Lache's accounting year ends on 31 December. The following information is available. 2015 $ 2014 $ Revenue 750000 600000 Expenses 200000 175000 Profit for the year 100000 50000 Capital 250000 250000 Bank loan repayable 30 December 2014 - 120000 Bank loan repayable 30 December 2020 80000 - Inventory 60000 260000 Trade receivables 22000 40000 Trade payables 50000 60000 Other receivables 1500 2500 Other payables 8500 3500 Bank 28000 Debit 40000 Credit

Mark scheme

Marking points from the official mark scheme (May/June 2016). The mark or mark type is shown in brackets.

1. [12] (a) Gross profit/sales percentage: ((750000 - 200000) (1)) / 750000 (1) x 100 = 40.0% (1of).; Return on capital employed (ROCE): 100000 (1) / (250000 + 80000) (1) x 100 = 30.3% (1of).; Working capital ratio (current ratio): (60000 + 22000 + 1500 + 28000) (1) / (50000 + 8500) (1) = 1.9:1 (1of).; Quick ratio (acid test ratio): (22000 + 1500 + 28000) (1) / (50000 + 8500) (1) = 0.9:1 (1of).
2. [4] (b)(i) The Gross profit to sales has increased in 2015 (1) this may be due to higher selling prices charged (1) or more efficient/bulk buying / purchase costs reduced. (1) Expenses have been controlled / reduced. (1) The ROCE has increased in 2016. (1) The profit for the year has increased (1) (1) X 4 points (allow own figure comments)
3. [4] (b)(ii) Although the Working capital ratio has reduced (1) the liquidity of the business has improved. (1) Working capital is below 2:1 the ideal ratio (1) Inventory holding of unsold stock has been reduced. (1) The quick ratio has improved (1) from a dangerous level / towards 1:1. (1) Trade receivables collection has been improved. (1) Lache has a positive bank balance to meet expenditure. (1) (1) X 4 points (allow own figure comments)