Question

Thomas Sdn Bhd is a computer manufacturer. The summarised accounts of Thomas Sdn Bhd for the years 2019 and 2020 are given below.

Thomas Sdn Bhd

Income Statement for the Year Ended 31 December

	2019	2020
	RM’000	RM’000
Sales	200	280
Cost of goods sold	(150)	(210)
Gross profit	50	70
Administrative and selling expenses	(38)	(46)
Interest expenses	-0-	(4)
Net income	12	20

Thomas Sdn Bhd

Statement of Financial Position as at 31 December

	2019	2020
	RM’000	RM’000
Fixed assets at cost less depreciation	110	140
Inventories	20	30
Accounts receivable	25	28
Bank	-0-	5
Total assets	155	203
Share capital - ordinary	100	100
Retained earnings	30	41
8% Debentures	-0-	50
Accounts payable	15	12
Bank (overdraft)	10	-0-
Total shareholders’ equity and liabilities	155	203

Inventories at 1 January 2019 was RM 50,000.

       

Required;

a) Calculate the following ratios for 2019 and 2020:

        (i) Current ratio

        (ii)   Acid-test ratio

        (iii) Inventories turnover

        (iv) Accounts turnover

         (v) Gross profit on sales

        (vi) Net profit on sales

b) Explain the possible reasons for and significance of any changes in the ratios shown by your calculations.

Answer 1

Ratios	Formuale	Calculation Year 2019	Calculation Year 2020	Result 2019	Result 2020	Explanations
Current Ratio	Current Assets / Current Liabilities Current Assets : Stock + Account Receiavbel + Cash and Cash Equivalents Current Liabilties: Trade Crediotrs + Short Term Liabililites	Inventories + Account Reciavbale + Bank / Account Payable + Bank OD ; 20000 +25000+ 0/ 15000 +10000	Inventories + Account Reciavbale + Bank / Account Payable + Bank OD ; 30000 +28000+5000 / 12000 + 0	1.8	5.25	Here, Current Ratio is higher in Y 2020 as compared to Y 2019 because First Liabilities has Reduced , Secondly current Assest has increased over a period. As in Y 2020 it is 63000 whwere as In Y 2019 I is showing 45000 only.
Acid Test Ration / Quick Ratio	Everything Remain same as of Current Ration, only Stock ( Inventpries shall be excluded	Account Reciavbale + Bank / Account Payable + Bank OD ;0 +25000+ 0/ 15000 +10000	Account Reciavbale + Bank / Account Payable + Bank OD ; 0 +28000+5000 / 12000 + 0	1	2.75	Here , Acid Tetst ratio show the more liquidity over a period of time against the liabilities current in nature. So Y 2020 is high because Quickk Asset are higher as comapred to in Y 2019 and current liabilities are also reduced.
Inventories turnover	Cost of Goods Sold / Average Inventory	COGS / ( opening Inventory + Closing Onventory )/2 ; 150000 / ( 20000+ 50000)/2	COGS / ( opening Inventory + Closing Onventory )/2 ; 210000 / ( 20000+ 30000)/2	4.29	8.40	Here conversion rate of Inverntory sold is lower in Y 2019 as compared to Y 2020. Sale is higher in Y 2020 as Compared to Y 2019.
Accounts Trurnover Ration	Credit Sale / Average Receivables	Sales / Average Receivable ; 200000 / 25000	Sales / Average Receivable ; 280000 / 28000	800%	1000%	Here , the cpnversion of Credit sale to Cash is lower as comapred o in Y 2020. Secondly Sale has increase but debtor also increase but the prerformance in Y 2020 is good as comapred to Y 2019 because conversion ration is higher as comapred to Y 2019.
Gross Profit on Sales	Gross Profit / Sales	; 50000 / 200000	; 70000/280000	25%	25%	GP is same in both year, May be there are chances that Direct cost will be nullify the impact of the Increase in Sale over a period of time.
Net profit on Sales	Net Profit / Sales	; 12000 / 200000	; 20000/280000	6%	7%	with very minimal change, as GP is same in both year, Here Sale has only increased and nothing other has contributed in increase in net profit as othe rin direct cost ahas increased over a period of time.