112 Working capital 113 Debenture 114 Irrelevant costs 115 B

1.1.2. Working capital 1.1.3. Debenture 1.1.4. Irrelevant costs 1.1.5. Bank overdraft sales volume for a specfied future perod C Does not affect the dedsion at hand and is e the decisiom mkig roces D. Ensuring the profrability of the encty E. A flexible borrowing faclity on a bank curren which is payabie om demand. F. Funds required for the day to day operaton enterprise 1.2. FINANCIAL RATIOS REQUIRED Calculate each of the following from the information extracted from the accounting recorts of H FASHIONS for the year ended 31 August 2018 1.2.1. Current ratio 1.2.2. Acid-test ratio. 1.2.3. Inventory turnover. 1.2.4. Debtors collection period. 1.2.5. Creditors payment period Information: Statement of comprehensive income for the year ended 31 August 2013 Sales [ 80% credit ; 20% cash ] Less: Cost of sales Opening inventories Add: Purchases [ all on credit ] Cost of goods available Less: Closing Inventories 700 000 450 000 ) 120 000 480 000 600000 150 000 Gross Profit 250 000 PROGRAMME HANDBOOK: JULY 2018 INTAKE

Solution

current assets

debtors

700000*80%

560000

Inventory

150000

total of current assets

710000

Current liabilities

Accounts payable

480000

Current ratio

current assets/current liabilities = 710000/480000

1.48

Acid test ratio

Quick assets/current liabilities =560000/480000

1.17

Inventory turnover ratio

cost of goods sold /average inventory = 450000 / (150000+120000)/2

3.33

debtors collection period = 365/debtors turnover ratio

365/1

365

debtors turnover ratio

credit sales/debtors = 560000/560000

1

Creditors payment period = purchase/creditors = (200000/200000)*365

(200000/200000)*365

365

It is considered that amount of creditors equal to amount of purchase and debtors are equal to credit sales

current assets
debtors	700000*80%	560000
Inventory		150000
total of current assets		710000
Current liabilities
Accounts payable		480000
Current ratio	current assets/current liabilities = 710000/480000	1.48
Acid test ratio	Quick assets/current liabilities =560000/480000	1.17
Inventory turnover ratio	cost of goods sold /average inventory = 450000 / (150000+120000)/2	3.33
debtors collection period = 365/debtors turnover ratio	365/1	365
debtors turnover ratio	credit sales/debtors = 560000/560000	1
Creditors payment period = purchase/creditors = (200000/200000)*365	(200000/200000)*365	365
It is considered that amount of creditors equal to amount of purchase and debtors are equal to credit sales