Question 3 Working capital management is so critical in the organization. The following information below was obtained concerning the liquidity of the business. You are to study the following financial statements for two furniture stores and then answer the questions which follow. Financial Statements Profit and loss accounts for the year ending 31 December, 2020 X Y K K K K Sales 555,000 750,000 Less Cost of goods sold Opening stock 100,000 80,000 Add Purchases 200,000 320,000 300,000 400,000 Less Closing stock (60,000) (70,000) (240,000) (330,000) Gross profit 315,000 420,000 Less Depreciation 5,000 15,000 Wages, salaries and commission 165,000 220,000 Other expenses 45,000 35,000 (215,000) (270,000) Net profit 100,000 150,000 Balance sheets as at 31 December, 2020 Fixed assets Equipment at cost 50,000 100,000 Less Depreciation to date (40,000) (30,000) 10,000 70,000 Current assets Stock 60,000 70,000 Debtors 125,000 100,000 Bank 25,000 12,500 210,000 182,500 Less Current liabilities Creditors (104,000) (100,500) 106,000 82,000 116,000 152,000 Financed by: Capitals Balance at start of year 76,000 72,000 Add Net profit 100,000 150,000 176,000 222,000 Less Drawings (60,000) (70,000) 116,000 152,000 Required: (a) Calculate The Following Ratios For Each Business: (I) Gross Profit as Percentage of Sales; (Vi) Current Ratio; (Ii) Net Profit as Percentage of Sales; (Vii) Acid Test Ratio; (Iii) Expenses as Percentage of Sales; (Viii) Debtor/Sales Ratio; (Iv) Stock Turnover; (Ix) Creditor/Purchases Ratio. (V) Rate of Return of Net Profit on Capital Employed (b) Drawing upon all your knowledge of accounting, comment upon the differences and similarities of the accounting ratios for A and B. Which business seems to be the most efficient? Give possible reasons. ‘
Question 3
You are to study the following financial statements for two furniture stores and then answer the questions which follow.
Financial Statements
X Y
K K K K
Sales 555,000 750,000
Less Cost of goods sold
Opening stock 100,000 80,000
Add Purchases 200,000 320,000
300,000 400,000
Less Closing stock (60,000) (70,000)
(240,000) (330,000)
Gross profit 315,000 420,000
Less
Wages, salaries and commission 165,000 220,000
Other expenses 45,000 35,000
(215,000) (270,000)
Net profit 100,000 150,000
Fixed assets
Equipment at cost 50,000 100,000
Less Depreciation to date (40,000) (30,000)
10,000 70,000
Current assets
Stock 60,000 70,000
Debtors 125,000 100,000
Bank 25,000 12,500
210,000 182,500
Less Current liabilities
Creditors (104,000) (100,500)
106,000 82,000
116,000 152,000
Financed by:
Capitals
Balance at start of year 76,000 72,000
Add Net profit 100,000 150,000
176,000 222,000
Less Drawings (60,000) (70,000)
116,000 152,000
Required:
(a) Calculate The Following Ratios For Each Business:
(I) Gross Profit as Percentage of Sales; (Vi)
(Ii) Net Profit as Percentage of Sales; (Vii) Acid Test Ratio;
(Iii) Expenses as Percentage of Sales; (Viii) Debtor/Sales Ratio;
(Iv) Stock Turnover; (Ix) Creditor/Purchases Ratio.
(V)
(b) Drawing upon all your knowledge of accounting, comment upon the differences and similarities of the accounting ratios for A and B. Which business seems to be the most efficient? Give possible reasons. ‘
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