Ethan Clothing Co. Pty’s Income Statement Case Study - Accounting and Finance Assignment Help

Assignment Task

QUESTION 1 

Ethan Clothing Co. Pty started operations on the 1st of April 2020. Ethan, the owner of the business, invested initial capital of R12,800. His brother Theo advanced a loan of R7,200 to be repaid on the 1st of October 2020. The interest on the loan from the brother was 5% per annum but payable at the end of every month.

Further information:

(a) All sales are on cash basis and all purchases are on credit as negotiated with suppliers.
(b) Ethan Clothing Co. Pty has a gross profit margin policy of 25%.
(c) No record was made of cash sales.
(d) Ethan Clothing Co. Pty has a depreciation policy that depreciates shop fixtures and
fittings at 12% per annum using the straight-line method.
(e) Inventory was valued at R4,080 on the 30th of April 2020.
(f) Ethan Clothing Co. Pty owed R810 to creditors on 30th of April 2020.

Required:

a. Prepare Ethan Clothing Co. Pty’s income statement for the month ending 30 April 2020 to show revenue, gross profit, and profit for the month.

b. Ratios are often used in the analysis of financial statements to determine the financial performance and health of a company or companies. One such ratio is a quick ratio. Complete the table provided by inserting an X in the correct column that indicate the correct effect of each proposal given to Ethan Clothing Co. Pty by a consultant.

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