You are Paddy, the Finance Manager of Happy Larry Limited. You have been advised by the management team that the company is considering expanding its business activities and you are required to identify a potential target company. Following intensive research, you have chosen Loopy Lou as a potential target.
Happy Larry Limited is an Irish resident company supplying tinned dog food to the Irish market. The company has a manufacturing facility in the west of Ireland and employs 50 staff.
Loopy Lou Limited manufactures wooden dog kennels and garden sheds. The company is based in Ireland but supplies its products worldwide through internet selling. The company imports the wood necessary to manufacture their product. 80% of the wood is supplied by a firm in Sweden.
Summarised financial information in respect of Loopy Lou is set out below. You can assume that all financial information is in €.
Write a report to the board of directors commenting on the financial performance and position of Loopy Lou.
Your report should include:
1. List the disadvantages of using ratios as a decision-making tool
2. Using ratio analysis provides a detailed commentary of the performance and position of Loopy Lou under the headings of profitability, efficiency, liquidity, gearing, and investment.
3. Using the information in the case study above outline and discuss any other concerns you may have on investment in Loopy Lou.
You have been asked to prepare the year-end financial statements for Pearl Limited and outline three reasons why financial statements should be prepared. The financial statements should include the Statement of Profit or Loss for the year ended 31 December 2019 and the Statement of Financial Position at that date. You have been provided with the following trial balance.
Information (that is not included in the trial balance above) has been provided as follows:
(i) Vans and Trucks are to be depreciated at a 15% straight line.
(ii) Machinery is to be depreciated at 30% reducing balance.
(iii) The closing inventory on 31 December 2019 was €25,000.
(iv) An irrecoverable debt (bad debt) amounting to €1,300 is to be written off.
(v) A provision of for bad debts (allowance for receivables) of 5% is to be made.
(vi) Examination of the expense records revealed that on 31 December 2019:
Administration owning 1,600
Motor expenses prepaid 1,200
(vii) The corporation tax due on profits for the year was €1,850.
You are required to prepare:
(a) A Statement of Profit or Loss for Pearl Limited for the year ended 31 December 2019.
(b) A Statement of Financial Position for Pearl Limited as at 31 December 2019.
(c) List 3 reasons why financial statements should be prepared.
You are required to prepare a bank reconciliation statement and adjust the bank account for Ruby and to discuss the purpose of control accounts.