This paper circulates around the core theme of Calculate the Current ratio and the Quick ratio for 2007. Comment on the liquidity of this company. For comparison purposes, other firms in this industry sector have an average Current ratio of 1.76 and an average Quick ratio of 0.78. together with its essential aspects. It has been reviewed and purchased by the majority of students thus, this paper is rated 4.8 out of 5 points by the students. In addition to this, the price of this paper commences from £ 99. To get this paper written from the scratch, order this assignment now. 100% confidential, 100% plagiarism-free.
Question 1 (5 marks)You are presented with the following statement of financial position, which is an incorrect version. Assuming the accounts and amounts are correct, prepare the statement of financial position, making the necessary corrections. (2 marks)Current Assets $ $Cash at bank 9,000Accounts payable 11,000Plant and machinery 26,000 _______Total current assets 46,000Non-current asset:Inventory 15,000Asset revaluation increment 20,000Motor vehicles 18,000 _______Total Non-current assets 53,000 _______Total assets 99,000 =======Current liabilities:Accounts receivable 6,000Prepayments 1,000 ______Total Current liabilities 7,000Non-current liabilities:Bank overdraft 14,000Land and Building 50,000Loan 10,000 ______Total Non-current liabilities 74,000Owners’ equity:Opening balance 40,000Less profit 32,000Plus drawings 10,000 ______ 18,000 _______Total liabilities and owners’ equity 99,000 ======And what does this statement tell you about the financial position of the business? (3 marks)Question 2 (5 marks) Southern Cross printing company prepares its income statement on a cash basis:Sales $100,000Less: inventory purchases 30,000 ________Gross profit 70,000Less expenses:Salary and wages 20,000Rent 15,000Insurance 2,000Advertising 3,000Other 4,000 ______Total expenses 44,000 _______Net profit 26,000 =======On further investigation you have found the following accrual balances: Beginning EndAccounts receivable 6,000 1,500Accounts payable (for inventory) 700 4,100Inventory 8,400 6,500Prepaid rent 3,000 1,200Prepaid insurance 800 1,000Accrued advertising Nil 600Furthermore, there should be depreciation of plant and equipment of $2,400 and bad and doubtful debts of $300.Required:Prepare an accrual-based income statement explain the difference between accrual and cash based income statements and why accrual income statement is more useful?Question 3 (10 marks)a) A criticism of ratio analysis is that it provides only part of the financial picture being reviewed. What part of the picture is missing? Explain using some examples to support your statements. (5 marks)b) You are employed as accountant for PMDR P/L and observed an improved gross profit margin, a declining net profit margin, a stable return on assets, an improved return on owner’s equity in 2014. (5 marks)Discuss the possible implications of these ratios in relation to:1) the selling price of inventory2) the buying price of inventory3) operating expenses4) assets turnover5) interest costs.Question 4 (10 marks) Attached as Appendix 1 are the financial statements for Super Cheap Auto Limited, a public company in Australia which operates two chains of retail shops which sell equipment and accessories for motor cars, boats and camping. Most sales are cash sales to retail consumers.Using the information provided in these financial statements answer the following questions.Note that the earnings per share are provided on the income statement. Please also note the following data; Dividends declared in 2006 were 8 cents per share and in 2007 10.5 cents per share.a) Calculate the Current ratio and the Quick ratio for 2007. Comment on the liquidity of this company. For comparison purposes, other firms in this industry sector have an average Current ratio of 1.76 and an average Quick ratio of 0.78.
