1.1.2. Working capital 1.1.3. Debenture 1.1.4. Irrelevant costs 1.1.5. Bank over

ID: 2824570 • Letter: 1

Question

1.1.2. Working capital 1.1.3. Debenture 1.1.4. Irrelevant costs 1.1.5. Bank overdraft sales volume for a specfied future perod C Does not affect the dedsion at hand and is e the decisiom mkig roces D. Ensuring the profrability of the encty E. A flexible borrowing faclity on a bank curren which is payabie om demand. F. Funds required for the day to day operaton enterprise 1.2. FINANCIAL RATIOS REQUIRED Calculate each of the following from the information extracted from the accounting recorts of H FASHIONS for the year ended 31 August 2018 1.2.1. Current ratio 1.2.2. Acid-test ratio. 1.2.3. Inventory turnover. 1.2.4. Debtors collection period. 1.2.5. Creditors payment period Information: Statement of comprehensive income for the year ended 31 August 2013 Sales [ 80% credit ; 20% cash ] Less: Cost of sales Opening inventories Add: Purchases [ all on credit ] Cost of goods available Less: Closing Inventories 700 000 450 000 ) 120 000 480 000 600000 150 000 Gross Profit 250 000 PROGRAMME HANDBOOK: JULY 2018 INTAKE

Explanation / Answer

current assets

debtors

700000*80%

560000

Inventory

150000

total of current assets

710000

Current liabilities

Accounts payable

480000

Current ratio

current assets/current liabilities = 710000/480000

1.48

Acid test ratio

Quick assets/current liabilities =560000/480000

1.17

Inventory turnover ratio

cost of goods sold /average inventory = 450000 / (150000+120000)/2

3.33

debtors collection period = 365/debtors turnover ratio

365/1

365

debtors turnover ratio

credit sales/debtors = 560000/560000

Creditors payment period = purchase/creditors = (200000/200000)*365

(200000/200000)*365

365

It is considered that amount of creditors equal to amount of purchase and debtors are equal to credit sales