Question

The following is extracted information from financial statements of Kabuku Ltd for the years 2005 to 2009

Income statement as at year end 31^st Dec

	2005	2006	2007	2008	2009
Sales	800,000	1,000,000	1,100,000	900,000	1,200,000
Cost of Sales	600,000	810,000	850,000	700,000	900,000
Operating Expenses:-
Office expenses	20,000	30,000	35,000	25,000	25,000
Selling expenses	30,000	40,000	40,000	35,000	30,000
Miscellaneous income	30,000	40,000	50,000	20,000	40,000
Non-operating expenses	30,000	20,000	25,000	30,000	35,000

1. Comparative income statement (for years 2006 and 2007) (7 marks) and interpret. (3 marks)

Answer 1

	2006	2007	Change in absolute value	Change in absolute value(in %)
Sales	10,00,000.00	11,00,000.00	1,00,000.00	10.00%
Miscellanous Income	40,000.00	50,000.00	10,000.00	25.00%
Total Income	10,40,000.00	11,50,000.00	1,10,000.00	10.58%
Cost of Sales	8,10,000.00	8,50,000.00	40,000.00	4.94%
Op Exp
Office Expenses	30,000.00	35,000.00	5,000.00	16.67%
Selling Expenses	40,000.00	40,000.00	-
Non Operating Expenses	20,000.00	25,000.00	5,000.00	25.00%
Net Profit	7,20,000.00	7,50,000.00	30,000.00	4.17%

Increase in Sales and Miscellanous Income is offset by increase in Cost of Sales, Non Operating Expenses and Office Expenses and that is the reason why Net Profit only increases by 4.17%. For a 10% increase in sales, the cost of sales increases by almost by 5%. Office Expenses and Non Operating Expenses increases by 16.67% and 25% respectively for a 10% increase in sales. Therefore, Net Profit increases by 4.17%