Question 1

The following financial statements are for Maru Store for the year ended 31 December 2019.
Income statement for the period ended 31 December 2019
Pula Pula
Sales 500 000
Opening stock 25 000
Purchases 305 000
330 000
Less closing stock 30 000
Cost of sales 300 000
Gross profit 200 000
Operating cost (60 000)
Finance cost (24 000)
Profit before tax 116 000
Taxation 0
Profit for the year 116 000
Retained profit b/f 160 000
Retained profit c/d 276 000

Maru Store Statement of financial position (balance sheet) as at 31 December 2019

Pula Pula
Property plant and equipment 540 000
Current assets
Inventory 25 000
Receivables 62 500
Bank 12 000 99 500
Total assets 639 500
Share capital and liabilities
Share capital 125 625
Retained profits 256 000
381 625
Non- current liabilities
Debentures 200 000
Current liabilities
Payables 37 875
Proposed dividends 20 000 57 875
Total capital and liabilities 639 500

1
 A) Required to calculate the following ratios:
a) Gross profit ratio
b) Net profit ratio
c) Current ratio
d) Acid test ratio
e) Credit collection period (days)
f) Stock turnover
g) Debtors/Trade receivables collection period
h) Return on capital employed
i) Debt Ratio

B)
a. The industry current ratio is 3 and acid test ratio is 2. How does this company compare
with the industry in terms of liquidity?
b. Comment on the trade payable and trade receivable period of this company with the
industry trade payable of 30 days.
c) What does the acid test ratio measure?

Question 2
The following are the financial statements for MaSoups (Pty) Ltd.
MaSoups (Pty) Ltd: Summary statement of profit or loss for the year ended 31 December 2019.
2019 2018
Continuing operations
Revenue 4,600,000 4,300,000
Cost of sales (2,245,000) (2,135,000)
Gross profit 2,355,000 2,165,000
Overheads (1,582,000) (1,491,000)
Profit for the year from continuing operations 773,000 674,000

Summary statement of financial position as at 31 December 2019

Assets
Non-current assets 5,534,000 6,347,000
Current assets
Inventories 566,000 544,000
Trade receivables 655,000 597,000
Cash and cash equivalents 228,000 104,000
1,449,000 1,245,000
Total Assets 6,983,000 7,592,000

Equity and liabilities

Equity

2
 Share capital 2.300,000 2,000,000
Share premium 670,000 450,000
Retained earnings 1,375,000 1,140,000
4,345,000 3,590,000
Non-current liabilities
Debentures 1,824,000 3,210,000
1,824,000 3,210,000
Current liabilities
Trade payables 572,000 504,000
Tax payable 242,000 288,000
814,000 792,000
Total liabilities 2,638,000 4,002,000
Total equity & liabilities 6,983,000 7,592,000

From the above financial statements, you are required to:

a) Calculate the following ratios for 2019 and 2018:
i) Operating profit percentage
ii) Return on capital employed
iii) Current ratio
iv) Acid test ratio
v) Trade receivables collection period (days)
vi) Gearing

b) Using the ratios that you have calculated above compare the performance of the company over
the two years.

Question 3
The following are financial statements of Thabo Ltd and Bathusi Ltd, two similar retail stores.
Income Statement for the period ended 31 May 2020
Thabo Ltd Bathusi Ltd
  Pula Pula Pula Pula
Sales    80, 000    120, 000
Cost of sales:        
Opening Inventory 25, 000   22, 500  
Add Purchases 50, 000 91, 000  
  75, 000   113, 500  
Less closing Inventory 15, 000 60, 000 17, 500 96, 000
Gross Profit   20, 000   24, 000
Depreciation 1, 000   3, 000  
Other Expenses 9, 000 10, 000 6, 000 9, 000
Net Profit   10, 000 15, 000

Statement of financial position as at 31 May 2020

Thabo Ltd Bathusi Ltd
  P P P P
Non-current Assets        

3
 Plant, Property and Equipment at cost 10, 000   20, 000  
Less Accumulated depreciation 8, 000 2, 000 6, 000 14, 000
         
Current Assets        
Inventory 15, 000   17, 500  
Trade Receivables 25, 000   20, 000  
Cash at bank 5, 000 45, 000 2, 500 40, 000
    47, 000   54, 000
         
Equity and liabilities        
Equity        
Share Capital 38 000   36, 000  
Retained profit 4 000   8, 000  
42, 000 44, 000
Current Liabilities        
Trade Payables   5, 000 10, 000
    47, 000 54, 000
Required to calculate the following ratios for Thabo Ltd and Bathusi Ltd
a) Gross profit margin/ratio
b) Net profit Margin/ratio
c) Stock turnover
d) Rate of return on capital employed
e) Current ratio
f) Acid test ratio
g) Trade receivables collection period
h) Trade Payables collection period

i. Based on Trade receivables and trade payables collection period, comment (compare) the
performance of the two companies.
ii. Using liquidity ratios which company is performing better?

Question 4
The following are financial statements for Balang Ltd .
Balang Ltd Statement of Comprehensive Income for the year ended 31 March 2020
Pula
Sales 3372 000
Cost of sales 2016 000
Gross profit 1356 000
Operating expenses 360 000
Operating profit 996 000
Finance cost 171 000
Profit before tax 825 000
Taxation 274 500
Profit for the year 550 500

4
Balang Ltd Statement of Financial Position as at 31 March 2020
Pula
Non-current assets
Property plant and 4 096 500
equipment
Current assets
Inventory 589 500
Trade receivables 247 500
Bank 126 000
963 000
Total assets 5 059 500
Equity and liabilities
Equity 750 000
Retained profit 2 698 500
3 448 500
Non-current liabilities
Loan 796 500
Current liabilities
Trade payables 814 500
Total capital and liabilities 5 059 500
Additional information:
The average ratios for the industry are as follows:
Current ratio 1.5
Acid test ratio 0.9
Inventory/stock turnover 73 days
Trade receivables/debtors collection period 26 days
Trade payable/ creditor’s collection period 40 days
Total asset turnover 0.7 times
Return on equity 17%
Gross profit ratio 46%
Return on capital employed 24%
Debt ratio 20%
You are required to calculate the ratios for Balang Ltd which corresponds to the industrial average given
above.

5
Marking Key
Question 1

1) Gross profit ratio = Gross profit × 100

Sales

200 000 ×100 = 40 %

500 000

2) Net profit ratio = Net profit×100

Sales

116 000× 100 =23%

500 000

3) Current ratio = Current assets

Current liabilities

99 500 = 1.7

57 875

4) Acid test ratio =current assets- stock

Current liabilities

(99 500- 25 000)= 1 .29

57 75

5) Creditors collection period = average creditors × 365

Credit purchases

37 875 × 365 000 =45 days

6
 305 000

6) Stock turnover= Cost of sales

Average stock

300 000 = 10.9 times

27 500

7) Debtors/Trade receivables collection period = Average Trade receivables × 365

Sales
62 500 × 365 days = 46 days
500 000

8) Return on capital employed = Net profit× 100

Capital employed

116 000 × 100 × = 30 4 %

381 625

9) Debt ratio = total debt/total assets 257 875 ×100 = 40%

639 500
a) The industry liquidity ratios are just a little higher than those of the company but this
should not be a course for concern because the company can still pay its debts when
they fall due if it maintains the same position in future.

b. The payables collection period for the company is a little bit higher than that of the industry.
this should be a concern to management that they are not paying their debts as quickly
as their counterparts in the industry and might damage their reputation as bad payers.

Acid test ratio measures the ability of a business to pay its short term debts using its
current assets without having to rely on cash received from sale of inventory. Inventory
can take long from the time of sale to the time the money is received from such sale. If a
business relies heavily from raising money from inventory it might run into problems if
debtors do not pay on time.

7
8