Marcus is a trader selling and buying on both cash and credit terms. He provided the following information on 28 February 20–9:
$
Inventory ……………………………………………………………………….. 7,600
Trade payables ……………………………………………………………….. 5,460
Trade receivables ……………………………………………………………. 6,150
Loan repayable 30 September 20–9 ……………………………….. 4,000
Balance at bank ……………………………………………………………… 650
The total sales for the year ended 28 February 20–9 amounted to $110,000, of which$36,800 represented cash sales. Marcus allows his credit customers 30 days’ credit.
The total purchases for the year ended 28 February 20–9 amounted to $88,800, of which one quarter represented cash purchases. Marcus is allowed 21 days credit by his credit suppliers.
a. i. State the formula for the calculation of the current ratio.
ii. Calculate the current ratio.
iii. Comment on your answer to ii.
b. i. State the formula for the calculation of the liquid (acid test) ratio.
ii. Calculate the liquid (acid test) ratio.
iii. Comment on your answer to ii.
c. i. State the formula for the calculation of the trade receivables turnover.
ii Calculate the trade receivables turnover.
iii Comment on your answer to ii.
iv Suggest two ways in which the trade receivables turnover may be improved.
d. i. State the formula for the calculation of the trade payables turnover.
ii. Calculate the trade payables turnover.
iii. Suggest one advantage to the credit suppliers of your answer to ii.
iv. Suggest one disadvantage to the credit suppliers of your answer to ii.
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