Question 32a
Thatcher International Park (TIP) is a theme park and has for many years been a successful business, which has traded profitably. About three years ago the directors decided to capitalise on their success and reduced the expenditure made on new thrill rides, reduced routine maintenance where possible (deciding instead to repair equipment when it broke down) and made a commitment to regularly increase admission prices. Once an admission price is paid customers can use any of the facilities and rides for free.
These steps increased profits considerably, enabling good dividends to be paid to the owners and bonuses to the directors. The last two years of financial results are shown below.
| 20X4 | 20X5 | |
|---|---|---|
| $ | $ | |
| Sales | 5,250,000 | 5,320,000 |
| Less expenses: | ||
| Wages | 2,500,000 | 2,200,000 |
| Maintenance – routine | 80,000 | 70,000 |
| Repairs | 260,000 | 320,000 |
| Directors’ salaries | 150,000 | 160,000 |
| Directors’ bonuses | 15,000 | 18,000 |
| Other costs (including depreciation) | 1,200,000 | 1,180,000 |
| Net profit | 1,045,000 | 1,372,000 |
| Book value of assets at start of year | 13,000,000 | 12,000,000 |
| Dividend paid | 500,000 | 650,000 |
| Number of visitors | 150,000 | 140,000 |
TIP operates in a country where the average rate of inflation is around 1% per annum.
Required:
(a) Assess the financial performance of TIP using the information given above. (14 marks)