O-LevelAccountingAnalysis and interpretationOct/Nov 2010 · Q418 Marks

Windy Ltd is in business buying and selling goods on credit. The following balances were taken from the books of Windy Ltd. Year ended 30 September 2009 () Year ended 30 September 2010 () Non-current (fixed) assets 80 000 200 000 Inventory (stock) 55 000 60 000 Trade receivables (debtors) 50 000 90 000 Trade payables (creditors) 30 000 75 000 Amount due in more than one year (long-term loan) - 50 000 Bank 15 000 - Bank overdraft - 45 000

(a)(i)Calculate the following. Give your answers to two decimal places. Show your workings. Current ratio at 30 September 2009 Current ratio at 30 September 2010[4]
(a)(ii)Quick (acid test) ratio at 30 September 2009 Quick (acid test) ratio at 30 September 2010[4]
(b)Suggest one reason for the change in liquidity between 30 September 2009 and 30 September 2010.[2]
(c)(i)Suggest four actions which Windy Ltd might take to improve its bank balance.[8]

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2010). The mark or mark type is shown in brackets.

[4] (a) (i) Current ratio, 30 September 2009 (55+50+15) / 30 = 120 / 30 = 4.0:1 (2) 30 September 2010 (60+90) / (75+45) = 150 / 120 = 1.25:1 (2)
[4] (a) (ii) Quick (acid test) Ratio, 30 September 2009 (50+15) / 30 = 65 / 30 = 2.17:1 (2) 30 September 2010 90 / (75+45) = 90 / 120 = 0.75:1 (2)
[2] (b) Purchase of non-current (fixed) assets (1) / Trade receivables (debtors) not collected (1) / Increased inventory(stock) (1) (One reason × (2))
[8] (c) Issue more shares (1) / Extend the amount due in more than one year (1) / Reduce trade receivables (debtors) (1) / Sell non-current (fixed) assets (1) / Extend trade payables (creditors) (1) / Reduce inventory(stock) (1) (Four reasons × (2) per point)

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