O-LevelAccountingAnalysis and interpretation7707/22 · Oct/Nov 2017 · Q420 Marks

Zara provided the following information: At 1 August 2016 Inventory $19700 For the year ended 31 July 2017 Cost of sales $240000 Expenses $65000 At 31 July 2017 Capital $70000 Inventory $33500 Trade receivables $50500 Bank loan (repayable October 2020) $50000 Trade payables $25000 Bank overdraft $15000 Gross profit margin 25% REQUIRED

(a)(i)Calculate the: Revenue[2]
(a)(ii)Purchases[2]
(a)(iii)Profit for the year[2]
(b)Calculate the following ratios, correct to two decimal places. The previous year's ratios are shown in the last column. Workings | 31 July 2017 | 31 July 2016 Profit margin (profit for the year to revenue) | | 2.31% Return on capital employed (ROCE) | | 20.00% Working capital ratio (current ratio) | | 1.25:1[6]
(c)Comment on the changes to Zara's profitability over the two years.[4]
(d)Explain, giving your reason, whether or not Zara's working capital ratio (current ratio) is sufficient.[2]
(e)State two ways in which Zara could increase her working capital ratio (current ratio).[2]

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Topic: Analysis and interpretation, O-Level Accounting (syllabus 7707). Structured question, 20 marks.
Source: O-Level Accounting, Oct/Nov 2017 Paper 2 Variant 2, question 4.

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