Question

Using the following information extracted from the books of City Plumbing,
a. Calculate：
The working capital ratio
The quick asset ratio

wsACCS ovide cot ond bness perfoemnce iomation Prepare a Report for Cty Plumbing to comment inan erpre what in rewealed by these measures maner se hune 200 10 June oc Assets Cash at bank twentories Accaunts receivable Plant and equipment Motor vehicles 55000 20.000 80,000 90,000 45,000 40,000 280.o00 250,000 Goodwill 130,000 120.000 50,000 s0 000 s00,000 600,000 iabilities and Owner's equity Accounts payable 63.000 72,000 Capital S27.000 528.000 ss0,000 600,000 Additional information Sales (cash) 30 June 2007, K37, 000; 30 June 2008, K40, 000 Sales (credit) 30 June 2007, K300, 0O0; 30 June 2008, K400, 000. Cost of goods sold 30 June 2007, K150, 000; 30 June 2008, K220, 000. Net profit 30 June 2007, K200, o00, 30 June 2008, K250, 000. Inventories at 1 July 2006 were K70, 000 Capital at 1 July 2006 was K426, 000. Accounts receivable at 1 July 2006 were K49, 000 Total assets at 1 July 2006 were KS50, 000. Drawings have been kept to a minimum over the two-year period. FNSACCS31Proide financial and EA College of TAFE

The rate of turnove of inventories
The rate of turnover of accounts receivables
The equity ratio
The rate.of return on.owners equity
The rate of return on total assets

Answer 1

Answer:

Calculation Current asset = Cash+inventories+account receivable Current liabilities = Account payable Working capital ratio = current assets/ current liabilities Jun 30 2007 Jun 30 2008 180000 150000 63000 72000 2.86 2.08 Quick assets = current assets - inventories Quick assets ratio = quick assets/ current liabilities 100000 1.59 60000 0.83 Cost of goods sold | Average inventory = (Beg. Inventory + Ending inventory)/2 Rate of turnover of inventories = COGS / Avg inventories 150000 75000 220000 85000 2.59 Credit sales | Avg. account receivable = Beg. Bal. + Ending Bal. / 2 Rate of T/O of A/R = Credit sale / Avg. Account receivable 300000 47000 400000 42500 9.41 6.38 Owner's equity Total assets Equity ratio = Owner's equity / total assets 527000 590000 0.89 528000 600000 0.88 Net profit Owner's equity Return on owner's equity = Net profit / owner's equity 200000 527000 37.95 250000 528000 47.35 Return on total assets = Net profit / Total assets 33.90 41.67