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Case Study-Short Solution

M&S uses a multi-step income statement format that separately shows gross profit, operating expenses, and non-operating expenses. This provides more detail on the company's operations. M&S's primary revenue sources are general merchandise and food products sales in the UK through its retail outlets and franchise business. Gross profit increased from £756 million in 2012 to £746.5 million in 2013 because revenue increased more than cost of sales, resulting in higher incremental profit. M&S distinguishes operating from non-operating profit because investors and readers are more interested in the performance of core operations. The financial statements include some non-IFRS measures in addition to meeting IFRS requirements.

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513 views6 pages

Case Study-Short Solution

M&S uses a multi-step income statement format that separately shows gross profit, operating expenses, and non-operating expenses. This provides more detail on the company's operations. M&S's primary revenue sources are general merchandise and food products sales in the UK through its retail outlets and franchise business. Gross profit increased from £756 million in 2012 to £746.5 million in 2013 because revenue increased more than cost of sales, resulting in higher incremental profit. M&S distinguishes operating from non-operating profit because investors and readers are more interested in the performance of core operations. The financial statements include some non-IFRS measures in addition to meeting IFRS requirements.

Uploaded by

Mhmd Karam
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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INTERMEDIATE FINANCIAL ACCOUNTING I

BREAF CASE STUDY (15 MARKS)

The financial statements of M&S (GBR) are presented below. The company’s complete
annual report, including the notes to the financial statements.

INSTRUCTIONS
(a) What type of income statement format does M&S use? Indicate why this format
might be used to present income statement information.
Answer

Multi step income statement shows gross profit earned on sale of goods. This
also shows operating expenses and non-operating expenses separately. This helps
reader understand the operation of the company in more detail.

(b) What are M&S’s primary revenue sources?


Answer

M&S is getting most of its revenue from sale of General merchandise and Food
products in UK region. Revenue is coming from its retail outlets and franchise
business.

(c) Compute M&S’s gross profit for each of the years 2012 and 2013. Explain why gross
profit increased in 2013.
  2013 2013
total revenue 10026.8 9934.3
less operating costs 9270.8 9187.8
Ratio 92.46% 92.49%
gross profit 756 746.5
Ratio 7.54% 7.51%
Gross profit in 2013 has increased over 2012 as the result to sales has increased
more than cost of sales and incremental sale is at better Gross profit.

(d) Why does M&S make a distinction between operating and non-operating profit?
Answer
Operating profit indicates results from the core operation of the company.
Non-operating profit are the results of non-core activities carried out by company.
Investor and the Reader of the financial statement are more interested in status of
core operating activities.

(e)  Does M&S report any non-IFRS measures? Explain.


Answer
After reading the financial statements, it is noticed that the financial
statement includes a category other than GAAP in the income statement, but on
the other hand it includes the minimum requirements of international financial
reporting standards, whether the income statement, comprehensive income or
balance sheet , as well as the cash flow statement

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