O-LevelAccountingAnalysis and interpretation7707/21 · Oct/Nov 2015 · Q420 Marks

Galenia buys and sells goods on credit. The following information was available on 30 September 2015. Inventory 1 October 2014 $11000 Inventory 30 September 2015 $37000 Cost of goods sold $90000 Profit for the year $18900 Trade receivables $14200 Trade payables $27000 Bank $2800 debit Mark up 40%

(a)(i)Calculate the following for the year ended 30 September 2015. (i) Revenue[2]
(a)(ii)Purchases[2]
(a)(iii)Expenses for the year[2]
(b)Calculate the following ratios to two decimal places. Comparative figures for the previous year are shown in the last column. Workings 30 September 2015 30 September 2014 Profit margin (profit for the year to revenue) 12.13% Rate of inventory turnover 2.00 times Working capital ratio (current ratio) 2.60:1 Quick ratio (acid test ratio) 1.10:1[8]
(c)(i)Comment on the performance of Galenia's business over the two years under the following headings. (i) Inventory turnover[3]
(c)(ii)Ability to pay trade payables[3]

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2015). The mark or mark type is shown in brackets.

[2] (a)(i) 90 000 × 140/100 = 126 000 OR 90 000 + 36 000 (1) = 126 000 (1)
[2] (a)(ii) 90 000 – (11 000 + 37 000) (1) = 116 000
[2] (a)(iii) 36 000 (1) – 18 900 = 17 100
[1of] (b) Profit margin: 18900/126000 ×100 = (1of) 15.00%
[1] (b) Rate of inventory turnover: 90000 / (11000 + 37000)/2 = (1of) 3.75 times
[1] (b) Working capital ratio (current ratio): (37000 + 14200 + 2800) / 27000 = (1of) 2.00:1
[1] (b) Quick ratio (acid test ratio): (14200 + 2800) / 27000 = (1of) 0.63:1
[1] (c)(i) Inventory turnover has increased
[1] (c)(i) Inventory is being sold at a faster rate
[1] (c)(i) Inventory level has increased substantially over the year
[1] (c)(i) Inventory control is needed (MAX 3)
[1] (c)(ii) Both liquidity ratios have fallen in the year
[1] (c)(ii) Working capital ratio is at the benchmark level of 2:1
[1] (c)(ii) Quick ratio is lower than the yardstick of 1:1 but is still at an acceptable level
[1] (c)(ii) There is very little cash available to pay trade payables (MAX 3)

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