Question

The treasurer of Reality Ltd has recently developed a computer model to help in the prediction of profits, statement of financial positions and cash flows. By entering the expected sales figure and the value of various other parameters, the model will print profit-related data and produce a statement of financial position. Given the parameters in the question, compose the predicted statement of profit or loss and the statement of financial position produced by the model (Round all amounts calculated to the nearest integer value at each step before you move to the other step in the calculations).

Expected sales	$370000
Gross profit as a percentage of sales	43%
Other expenses as a percentage of sales	27%
Tax rate on profits	30%
Dividend payout ratio	58%
Debt to equity ratio	107%
Current assets as a percentage of cost of sales	24%
Current ratio	1.1
Return on equity	12%

REALITY LTD Statement of profit or loss $ Sales revenue $ Cost of sales $ Cross profit $ Other expenses $ Profit before tax $ Tax expense -S Prolit alter tax $ REALITY LTD financial position Statement Assets Current assets Non current ussels Total assets $ Liabilities Current liabilities $ Non-current liabilities Total liabilities Equity Equity Total liabilities and equity

Answer 1

Statement of profit & loss:

REALITY LTD. Statement of profit & loss
Sales Revenue (given)	$370000
Cost of sales (note2)	$192400
Gross profit (note1)	$177600
Other expenses (note3)	$99900
Profit before tax (note4)	$77700
Tax expense (note5)	$23310
Profit after tax (note6)	$54390

Notes:

1. GROSS PROFIT

= 48% of sales = $370000×48% = $177600

2. COST OF SALES

= Sales - gross profit = $370000 - $177600 = $192400

3. OTHER EXPENSES

= 27% of sales = $370000×27% = $99900

4. PROFIT BEFORE TAX

=Gross profit-other expenses =$177600-$99900 = $77700

5. TAX EXPENSE

= 30% on profits = $77700×30% = $23310

6. PROFIT AFTER TAX

=Profit before tax - tax expense =$77700 - $23310 = $54390

Statement of financial position:

REALITY LTD. Statement of Financial position
Assets:
Current Assets (note7)	$46176
Non current Assets (note11)	$497992
Total Assets	$544168
Liabilities:
Current liabilities (note12)	$41978
Non current liabilities (note13)	$239307
Total liabilities (note10)	$281285
Equity:
Equity (note9)	$262883
Total liabilities and Equity	$544168

Notes:

7. CURRENT ASSETS

= 24% of cost of sales = $192400×24% = $46176

8. Dividend payout ratio = Total dividens ÷ Net profit

=> 58% = total dividends ÷ $54390

=> Total Dividends = $54390 × 58%

=> Total Dividends = $31546

9. Return on Equity = Dividend Return ÷ Equity

=> 12% = $31546 ÷ Equity

=> Equity = $31546/12%

=> EQUITY = $262883

10. Debt to Equity Ratio = 107%

=> Total Debt ÷ Total Equity = 107%

=> Total Debt = Total Equity × 107%

=> Total Debt = $262883 × 107%

=> TOTAL DEBT(LIABILITIES) = $281285

11. TOTAL NON CURRENT ASSETS

= Total assets - Current assets

= (Total liabilities+Equity) - Current assets

= ($281285+$262883) - $46176

= $544168 - $46176

= $497992

12. Current Ratio = 1.1

=> Current assets ÷ current liabilities = 1.1

=> Current liabilities = Current assets ÷ 1.1

=> Current liabilities = $46176 ÷ 1.1

=> CURRENT LIABILITIES = $41978

13. TOTAL NON CURRENT LAIBILITIES

= Total liabilities - Total current liabilities

= $281285 - $41978

= $239307

______×_______

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