of sales $480000 Revenue $600000 REQUIRED Lai Yee is considering ways in which she might improve her return on capital employed (ROCE). She is considering the following proposals. 1 Introduce additional capital of $10000. 2 Repay half of the 8% bank loan. 3 Sell $20000 non-current assets, saving $3000 in depreciation. 4 Convert $25000 of the 8% bank loan into a bank overdraft at 12% interest per annum. REQUIRED Lai Yee is also considering improving her profit for the year by: 1 revaluing her business premises to the market value of $120000 (cost $100000) 2 removing the provision for doubtful debts. REQUIRED

1. (a)Calculate to one decimal place: Ratio | Workings | Answer ---|---|--- Percentage gross profit/sales | | Percentage net profit/sales | | Return on capital employed (ROCE) | | Working capital ratio (Current ratio) | | [12]
2. (b)Comment upon the sufficiency of the working capital ratio (current ratio).[2]
3. (c)Complete the following table, by placing a tick (√) in the appropriate box, to show the effect on the profit for the year and the capital employed. The first item has been completed as an example. Proposals | Profit for the year | Capital employed ---|---|--- | increase | decrease | no effect | increase | decrease | no effect 1 Introduce additional capital of $10000. | | | √ | √ | 2 Repay half of the 8% bank loan. | | | | | 3 Sell $20000 non-current assets, saving $3000 in depreciation. | | | | | 4 Convert $25000 of the 8% bank loan into a bank overdraft at 12% interest per annum. | | | | | [6]
4. (d)Name which accounting concept would not be complied with if Lai Yee implemented her proposals. Proposal 1 Proposal 2[2]