Wenger's trial balance on 30 April 2013 was as follows: Trial Balance at 30 April 2013 Account Debit $ Credit $ Bank 1750 Capital 113500 Cash 250 Inventory 20000 Long-term loan 30000 Non-current assets 122500 Other payables 6860 Other receivables 1400 Trade payables 12140 Trade receivables 16600 162500 162500 REQUIRED Wenger's working capital (current) ratio and quick (acid test) ratio at 30 April 2012 were 4:1 and 2:1 respectively. REQUIRED

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2013). The mark or mark type is shown in brackets.

1. [1] (a) Working capital (current) ratio: Current assets $40 000 / Current liabilities $19 000 = 2.10:1
2. [1] (a) Quick ratio (acid test): Current assets – inventory ($40 000 – $20 000) / Current liabilities $19 000 = 1.05:1 (of)
3. [1] (a) Allow alternative quick ratio: Current assets – inventory – other receivables (40 000 – $20 000 – 1400) / $19 000 = 0.98:1 (of)
4. [1] (b)(i) The working capital (current) ratio has fallen from 4:1 in 2012 to 2.10:1 in 2013
5. [1] (b)(i) The quick (acid test) ratio has fallen from 2:1 in 2012 to 1.05:1 in 2013
6. [1] (b)(i) Ratios show business is less liquid in 2013 than in 2012
7. [1] (b)(i) Both ratios are within acceptable parameters
8. [1] (b)(i) The working capital (current) ratio is within acceptable parameters i.e. 2:1.
9. [1] (b)(i) The quick (acid test) ratio is below acceptable parameters i.e. 1:1.
10. [2] (b)(i) Allow any reasonable alternative answers. Max 2
11. [2] (b)(ii) The business may have suffered a loss in 2013
12. [2] (b)(ii) Non-current assets may have been bought during the financial year
13. [2] (b)(ii) The owner may have taken case or goods for personal use
14. [2] (b)(ii) Some of the long-term loan may have been paid off
15. [2] (b)(ii) Rate of inventory turnover may have decreased
16. [2] (b)(ii) Collection period for trade receivables may have increased
17. [2] (b)(ii) Payment period for trade payables may have increased
18. [6] (b)(ii) Max 6
19. [2] (c) Sell surplus non-current assets
20. [2] (c) Introduce additional cash into the business
21. [2] (c) Reduces personal cash and stock drawings
22. [2] (c) Adopt policies to make a business profit
23. [4] (c) Max 4