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Question 3b
Zak Co sells garden sheds and furniture from 15 retail outlets. Sales are made to individuals, with income being in the form of cash and debit cards.
All items purchased are delivered to the customer using Zak’s own delivery vans; most sheds are too big for individuals to transport in their own motor vehicles. The directors of Zak indicate that the company has had a difficult year, but are pleased to present some acceptable results to the members.
The income statements for the last two financial years are shown below:
| income statement | ||
| 31 march 2008 | 31 march 2007 | |
| $000 | $000 | |
| revenue | 7482 | 6364 |
| cost of sales | (3520) | (4253) |
| ---------- | ---------- | |
| operating expenses | ||
| administration | (1235) | (1320) |
| selling and distribution | (981) | (689) |
| interest payable | (101) | (105) |
| investment income | 145 | --- |
| ---------- | ---------- | |
| profit / (loss) before tax | 1790 | (3) |
| ---------- | ---------- | |
| financial statement extract | ||
| ---------- | ---------- | |
| cash and bank | 253 | (950) |
| ---------- | ---------- | |
Required:
As part of your risk assessment procedures for Zak Co, identify and provide a possible explanation for unusual changes in the income statement. (9 marks)