Question

Mohammed SAOG is involved in the manufacture of baked goods. It provides you the following details, you are required to prepare a Statement of Financial Performance clearly showing: 1. Net sales 2. Cost of Goods sold, 3. Gross profit, 4. Net income before interest and Tax, 5. Net income after interest and tax

Particulars	Amount(OMR)
Profit on sale of building	1500
Factory Lighting	2000
Discount Received	400
Return outwards	1200
Rent from tenants	2900
Advertisement Expenses	1000
Carriage on Sales	560
Opening Stock	8200
Freight inwards	890
Stationery	500
Interest(Cr.)	3700
Bad debts	2520
Purchases	143,400
Sales	189,900
Tax	35%
Closing stock	10,200

After calculating the net income, consider the following information.

Mohammed SAOG has in issue 50,000 Equity shares having a par value of 0.270 baiza was issued at a premium of OMR 2.1.

It also has in issue 9% 30,000 Irredeemable Preference shares having a par value of 0.750 baiza was issued at a premium of OMR 1.6

A. Comment and show how the net income of the company will be affected :( 1.5 marks)

a. Change in the net income due to Irredeemable Preference shares

b. Calculate and answer whether it is possible to pay a dividend to equity share holders

B. How will you show the Preference share capital and Equity Share capital and any other items in the Statement of Financial Position (1.5 marks)

Answer 1

All amount in OMR

1)

Net Sales = (Gross sales) less (Sales returns, allowances and discounts)

=189,900-0=189,900

2)

Cost of Goods sold= Beginning Inventory + Additional Inventory - Ending Inventory.

In this question

additional inventory= Purchase-Return outwards  

and Freight inwards will include purchase cost

So

143400-1200+890=143,090

So

Cost of Goods sold=

8200+143090-10,200= 141,090

3)

Gross profit = Net sales- . Cost of Goods sold

189,900-141,090=48,810

4)

Net income before interest and Tax
Opening Stock	8200	Return outwards	1200
Purchases	1,43,400	Sales	1,89,900
Freight inwards	890	Closing stock	10,200
Gross Profit c/f	48,810
	2,01,300		201300
		Gross Profit b/f	48,810
Factory Lighting	2000	Interest(Cr.)	3700
Advertisement Expenses	1000	Profit on sale of building	1500
Carriage on Sales	560	Discount Received	400
Bad debts	2520	Rent from tenants	2900
Stationery	500
Net income before interest and Tax	50,730
	57310		57,310
Net income before interest and Tax	50,730

5)

Net income after interest and tax

Net income before interest and tax	50730
Tax Rate	35%
Interest	Nil
Tax Amount	17755.5
Net income after interest and tax 50730-17755.5=	32974.5

A)

a) If the company issues 9% irredeemable Preference share, company need to give 9% dividend to Preference share holders prior to equity share holders. The amount will 30000*.750=22500*9%

=2025

The dividend paid from net income. The net income will reduced to 32974.5-2025=30949.5

b) Equity share holders will eligible to get dividend 30949.5 ie .61899 / share

B)

Preference share capital and Equity Share capital and other item(Securities Premium) will shown under the Liabilities side of Balance Sheet

Equity share capital

50000*.270=13500

Securities Premium

  50000*2.1=105000

9% Preference Share Capital

30000*.750=22500