Xever provided the following information for the year ended 31 March 2015. $ Capital 40000 Bank loan (repayable 1 Jan 2020) 10000 Inventory 1 April 2014 15000 Inventory 31 March 2015 35000 Cost of sales 125000 Trade receivables 25000 Trade payables 70000 Bank overdraft 30000 Mark up 20% Profit margin (profit for the year to revenue) 5% REQUIRED

Mark scheme

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

1. [2] (a)(i) Revenue: 125000 × 120/100 = 150000 (1)
2. [2] (a)(ii) Purchases: 125000 + 35000 (1) – 15000 = 145000 (1)
3. [2] (a)(iii) Expenses: Gross profit 25000 – (150000 of × 5/100) (1) = 17500 (1)of
4. [8] (b) Gross profit margin: 25000 / 150000 (1)of × 100 = 16.67% (1)of
5. [8] (b) Return on capital employed (ROCE): 7500 / (40000 + 10000) (1) = 15.00% (1)of
6. [8] (b) Rate of turnover of inventory: 125000 / ((15000 + 35000)/2) (1) = 5.00 times (1)of
7. [8] (b) Quick ratio (acid test ratio): 25000 / (70000 + 30000) (1) = 0.25:1 (1)of
8. [3] (c)(i) Own figures applied where appropriate
9. [3] (c)(i) Gross profit percentage has decreased (1)
10. [3] (c)(i) ROCE has increased (1)
11. [3] (c)(i) Selling prices may have been cut to increase sales (1)
12. [3] (c)(i) Expenses have been controlled or reduced (1)
13. [3] (c)(i) Max (1) × 3
14. [3] (c)(ii) Own figures applied where appropriate
15. [3] (c)(ii) Quick ratio has deteriorated to a dangerous level (1)
16. [3] (c)(ii) Inventory levels increased substantially in the year (1)
17. [3] (c)(ii) Bank overdraft so no cash to pay trade payables (1)
18. [3] (c)(ii) Possible overtrading (1)
19. [3] (c)(ii) Risk of bankruptcy because trade payables cannot be paid (1)
20. [3] (c)(ii) Max (1) × 3