40 German competitor

40 German competitor

You are the chief accountant of Tone plc, a UK company. The managing director has provided you with the financial statements of Tone plc’s main competitor, Hilde GmbH, a German company. He finds difficulty in reviewing these statements in their non-UK format, presented below.

HILDE GmbH

STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 20X5 (in € million)

	31.3.X5	31.3.X4	31.3.X5	31.3.X4
ASSETS			CAPITAL AND LIABILITIES
Tangible non-current assets			Capital and reserves
Land	1,000	750	Share capital 850	750
Buildings	750	500	Share premium 100	–
Plant	200	150	Legal reserve 200	200
	1,950	1,400	Profit & loss b/fwd 590	300
			Profit & loss for year 185	290
Current assets			NET WORTH 1,925	1,540
Inventory	150	120
Trade receivables	180	100	Payables
Cash	20	200	Trade payables 170	150
	350	420	Taxation 180	150
			Other payables 75	50
Prepayments and			425	350
accrued income
Prepayments	50	70
	2,350	1,890	2,350	1,890

HILDE GmbH

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 20X5 (in € million)

20X5 20X4 20X5 20X4

EXPENSES INCOME

Operating expenses: Operating income:

Variationininventories finishedgoodsandWIP 120 80 thereof 90 40 Otheroperatingincome 75 50 Taxation 190 125 Totaloperatingincome 2,085 1,400 Wages 500 285 Valuation adjustment onnon-currentassets: depreciation 200 150

Purchase of raw Sale of goods produced 1,890 1,270 materials 740 400 Variation in inventory of

Valuation adjustment

on current assets:

amountswrittenoffOtheroperatingexpenses 30 50 20 40 Totaloperating expenses 1,800 1,060 Financialexpenses Interest 100 50 Totalfinancial expenses 100 50 TOTALEXPENSES 1,900 1,110 TOTALINCOME 2,085 1,400 Balance:PROFIT 185 290 SUMTOTAL 2,085 1,400 2,085 1,400 Required

Prepare a report for the managing director:

(a) Analysing the performance of Hilde GmbH using the financial statements provided.

(b) Explaining why a direct comparison of the results of Tone plc and Hilde GmbH may be misleading.

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