Chapter 6, Problem 9BTN

1

Summary Introduction

Introduction: Percentage representation of cash in terms of current assets and total assets is used to identify the immediate availability of liquidity in the organization. The percentage representation of cash in terms of current liabilities is to identify the immediate pay off of liabilities available in the organization.

To Determine: Percentage that cash represents of current assets, total assets, current liabilities and shareholder equity for each year

Answer to Problem 9BTN

Particulars	Current Year	Prior Year
Cash that represents current assets	14.6%	14.7%
Cash that represents total assets	7.3%	7.6%
Cash that represents current Liabilities	32.4%	31.7%
Cash that represents Shareholders’ Equity	10.0%	10.8%

Explanation of Solution

Computation of percentage that cash represents of current assets, total assets, current liability and shareholders’ equity.

a. Cash that represents current assets = $\frac{Cash}{CurrentAssets}X100$

b. Cash that represents total assets = $\frac{Cash}{TotalAssets}X100$

c. Cash that represents current liabilities = $\frac{Cash}{CurrentLiabilities}X100$

d. Cash that represents Shareholders Equity = $\frac{Cash}{ShareholdersÉquity}X100$

Particulars	Current Year	Prior Year
Cash	￦16,840,766	￦16,284,780
Current Assets	￦115,146,026	￦110,760,271
Cash that represents current assets	$\frac{16,840,766}{115,146,026}X100$	$\frac{16,284,780}{110,760,271}X100$
Answer	14.6%	14.7%
Total Assets	￦230,422,958	￦214,075,018
Cash that represents total assets	$\frac{16,840,766}{230,422,958}X100$	$\frac{16,284,780}{214,750,018}X100$
Answer	7.3%	7.6%
Current Liabilities	￦52,013,913	￦51,315,409
Cash that represents current Liabilities	$\frac{16,840,766}{52,013,913}X100$	$\frac{16,284,780}{51,315,409}X100$
Answer	32.4%	31.7%
Shareholders’ Equity	￦168,088,188	￦150,016,010
Cash that represents Shareholders’ Equity	$\frac{16,840,766}{168,088,188}X100$	$\frac{16,284,780}{150,016,010}X100$
Answer	10.0%	10.8%

Comment on the trend of the percentage

From the above table, the conclusion can be drawn that there is no major change in the percentage that represents the current assets, total assets, current liabilities and shareholders’ Equity.

2

Summary Introduction

Introduction: To identify the difference between the cash balance of current and prior year, whether there has been an increase or decrease in the cash balance the percentage is calculated taking the prior year as the base.

To Determine:Percentage change in current and prior year cash balances

Answer to Problem 9BTN

Therefore, percentage change in cash balance is 3.4%.

Explanation of Solution

Percentage change in current and prior year cash balances Difference in cash Balance of current and previous year =￦16,840,766-￦16,284,780

   = ￦555,986

Percentage change in cash balance = $\frac{555,986}{16,284,780}X100$

   = 3.4%

3

Summary Introduction

Introduction: Days of Sales uncollected is calculated to identify the time by accounts receivable to settle the amount overdue

To Determine: Days Sales uncollected at the end of both the current and the prior year.

Answer to Problem 9BTN

Days Sales uncollected for current year is 50 days.

Days Sales uncollected of Prior year is 45 days, approx.

Explanation of Solution

Days Sales uncollected at the end of both the current and the prior year.

Days Sales uncollected is calculated by using formula = $\frac{Accounts\mathrm{Re}ceivable}{Netsales}X365$

Days Sales uncollected for current year = $\frac{28,234,485}{206,205,987}X365$

  = 50 days

Days Sales uncollected of Prior year = $\frac{27,875,934}{228,692,667}X365$

  = 44.5 days

The day’s sales uncollected has increased by 5.5 days approximately. There has been an increase in accounts receivable but net sales have declined from the previous year. So there has been no improvement in the number of days’ sales uncollected.