PART A
With most International Accounting Standards offering more than one method of preparation for each accounting item, has the accounting professional effectively legalised creative accounting into a regulatory framework.
(a) Discuss why people would use creative accounting in the Financial Statements and what methods would they incorporate.
(10marks)
(b) Critically evaluate the above statement using examples and extracts from the
International Accounting Standards to illustrate your argument, as well as discussing the International Accounting Standard’s global use.
(23marks)
PART B
Richlypoor Ltd has carried on business as a clothing retailer for 5 years operating from a number of stores under short-term annual rental leases. The income statements and the balance sheets for the three years ended 31 March 2014 were as follows:
Income statement for the years ended 31 March
2012 2013 2014
£m £m £m
Revenue 841 991 925
Cost of sales (555) (655) (598)
Gross profit 286 336 327
Administrative expenses (86) (101) (103)
Selling expenses (87) (99) (102)
Depreciation (14) (16) (18)
99 120 104
Other income 16 26 29
Finance cost (8) (8) (9)
Bad debts (3) (6) (4)
Finance income from credit sales 1 3 3
Profit before tax 105 135 123
Tax expense (26) (34) (31)
Profit for the period 79 101 92
Balance sheets as at 31 March
2012 2013 2014
£m £m £m
Intangible Fixed Assets 37 42 50
Tangible Fixed Assets 175 204 214
Inventory 235 308 292
Receivables 103 139 168
Cash 54 53 44
604 746 768
Share capital 80 80 80
Reserves 219 220 212
299 300 292
Long-term loans 75 173 184
Trade payables 55 71 71
Liability to the bank: short-term loans 75 97 91 overdraft 100 105 130
604 746 768
Required
(a) Calculate the financial ratios for each of the categories Revenue, Profitability,
Liquidity, Efficiency, Gearing and Investment.
(9marks)
(b) Discuss