23 Prepare and analyse a income statement Lo45 The following

23 Prepare and analyse a income statement Lo4,5 The following income statement items are available from Bugeja Limited for the years ending 31 December: Advertising expense Commissions expense Cost of sales Income tax expense Insurance expense Interest expense Interest revenue Sales Supplies expense Salaries expense Rent expense 2017 S7765 4879 48 596 2217 4897 2584 4287 95950 1 654 19320 7634 2016 S 9789 6010 58896 2684 5236 2695 4189 106569 2 106 21012 7 856 Required a Prepare a comparative, multi-step income statement for Bugeja. Perform horizontal and vertical analyses and interpret the results. Round percentages to one decimal point(eg, 10.1%) Assume the following changes: Cost of sales in 2017, $62470 and in 2016, $45670. Does this new information change previously-made interpretations? b c

Solution

Comparative Multi-step Income Statement Interpretation Horizontal Analysis Particulars 2017 in % on Sales 2016 in % on Sales in $ in $ Sales 95950 106569 Less: Cost of sales 48596 50.65 58896 55.27 Compared to 2016, in 2017 cost of sales has been reduced and so increased gross profit % on sales Gross Profit 47354 49.35 47673 44.73 Add: Interest Revenue 4287 4189 Compared to 2016, in 2017 Interest Revenue has been increased which may be due to increase in interest rates less: Operating expenses Advertising expense -7765 -8.09 -9789 -9.19 Compared to 2016, in 2017 Advertisement Expenditure has been reduced and so increased Net profit Commissions expense -4879 -5.08 -6010 -5.64 Compared to 2016, in 2017 Commission Expenditure has been reduced and so increased Net profit Insurance expense -4897 -5.10 -5236 -4.91 Compared to 2016, in 2017 Insurance Expenditure has been increased which may be an additional covergae to prevent loss Interest expense -2584 -2.69 -2695 -2.53 Compared to 2016, in 2017 Interest Expenditure has been increased which may be due to increase in interest rates Supplies expense -1654 -1.72 -2106 -1.98 Salaries expense -19320 -20.14 -21012 -19.72 Compared to 2016, in 2017 Salary Expenditure has been increased which may be due to employment of additional staff to prevent any leakages Rent expense -7634 -7.96 -7856 -7.37 Compared to 2016, in 2017 Rent Expenditure has been increased which may be due to annual increment -48733 -54704 ` Profit before Tax 2908 3.03 -2842 Hence Net profit has been increased compared to 2016, in 2017 by implementing all additional measures Income Tax expense -2217 -76.23796424 -2684 94.44 Profit After tax 691 -5526 © Suppose if cost of sales changes Comparative Multi-step Income Statement Interpretation Horizontal Analysis Particulars 2017 in % on Sales 2016 in % on Sales in $ in $ Sales 95950 106569 Compared to 2016, in 2017 cost of sales has been increased and so decreased gross profit % on sales Less: Cost of sales 62470 65.11 45670 42.85 Gross Profit 33480 34.89 60899 57.15 Compared to 2016, in 2017 Interest Revenue has been increased which may be due to increase in interest rates Add: Interest Revenue 4287 4189 less: Operating expenses Compared to 2016, in 2017 Advertisement Expenditure has been reduced and so increased Net profit Advertising expense -7765 -8.09 -9789 -9.19 Compared to 2016, in 2017 Commission Expenditure has been reduced and so increased Net profit Commissions expense -4879 -5.08 -6010 -5.64 Compared to 2016, in 2017 Insurance Expenditure has been increased which may be an additional covergae to prevent loss Insurance expense -4897 -5.10 -5236 -4.91 Compared to 2016, in 2017 Interest Expenditure has been increased which may be due to increase in interest rates Interest expense -2584 -2.69 -2695 -2.53 Supplies expense -1654 -1.72 -2106 -1.98 Compared to 2016, in 2017 Salary Expenditure has been increased which may be due to employment of additional staff to prevent any leakages Salaries expense -19320 -20.14 -21012 -19.72 Compared to 2016, in 2017 Rent Expenditure has been increased which may be due to annual increment Rent expense -7634 -7.96 -7856 -7.37 ` -48733 -54704 Profit before Tax -10966 10384 Income Tax expense -2217 -2684 Profit After tax -13183 7700