12

4 Danish provided the following information.

For the year ended 31 July 2015

$
Revenue 380 000
Purchases 295 000
Profit for the year 35 000

Gross profit margin 25%

At 31 July 2015
$
Inventory 65 000
Trade receivables 42 000
Trade payables 52 000
Bank 13 000 debit
Expenses accrued 8 000

REQUIRED

(a) Calculate the following:

Workings Answer
Inventory at 1 August 2014

Rate of inventory turnover

(to two decimal places)

Expenses paid in the year

ended 31 July 2015

Working capital ratio

(current ratio)

Quick ratio
(acid test ratio)
(to two decimal places)

[12]

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Danish is considering the following proposals to improve his working capital.

1 Sell excess non-current assets for $4000

2 Sell old inventory costing $15 000, for $9000 cash
3 Allow a trade receivable 5% cash discount for early payment of a debt of $10 000
4 Pay expenses accrued of $8000
5 Bring additional capital into the business, motor vehicle $5000 and cash $1000

REQUIRED

(b) Complete the table, to show the effect on the working capital of each proposal. The first one
has been completed as an example.

Proposal Working capital Amount

(Increase, decrease, $
no effect)
1 Sell excess non-current assets Increase 4000
for $4000

2 Sell old inventory costing

$15 000, for $9000 cash

3 Allow a trade receivable 5% cash

discount for early payment of a
debt of $10 000
4 Pay expenses accrued of $8000

5 Bring additional capital into the

business, motor vehicle $5000
and cash $1000
[8]

[Total: 20]

© UCLES 2015 7110/22/O/N/15 [Turn over

 12

4 Ng provided the following information for the year ended 30 September 2016.

$
Cost of sales 240 000
Trade payables 180 000
Trade receivables 120 000
8% Bank loan (repayable 2024) 30 000
Bank 20 000 Credit
Closing inventory 130 000

Gross profit margin 25%

REQUIRED

(a) Calculate the following for the year ended 30 September 2016. Comparative figures for the
previous year are shown.

Year ended 30 September 2016 Year ended

30 September
2015
Workings Answer

Revenue $220 000

Working capital ratio

(Current ratio) 1.93:1

(to two decimal places)

Quick ratio (acid test
ratio) 1.12:1

(to two decimal places)

[8]

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(b) Comment on the liquidity position of Ng over the two years.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...............................................................................................................................................[3]

On 31 October 2016 Ng had $15 000 in his business bank account. He is considering ways to
further improve his working capital.

REQUIRED

(c) Complete the table showing the effect on the working capital of the following proposals.
The first item has been completed as an example.

Proposal Effect on
Current assets Current liabilities Working capital
Sell $15 000 non-current + $15 000 No effect +$15 000
assets for cash.

Introduce additional capital of

$10 000, consisting of $5000
in cash and $5000 non-current
assets.

Obtain an additional bank

loan for $30 000, repayable in
equal instalments over five
years.

Offer trade receivables a cash

discount of 10% for quick
payment. Credit customers
owing $60 000 will accept this
offer.
[9]
[Total: 20]
© UCLES 2016 7110/21/O/N/16 [Turn over
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4 Zahin is a trader, buying and selling goods on credit. The following information is available on
31 August 2016.

$
Capital 60 000
Bank loan (repayable 2020) 20 000
Inventory
1 September 2015 29 000
31 August 2016 31 000
Purchases 170 000

Percentage of gross profit to revenue 25%

(Gross profit margin)
Percentage of profit for the year to revenue 5%
(Profit margin)

REQUIRED

(a) Calculate the following for the year ended 31 August 2016. Comparative figures for the
previous year are shown.

Year ended 31 August 2016 Year ended

31 August 2015
Workings Answer
Revenue for the year $200 000

Percentage mark-up 27%

Expenses for the year $36 000

Return on capital 21%

employed (ROCE)
based on profit for
the year

[10]

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(b) Give three comments about the performance of Zahin’s business over the two years.

1 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

3 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[6]

Zahin is considering changes to his accounting policies.

REQUIRED

(c) Complete the table naming one principle or concept which has not been complied with if
each proposed action is implemented. The first item has been completed as an example.

Proposed action Principle or concept

Revalue his premises, recording the Historic cost
increase in market value as a profit

Include a value for business reputation in

his income statement

Record his drawings in the income

statement

Stop charging depreciation on

non-current assets for the year

Do not provide for trade debts which are

probably irrecoverable

[4]

[Total: 20]
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 12

4 Celia is in business buying and selling goods on credit.

The following information is available:

At 1 May 2018 $
Inventory 17 500

For the year ended 30 April 2019

$
Cost of sales 350 000

Percentage of gross profit to sales revenue is 30%

At 30 April 2019
$
Inventory 22 500
Trade payables 90 000
Trade receivables 85 000
Bank overdraft 20 000

REQUIRED

(a) Calculate the following on 30 April 2019. The previous year’s figures are shown in the last
column.

Workings 30 April 2019 30 April 2018

Revenue for the year $320 000

Rate of turnover of inventory

12.0 times
(to one decimal place)

Current ratio (working capital ratio)

1.80:1
(to two decimal places)

Quick ratio (acid test ratio)

0.90:1
(to two decimal places)

[8]

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(b) Comment on the changes in Celia’s business which have occurred between 30 April 2018
and 30 April 2019.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [6]

Celia is concerned that her balance at the bank is an overdraft and she wishes to return to a
positive bank balance as soon as possible. She has decided to increase the mark-up on goods
sold and has made the following estimates for May:

$
Revenue 25 000
Purchases 7 500
Expenses paid 4 500
Trade payables 31 May 2019 84 000
Trade receivables 31 May 2019 75 000

All payments and receipts will be by cheque.

REQUIRED

(c) Calculate the following:

Answer
Workings
$

Receipts from trade

receivables in May 2019

Payments made to trade

payables in May 2019

Bank balance at
31 May 2019

[6]
[Total: 20]
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5 Leo is in business as a sole trader. The following balances were extracted from his books on
31 March 2019.

Capital 80 000
Drawings 25 000
Non-current assets (at cost)
Land and buildings 150 000
Computer equipment 46 000
Fixtures and fittings 12 000
Provisions for depreciation
Land and buildings 9 000
Computer equipment 18 000
Fixtures and fittings 6 600
Wages and salaries 87 000
Computer repairs 21 600
Commission receivable 12 300
Trade payables 31 850
Trade receivables 42 000
Revenue 475 000
Purchases 255 000
Returns outwards 7 900
Inventory at 1 April 2018 31 000
Rent and rates 22 750
Provision for doubtful debts 3 700
Marketing expenses 12 600
5% bank loan (repayable June 2019) 20 000
4% bank loan (repayable May 2023) 60 000
Bank loan interest paid 2 100
Heat and light 9 750
General expenses 14 300
Bank overdraft 6 750

© UCLES 2019 7110/21/M/J/19