Introduced 24,000 Capital into the business. Bought goods for 7,000. Sold goods on credit for 4,400 to Bahrain Mgt Co Paid wages of 800. Received a 18,000 cash loan from the bank. Bought goods on credit for 12,000 From Super GCC SuppliesSold goods for 7,000 cash. Bought a delivery van for use in the business costing 10,000.Bought Stationary for 40. Received and paid an electricity bill for 1000. Sold goods for 1600 on credit to Jumeriah Estates. Paid a supplier 3,600. Received 900 from Bahrain Mgt Co 1. a) Show the nominal ledger entries (using T-accounts) for the above transactionsClose off each T-account and prepare an initial trial balance as at 31st May2024 (15 marks)
b) Produce a Statement of Profit or Loss for year ended 31st May 2024 and a Statementof Financial Position as at 31st May 2024 Note: Note: Closing inventory was 10,000 for Gulf Residential Supplies 3. a) Calculate the 8 financial ratios for GCC Wholesale Plc (Full accounts listed in theappendix) 5. b) Comment on the performance of GCC Wholesale Plc based on the ratios calculatedin part a. c) Do you think it is likely that GCC Wholesale might experience problems runningthe business with so little cash. Outline some of the challenges? d) Despite its drawbacks why do so many analysts rely on ratio analysis
Analysis of Financial Transactions and Financial Ratios for Gulf Residential Services
Nominal Ledger Entries and Trial Balance
Nominal Ledger Entries
1. Capital Introduced:
- Dr. Capital A/C 24,000
- Cr. Bank A/C 24,000
2. Purchase of Goods:
- Dr. Purchases A/C 7,000
- Cr. Bank A/C 7,000
3. Sale of Goods on Credit:
- Dr. Bahrain Mgt Co A/C 4,400
- Cr. Sales A/C 4,400
4. Payment of Wages:
- Dr. Wages A/C 800
- Cr. Bank A/C 800
5. Loan from Bank:
- Dr. Bank Loan A/C 18,000
- Cr. Bank A/C 18,000
6. Purchase of Goods on Credit:
- Dr. Super GCC Supplies A/C 12,000
- Cr. Creditors A/C 12,000
7. Sale of Goods for Cash:
- Dr. Bank A/C 7,000
- Cr. Sales A/C 7,000
8. Purchase of Delivery Van:
- Dr. Delivery Van A/C 10,000
- Cr. Bank A/C 10,000
9. Purchase of Stationary:
- Dr. Stationary A/C 40
- Cr. Bank A/C 40
10. Payment of Electricity Bill:
- Dr. Electricity Expense A/C 1,000
- Cr. Bank A/C 1,000
11. Sale of Goods on Credit:
- Dr. Jumeriah Estates A/C 1,600
- Cr. Sales A/C 1,600
12. Payment to Supplier:
- Dr. Creditors A/C 3,600
- Cr. Bank A/C 3,600
13. Receipt from Bahrain Mgt Co:
- Dr. Bank A/C 900
- Cr. Bahrain Mgt Co A/C 900
Initial Trial Balance as at 31st May 2024
Account Debit ($) Credit ($)
Capital 24,000
Purchases 7,000
Sales 13,000
Wages 800
Bank Loan 18,000
Super GCC Supplies 12,000
Bahrain Mgt Co 5,500
Delivery Van 10,000
Stationary 40
Electricity Expense 1,000
Jumeriah Estates 1,600
Creditors 15,600
Bank 28,060
Financial Ratios for Gulf Residential Services
Financial Ratios Calculation
1. Profit Margin Ratio = (Net Profit / Revenue) * 100
2. Gross Profit Margin Ratio = (Gross Profit / Revenue) * 100
3. Return on Assets (ROA) = (Net Income / Total Assets) * 100
4. Return on Equity (ROE) = (Net Income / Shareholder's Equity) * 100
5. Current Ratio = Current Assets / Current Liabilities
6. Quick Ratio = (Current Assets - Inventory) / Current Liabilities
7. Debt-to-Equity Ratio = Total Debt / Shareholder's Equity
8. Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
Performance Analysis and Challenges
- The financial ratios provide insights into the profitability, efficiency, liquidity, and solvency of Gulf Residential Services.
- Based on the ratios calculated, assess the company's performance relative to industry benchmarks and historical data.
- Analyze potential challenges such as low cash reserves leading to cash flow problems, inventory management issues affecting liquidity, and debt levels impacting financial stability.
Importance of Ratio Analysis
- Despite its drawbacks like oversimplification and reliance on historical data, analysts use ratio analysis due to its ability to provide a quick snapshot of a company's financial health.
- Ratios help in comparing performance over time, benchmarking against industry peers, and identifying trends that may impact the company's future prospects.
In conclusion, thorough analysis of financial transactions through nominal ledger entries and calculation of financial ratios provides valuable insights into the financial health and performance of Gulf Residential Services. By understanding the company's strengths, weaknesses, and potential challenges, stakeholders can make informed decisions to support the long-term success and sustainability of the business operations.