- 15 Marks
FR – L2 – Q100 – Presentation of Financial Statements
Prepare a report analyzing JB Co Ltd's financial position using gearing and liquidity ratios, highlighting areas for further investigation.
Question
BNN Co is considering acquiring an interest in its competitor JB Co Ltd. The managing director of BNN Co has obtained the three most recent statements of financial position of JB Co Ltd as shown below.
JB Co Ltd – Statement of Financial Position at 31st December
| 20X7 GH$’000 | 20X8 GH$’000 | 20X9 GH$’000 | |
|---|---|---|---|
| Non-current assets | |||
| Land and buildings | 11,460 | 12,121 | 11,081 |
| Plant and equipment | 8,896 | 9,020 | 9,130 |
| 20,356 | 21,141 | 20,211 | |
| Current assets | |||
| Inventories | 1,775 | 2,663 | 3,995 |
| Trade receivables | 1,440 | 2,260 | 3,164 |
| Cash | 50 | 53 | 55 |
| 3,265 | 4,976 | 7,214 | |
| Total assets | 23,621 | 26,117 | 27,425 |
| Equity | |||
| Share capital | 8,000 | 8,000 | 8,000 |
| Retained earnings | 6,434 | 7,313 | 7,584 |
| 14,434 | 15,313 | 15,584 | |
| Non-current liabilities | |||
| 12% debentures 20X9–20Y2 | 5,000 | 5,000 | 5,000 |
| Current liabilities | |||
| Trade payable | 390 | 388 | 446 |
| Bank | 1,300 | 2,300 | 3,400 |
| Income taxes payable | 897 | 1,420 | 1,195 |
| Dividend payable | 1,600 | 1,696 | 1,800 |
| 4,187 | 5,804 | 6,841 | |
| Total equity and liabilities | 23,621 | 26,117 | 27,425 |
Required:
Prepare a report for the managing director of BNN Co. commenting on the financial position of JB Co Ltd. and highlight any areas that require further investigation (using gearing and liquidity ratios only).
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