Ajay is a retailer. He has provided the following information. At 1 April 2023 Inventory $5200 Trade receivables $6875 Cash at bank $1946 Trade payables $5115 For the year ended 31 March 2024 Revenue – credit sales $86400 – cash sales $10600 Purchases $51300 Expenses $23750 At 31 March 2024 Inventory $6500 Trade receivables $9550 Cash at bank $1200 Trade payables $6000 REQUIRED

Mark scheme

Marking points from the official mark scheme (May/June 2024). The mark or mark type is shown in brackets.

1. [11] Cost of sales 5200 + 51300-6500 = 50 000
2. [11] Gross profit 97 000 – 50000 = 47 000
3. [11] Gross margin = 47000 (1) / 97000 X 100/1 = 48.45% (1)
4. [11] Profit 47 000 OF – 23 750 = 23 250
5. [11] Profit margin = 23250 (1) OF / 97000 CF X 100/1 = 23.97% (1)OF
6. [11] 50000 (1) OF / (5200+6500) / 2 = 5850 (1) = 8.55 times (1)OF
7. [11] 9550 / 86400 X 365 (1) whole formula = 41 days (1)OF
8. [11] (9550 + 1200) : 6 000 (1) whole formula = 1.79:1 (1)OF
9. [1] His purchase price has fallen / he has been allowed trade discount (1)
10. [1] His sales mix has changed (1)
11. [1] Max (1)
12. [1] Whether Ajay will be able to continue in business / continue being able to supply them (1)
13. [5] Advantages
14. [5] Should increase sales / attract new customers (1)
15. [5] May increase profit for the year (1)
16. [5] Should increase rate of inventory turnover (1)
17. [5] Reduces risk of inventory deteriorating / becoming damaged / obsolete (1)
18. [5] Reduces cost of holding inventory (storage, insurance) (1)
19. [5] May improve his reputation (1)
20. [5] Accept other valid points
21. [5] Max (3)
22. [5] Disadvantages
23. [5] Would reduce gross margin / gross profit / profit for the year / profit margins / may make a loss (1)
24. [5] Less money coming in from each unit sold / liquidity reduced (1)
25. [5] Customers may question the quality of the goods / it may damage his reputation (1)
26. [5] Customers may be unwilling to pay the full price in future (1)
27. [5] It may be better to offer cash discount to reduce trade receivables (1)
28. [5] Accept other valid points
29. [5] Max (3)
30. [5] Max (4)
31. [5] Recommendation (1)
32. [2] May result in loss if expenses continue to increase (1)
33. [2] He may not be able to pay expenses / suppliers/wages if they continue to increase. (1)
34. [2] The business cannot continue indefinitely if this trend continues. (1)
35. [2] Accept other valid points
36. [2] Max (2)