TUTORIAL 4 ANSWER | A182

Tutorial 4: Topic 6 & 7

Part A

30 MULTIPLE CHOICE QUESTIONS

Q Answer Q Answer Q Answer
1 B 11 C 21 D
2 D 12 C 22 C
3 C 13 C 23 D
4 B 14 B 24 A
5 B 15 A 25 C
6 A 16 A 26 D
7 B 17 D 27 A
8 B 18 C 28 D
9 A 19 C 29 D
10 D 20 A 30 B

Part B
Prob. 6–7
a. Horizontal analysis

2007 2008 Increase/

% change
RM RM decrease
Credit sales 2,185,000 4,945,000 2,760,000 126.32%
Cost of goods sold 1,377,700 3,013,000 1,635,300 118.70%
Gross profit 807,300 1,932,000 1,124,700 139.32%
Sales and administrative 322,000 434,700 112,700 35.00%
expenses
Bad debt 41,400 149,500 108,100 261.11%
Depreciation expense 133,400 478,400 345,000 258.62%
Interest expenses 27,600 441,600 414,000 1500.00%
Profit before tax 282,900 427,800 144,900 51.22%
Tax 85,100 128,800 43,700 51.35%
Profit after tax 197,800 299,000 101,200 51.16%
 TUTORIAL 4 ANSWER | A182

b. Ratio analysis

Ratio 2,007 2008

i. Current Assets - Inventories
Quick ratio 2.64 3.13
Current Liabilitie s
ii. Net Profit
Profit margin 9.05% 6.05%
Credit Sales
iii. Net Income + Interest
Rate earned on total asset 18.56% 17.86%
Average Total Asset
iv. Total Liabilities
Debt ratio 0.24 0.58
Total Assets
v. Total owner's equity
Equity ratio 0.76 0.41
Total Asset
vi. Cost of goods sold
Inventory turnover 22.60 9.92
Average inventory
vii. Ratio of net sales to total Net sales
asset Average Total Asset 1.80 1.19
(Assets turnover)
viii. Working capital Current assets – current liabilities 204,700 1,460,500
ix. Current Assets
Current ratio 3.47 4.41
Current Liabilitie s
x. Account receivable Net sales
12.67 6.46
turnover Avg accounts receivable s
 TUTORIAL 4 ANSWER | A182

With respect to liquidity position, higher current ratio and quick ratio clearly
indicate slight improvement. Nevertheless, inventory turnover figure has also
tremendously dropped in 2008 that reflect less efficient inventory management.
Similarly, the profit margin has dropped slightly from about 9% to 6%. Account
receivable turn over also does not show improvement with respect to firm’s
ability to collect payments from the customers. Thus, it can be concluded that
the new policy implemented by Tawakal Bhd did not really work well as claimed
by its sales manager.