Spreader plc is a UK parent company with a number of wholly owned subsidiaries in the USA and Europe. Extracts from the consolidated financial statements of the group for the year ended 30 April 1997 are given below.
Profit and loss account – year ended 30 Apri |
1997 |
1996 |
|
£000 |
£000 |
||
Turnover |
(Note 1) |
50000 |
48000 |
Cost of sales |
(25000) |
(22000) |
|
Gross profit |
25000 |
26000 |
|
Other operating expenditure |
(15000) |
(14200) |
|
Operating profit |
10000 |
11800 |
|
Interest payable |
(1000) |
(900) |
|
Profit before taxation |
(Note 2) |
9000 |
10900 |
Taxation |
(2800) |
(3600) |
|
Profit after taxation |
6200 |
7300 |
|
Dividend |
(3000) |
(3200) |
|
Retained profit |
3200 |
4100 |
Note 1 Analysis of turnover for the year by geographical segment
UK |
US |
Rest of Europe |
Total |
|||||
1997 |
1996 |
1997 |
1996 |
1997 |
1996 |
1997 |
1996 |
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
Total sales |
15000 |
20000 |
10000 |
8000 |
30000 |
25000 |
55000 |
53000 |
Inter segment sales |
(2000) |
(2500) |
(1000) |
(500) |
(2000) |
(2000) |
(5000) |
(5000) |
Sales to third parties |
13000 |
17500 |
9000 |
7500 |
28000 |
23000 |
50000 |
48000 |
Note 2 Analysis of profit before tax for the year by geographical segment
UK |
US |
Rest of Europe |
Total |
|||||
1997 |
1996 |
1997 |
1996 |
1997 |
1996 |
1997 |
1996 |
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
Segment profit |
3000 |
6000 |
1500 |
1200 |
6000 |
5000 |
10500 |
12200 |
Common costs |
(500) |
(400) |
||||||
Operating profit |
10000 |
11800 |
||||||
Interest payable |
(1000) |
(900) |
||||||
Profit before taxation |
9000 |
10900 |
Note 3 Analysis of net assets at end of year by geographical segment
UK |
US |
Rest of Europe |
Total |
|||||
1997 |
1996 |
1997 |
1996 |
1997 |
1996 |
1997 |
1996 |
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
Segment net assets |
15000 |
13500 |
6000 |
5000 |
20000 |
20000 |
41000 |
38500 |
Unallocated assets |
2000 |
1800 |
||||||
Total net assets |
43000 |
40300 |
Requirements
In your capacity as chief accountant of Spreader plc,
(a) prepare a report for the board of directors of the company which analyses the results of the group for the year ended 30 April 1997;
(b) explain why the segmental data which has been included in the extracts may need to be interpreted with caution.