O-LevelAccountingPreparation of financial statements7707/21 · Oct/Nov 2012 · Q420 Marks

The trial balance of Maya, after the calculation of the gross profit, was as follows: Maya Trial Balance at 30 September 2012 Dr $ Cr $ Gross profit 120 000 Sundry expenses 57 000 Non-current assets (cost) 400 000 Non-current assets (provision for depreciation) 82 000 Trade receivables 55 000 Trade payables 85 000 Inventory at 30 September 2012 125 000 Cash 5 000 Bank loan (repayable 31 October 2012) 35 000 Capital 320 000 Total 642 000 Total 642 000 Additional information for the year ended 30 September 2012: 1 Mark-up on cost of sales, 25%. 2 Depreciation for the year on non-current assets, $15000. REQUIRED

(a)(i)Calculate the following for the year ended 30 September 2012: Revenue (sales)[3]
(a)(ii)Net profit/sales percentage[3]
(a)(iii)Net profit/capital percentage[3]
(a)(iv)Quick ratio (acid test)[3]
(b)Explain to Maya why the quick ratio (acid test) is a better measure of liquidity than the working capital ratio (current ratio).[2]
(c)Comment upon the adequacy of Maya's cash for the next three months. Give one reason for your comment. Reason[3]
(d)Suggest three ways in which Maya might increase the cash in the business. 1 2 3[3]

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2012). The mark or mark type is shown in brackets.

[3] (a) (i) Revenue (sales) 120 000 x 125/25 = $600 000 (3)
[3] (a) (ii) Net profit/ sales percentage 48 000 / 600 000 × 100 = 8% (3)
[3] (a) (iii) Net profit / capital percentage 48 000 / 320 000 × 100 = 15% (3)
[3] (a) (iv) Quick ratio (acid test) 60 000 / 60 000 = 1:1 (3)
[2] (b) Quick ratio (acid test) does not contain inventory (1) / Inventory may be difficult or take time to sell (1)
[3] (c) The cash level is low at $5 000 and probably insufficient (1) / Maya has to repay the $35 000 loan in 1 month (2) / Any other valid point
[3] (d) Introduce additional capital / Raise a long term loan / Sell surplus non-current assets / Press trade receivables for swift payment/ offer a cash discount / Sell some inventory for cash/ hold a sale of some inventory / Extend trade payables payment period / Any other valid point (1) × 3 points

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