32 a)

The financial statements of the years 20X4 and 20X5 are not comparable in light of the occurrence of 2 events
The SoFP will be affected by new assets and liabilities which would've been added on a line by line basis. The S
made. The best solution to this would be to prepare the 20X5 statements as if the acquisition and the contrac
The accounts affected by the acquisition are Goodwill, NCI, non current assets, revaluation surplus, retained e
cash or goods in transit.

b)
Revenue has increased by 48.4% as a result of the acquisition. However, this is not in line with
Gross profits have been steadily declining as expenses have risen this year. Most of these cost
these costs are mostly one-off costs.
ROCE has fallen dramatically from 61.9% to 19.5%, as a result of the decrease from 21.9% to
2.98.
The entity had reduced its costs in order to win the contract, which naturally would've caused
The costs incurred to fulfil the obligations that came with the contract were also quite large, a
costs seem to be one-off.
The interest cover decrease from 79.6 times to 5.9 times is a result of the declining profits as
on loan notes. It is reasonable to assume that the entity was running low on cash, considering
loan notes in order to fund its everyday activities. This has affected the Gearing ratio, increasi

Overall, the entity's performance this year seems to have been poor. If the entity entered suc
that most of these costs are one-time costs, and over the years, the benefit will be seen.

c) Cost of the investment in Raremetal Co

Benefit earned from the investment
Intra-group sales made in 20X5
Pricing strategy

20X5 20X4
GP margin 0.4 0.3
OP Margin 0.087 0.219
ROCE 0.195 0.617
Interest cover 5.9 79.6
Gearing 0.497 0.183
Asset T/O 2.23 2.98
e in light of the occurrence of 2 events: a new contract, and the acquisition of Raremetal Co.
een added on a line by line basis. The SoPL will be affected by the cost of investment as well as any revaluations
ts as if the acquisition and the contract never happened (for internal purposes).
assets, revaluation surplus, retained earnings, share capital, cost of investment and unrealized profit, as well as any

uisition. However, this is not in line with the entity's profits, which have fallen quite drastically.
have risen this year. Most of these costs would've been incurred as a result of the acquisition. It is important to note that

result of the decrease from 21.9% to 8.7% in net profit margin. Net Asset Turnover has slightly decreased to 2.23 times from

ntract, which naturally would've caused declines in gross profit margin, as can be seen by the downturn from 40% to 30%.
th the contract were also quite large, affecting investment costs, plant, property and equipment and licence. Most of these

es is a result of the declining profits as well as increased finance costs, which was expected due to the doubled interest rate
y was running low on cash, considering the heavy investments made in the acquisiton and in the contract, so had to take on
has affected the Gearing ratio, increasing it from 18.3% to nearly 50%.

ve been poor. If the entity entered such heavy-duty investments, it must've expected a huge pay off as well. The good news is
he years, the benefit will be seen.
, as well as any

portant to note that

eased to 2.23 times from

rn from 40% to 30%.

licence. Most of these

e doubled interest rate

tract, so had to take on

as well. The good news is