ACCA · Question 56 · Interpretation of financial statements

Section B - Case 2: Single Entity Accounts & Ratio Analysis

*Scenario: Horizon Wind Farms Ltd has prepared draft financial statements for the year ended 31 December 20X8. The draft net profit is $850,000. Draft Revenue is $4,000,000 and Cost of Sales is $2,200,000. The following adjustments have not yet been processed:

1. Depreciation on new turbines of $50,000 was omitted.
2. An annual insurance premium of $12,000 paid on 1 July 20X8 was expensed in full.
3. Closing inventory was overvalued by $30,000.
4. An irrecoverable debt of $15,000 needs to be written off.
   Equity comprises Share capital $1,000,000 and Retained earnings $2,000,000. There is a long-term loan of $1,500,000.*

Using the unadjusted draft figures, calculate the Return on Capital Employed (ROCE). (Assume draft net profit equals Profit Before Interest and Tax. Calculate as PBIT / (Total Equity + Long-term Debt) and enter as a percentage to one decimal place, e.g., 15.5)