Jones is a trader, buying and selling goods on credit. The following balances were available on 30 April 2012. Capital $350 000 Revenue 200 000 Expenses 40 000 Inventory 30 April 2012 25 000 Trade payables 50 000 Trade receivables 47 000 Bank overdraft 10 000 Net profit/sales 15%

Mark scheme

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

1. [5] (a) Revenue $200000. Net Profit = 15% of $200000 = $30000 (1). Gross profit = Net profit + Expenses = $30000 + $40000 = $70000 (1). Cost of sales = Revenue - Gross profit = $200000 - $70000 = $130000 (3 or 1of). Expenses $40000. Profit for the year $30000 (1).
2. [3] (b)(i) Percentage net profit/capital = ($30000 (1cf) / $350000 (1cf)) x 100 = 8.57% (1cf).
3. [3] (b)(ii) Working capital ratio (current ratio): Current assets = Inventory (25000) + Trade receivables (47000) = 72000 (1cf). Current liabilities = Trade payables (50000) + Bank overdraft ($10000) = $60000 (1cf). Ratio = $72000 (1cf) / $60000 (1cf) = 1.2:1 (1cf).
4. [3] (b)(iii) Quick ratio (acid test): Quick assets = Current assets - Inventory = $72000 - $25000 = $47000 (1cf). Ratio = $47000 (1cf) / $60000 (1cf) = 0.78:1 (1cf).
5. [6] (c) Table completion: 2. Pay half the trade payables in exchange for a cash discount of 4%: Current assets -24000 (1). Current liabilities -25000 (1). Working capital ratio Increase (1). 3. Sell non-current assets with a net book value of $12000 for $8000: Current assets +$8000 (1). Current liabilities No effect (1). Working capital ratio Increase (1).