The following information relates to the business of Samara, a wholesaler. Revenue (sales) for year ended 30 September 2011 $200000 Inventory 1 October 2010 18000 At 30 September 2011 Inventory 36000 Trade receivables 24000 Bank overdraft 10000 Trade payables 40000 Mark up 25% Net profit/sales 6% REQUIRED

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2011). The mark or mark type is shown in brackets.

1. [1] (a)(i) Gross profit $160 000 x 25% = 40 000
2. [2] (a)(i) Cost of sales = $200 000 – $40 000 = $160 000
3. [1] (a)(i) Purchases = $160 000 + $36 000 – $18 000 = $178 000
4. [1] (a)(ii) Net profit $200 000 x 6% = 12 000
5. [1] (a)(ii) Expenses = $40 000 – $12 000 = $28 000
6. [1] (b)(i) Current assets (36000 + 24000) = 60 000
7. [1] (b)(i) Liabilities due in less than one year (10000 + 40000) = 50 000
8. [1] (b)(i) Ratio 1.2:1
9. [1] (b)(ii) Current assets - Inventory (24000) = 24 000
10. [1] (b)(ii) Liabilities due in less than one year 50 000
11. [1] (b)(ii) Ratio 0.5:1
12. [1] (c) The quick ratio (acid test) excludes inventory
13. [1] (c) The inventory may be difficult or take a long time to sell.
14. [1] (c) Inventory may deteriorate or become obsolete.
15. [1] (c) Inventory is two stages away from cash.
16. [1] (c) Debtors is one stage away from cash.
17. [1] (c) Only liquid assets are included.
18. [1] (d) Invest more capital.
19. [1] (d) Reduce drawings.
20. [1] (d) Reduce costs/expenses.
21. [1] (d) Sell surplus non-current assets.
22. [1] (d) Raise a loan.
23. [1] (d) Offer cash discount to trade receivables to speed up receipts.
24. [1] (d) Sell for cash.