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.