W1-2-60-1-6
JOMO KENYATTA UNIVERSITY
OF
AGRICULTURE AND TECHNOLOGY
University Examinations 2014/2015
END OF SEMESTER EXAMINATION FOR
THE DEGREE OF BACHELOR OF COMMERCE
HBC 2303: FINANCIAL STATEMENT ANALYSIS
DATE: AUGUST 2014 TIME: 2 HOURS
INSTRUCTIONS: ANSWER QUESTION ONE (COMPULSORY) AND ANY OTHER TWO QUESTIONS
Question One (30 Marks)
- a) Discuss any four sources of financial statement analysis information, indicating which type of information is got from each of them. (8 Marks)
- b) Discuss five users of financial statement analysis information and indicate the specific type of information they need. (10 Marks)
- c) Discuss four limitations of using ratio analysis as a tool of financial statement analysis. (8 Marks)
- d) Discuss the steps in formulating a financial plan. (4 Marks)
Question Two (20 Marks)
- a) The following are the comparative financial statement of MK Ltd:
Income Statement:
| Details | 2009 | 2008 |
| Net sales | 5,200,000 | 4,800,000 |
| Cost of sales | (3,600,000) | (3,150,000) |
| Gross profit | 1,600,000 | 1,650,000 |
| Expenses (operating) | (1,280,600) | (1,260,000) |
| Income before interest expense | 319,400 | 390,000 |
| Interest | (64,000) | (70,000) |
| Income before tax | 255,400 | 320,000 |
| Tax (30%) | (76,620) | (96,000) |
| Income after tax | 178,780 | 224,000 |
| Balance sheet | 2009 | 2008 |
| Non current assets | ||
| Land | 40,000 | 40,000 |
| Buildings | 120,000 | 85,000 |
| Currents assets | ||
| Stock | 80,000 | 100,000 |
| Debtors | 60,000 | 40,000 |
| Cash | 12,000 | 23,500 |
| Prepaid expenses | 3,000 | 1,200 |
| Total assets | 315,000 | 289,700 |
| Capital liabilities: | ||
| Capital | 90,000 | 90,000 |
| Retained earnings | 80,000 | 69,700 |
| 8% bonds | 75,000 | 80,000 |
| Current liabilities: | ||
| Creditors | 67,000 | 44,000 |
| Notes payable | 3,000 | 6,000 |
| Total capital and liabilities | 315,000 | 289,700 |
Required:
Analyze the above financial statements horizontally giving a detailed explanation of your results. (20 Marks)
Question Three (20 Marks)
The balance sheet of Grand Limited, a wholesaler at 31/12/2005 and 2006 were as follows:
| 2005 | 2006 | |||
| ‘000’ | ‘000’ | ‘000’ | ‘000’ | |
| Fixed assets | 126,300 | 162,400 | ||
| Depreciation | (50,000) | 76,300 | (64,000) | 98,400 |
| Current assets | ||||
| Stock | 12,000 | 15,000 | ||
| Debtors | 10,500 | 14,000 | ||
| Cash | 1,400 | 2,000 | ||
| 23,900 | 31,000 | |||
| Current liabilities | ||||
| Creditors | 6,800 | 9,400 | ||
| Corporation tax | 3,400 | 5,000 | ||
