4.1.4 Debt to equity 4.1.5 Earnings per share 4.2 Are the collections from credit sales satisfactory? Motivate your answer by using the relevant ratio.
4.1.4 Debt to equity 4.1.5 Earnings per share 4.2 Are the collections from credit sales satisfactory? Motivate your answer by using the relevant ratio.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Please assist with question 4.1.4, 4.1.5 and 4.2
thank you
![Use the information provided to answer the questions that follows below:
Extract of Statement of Changes in Equity for the year ended 31 December 2020
Retained
earnings
R.
Balance on 01 January 2020
1 500 000
Profit after tax
480 000
Dividends paid and proposed in 2020
(180 000)
Balance on 31 December 2020
1 800 000
INFORMATION
The information provided below was extracted from the accounting records of Harmony Limited on 31 December 2020:
Harmony Limited
Extract of Statement of Comprehensive Income for the year ended 31 December 2020
6 600 000
Sales
(3 900 000)
Cost of sales
2 700 000
Gross profit
(1710 000)
Operating expenses
1 260 000
Selling and administrative expenses
450 000
Depreciation
990 000
Operating profit
(270 000)
Interest expense
720 000
Profit before tax
Company tax
(240 000)
Profit after tax
480 000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6d682e75-3d83-4664-bc4a-ca1ef91c429f%2F83dfa1c8-291e-4994-b60a-1395cc1051fa%2F6eednwt_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Use the information provided to answer the questions that follows below:
Extract of Statement of Changes in Equity for the year ended 31 December 2020
Retained
earnings
R.
Balance on 01 January 2020
1 500 000
Profit after tax
480 000
Dividends paid and proposed in 2020
(180 000)
Balance on 31 December 2020
1 800 000
INFORMATION
The information provided below was extracted from the accounting records of Harmony Limited on 31 December 2020:
Harmony Limited
Extract of Statement of Comprehensive Income for the year ended 31 December 2020
6 600 000
Sales
(3 900 000)
Cost of sales
2 700 000
Gross profit
(1710 000)
Operating expenses
1 260 000
Selling and administrative expenses
450 000
Depreciation
990 000
Operating profit
(270 000)
Interest expense
720 000
Profit before tax
Company tax
(240 000)
Profit after tax
480 000
![Balances extracted from the Statement of Financial Position as at 31 December:
2020
2019
R.
R.
1
Plant and equipment
3 750 000
3 000 000
Investments
12
210 000
240 000
Inventories
1 290 000
1 230 000
13
Accounts receivable
1 140 000
1 050 000
Cash and cash equivalents
13
300 000
210 000
Ordinary share capital
1860 000
1 860 000
Retained earnings
1 800 000
1 500 000
Long-term loan
360 000
210 000
Accounts payable
2 520 000
1 962 000
Dividends payable
120 000
150 000
Income tax payable
30 000
48 000
Note:
(a)
Plant and equipment was purchased but there was no disposal.
(b)
The number of ordinary shares in issue was 930 000.
(c)
All purchases and sales of inventory were on credit.
(d)
Credit tems to debtors are 30 days. Debtors took approximately 28 days to settle their accounts during 2019.
4.1
Calculate the following ratios for 2021. Express answers to two decimal places.
4.1.1
Gross margin
4.1.2
Inventory turnover
4.1.3
Acid test ratio
4.1.4
Debt to equity
4.1.5
Earnings per share
4.2
Are the collections from credit sales satisfactory? Motivate your answer by using the relevant ratio.
4.3
Would the shareholders of Harmony Limited be satisfied with the return on their investments?
Motivate your answer with the use of a relevant ratio.
Suggest THREE (3) ways in which Harmony Limited can improve its gross margin ratio, without
increasing the selling price of the inventories.
4.4](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6d682e75-3d83-4664-bc4a-ca1ef91c429f%2F83dfa1c8-291e-4994-b60a-1395cc1051fa%2Fkdtz98m_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Balances extracted from the Statement of Financial Position as at 31 December:
2020
2019
R.
R.
1
Plant and equipment
3 750 000
3 000 000
Investments
12
210 000
240 000
Inventories
1 290 000
1 230 000
13
Accounts receivable
1 140 000
1 050 000
Cash and cash equivalents
13
300 000
210 000
Ordinary share capital
1860 000
1 860 000
Retained earnings
1 800 000
1 500 000
Long-term loan
360 000
210 000
Accounts payable
2 520 000
1 962 000
Dividends payable
120 000
150 000
Income tax payable
30 000
48 000
Note:
(a)
Plant and equipment was purchased but there was no disposal.
(b)
The number of ordinary shares in issue was 930 000.
(c)
All purchases and sales of inventory were on credit.
(d)
Credit tems to debtors are 30 days. Debtors took approximately 28 days to settle their accounts during 2019.
4.1
Calculate the following ratios for 2021. Express answers to two decimal places.
4.1.1
Gross margin
4.1.2
Inventory turnover
4.1.3
Acid test ratio
4.1.4
Debt to equity
4.1.5
Earnings per share
4.2
Are the collections from credit sales satisfactory? Motivate your answer by using the relevant ratio.
4.3
Would the shareholders of Harmony Limited be satisfied with the return on their investments?
Motivate your answer with the use of a relevant ratio.
Suggest THREE (3) ways in which Harmony Limited can improve its gross margin ratio, without
increasing the selling price of the inventories.
4.4
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