Accounting for Managers: Interpreting accounting information for decision-making

SOLUTIONS TO QUESTIONS 411

c Depreciation

Depreciation is 20% of £12, 000 =£2,400 p.a. or £200/mth. As depreciation is charged
from the next month, it needs to be provided for the period July – March. For that period,
depreciation is £200× 9 =£1,800.

Profit reduced by £1,800 (depreciation expense).

Balance sheet increased by £12,000 (new asset) and reduced by £1,800 (depreciation),

leaving a net value of £10,200.

Cash flow reduced by £12,000 (payment for new system).

NB: The Balance Sheet value of the asset will be reduced by £2,400 p.a. until the asset is
written down to a nil value, or sold or disposed of.

6.6
Debtors/average daily sales

200 , 000

1 , 200 , 000 / 250

=

200 , 000

4 , 800

= 41 .7 days’ sales outstanding

Stock turnover

Cost of sales/stock
450 , 000
200 , 000
= 2 .25 times p.a.

or every 100 days (250/2.5).

Creditors/average daily purchases

100 , 000

450 , 000 / 250

=

100 , 000

1 , 800

= 55 .5 days’ purchases outstanding

Solutions for Chapter 7

7.1
2001 2000

Return on (shareholders’) investment (ROI)
net profit after tax
shareholders’ funds

13. 8

131. 5

= 10 .5%

16. 3

126. 6

= 12 .9%

Return on capital employed (ROCE)
profit before
interest and tax
shareholders’ funds
+long-term debt

27. 2

131.5+96.7

=228.2

= 11 .9%

29. 5

126.6+146.1

=272.7

= 10 .8%