Jia provided the following information. $ At 1 April 2016 Opening inventory 27000 For the year ended 31 March 2017 Expenses 35000 Revenue 240000 At 31 March 2017 Trade payables 20000 Trade receivables 16000 Bank 2000 Debit Closing inventory 21000 Jia uses a mark-up of 25%. REQUIRED

Mark scheme

Marking points from the official mark scheme (May/June 2017). The mark or mark type is shown in brackets.

1. [1] Cost of sales 240 000 × 100 / (100+125) (1) = $192 000 (1)
2. [1] Profit for the year 240 000 - 192 000 = 48 000 (1) – 35 000 =$ 13 000 (1)
3. [1] Gross profit/sales (Gross profit margin) 48 000 (1of) × 100 / 240 000 = 20.00% (1 o/f)
4. [1] Rate of inventory turnover 192 000 of / (27 000 + 21 000)/2 (1) = 8 times (1of)
5. [1] Working capital ratio (Current ratio) (21 000 + 16 000 + 2 000) (1) / 20 000 = 1.95:1 (1)
6. [1] Quick ratio (acid test ratio) (16 000 + 2 000) (1) / 20 000 = 0.9:1 (1)
7. [1] The profit margin on each sales has increased due to increased prices (1) / reduced costs (1) / or a change in product mix (1).
8. [1] The quick ratio has improved and is close to the recommended levels of 1:1 (1). This may be due to increase in bank account / trade receivables or reduction in current liabilities (1).
9. [1] Proposal 1: Profit (no effect), Working Capital (increase)
10. [1] Proposal 2: Profit (increase), Working Capital (no effect)
11. [1] Proposal 3: Profit (decrease), Working Capital (increase)