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Abreviated statement of financial position . Assets 2017 2016 Non current /fixed 4 200 000 3...

Abreviated statement of financial position

. Assets 2017 2016

Non current /fixed 4 200 000 3 000 000

Inventory 4 00 000 600 000

Receivables 1 550 000 1 200 000

Cash 600 000 300 000

total 6750 000 5 100 000

Equity and Liabilities

Share Capital (R2 per shares) 4 2 00 000 4 000 000

Retained in come 600 000 300 000

Long term debt 250 000 200 000

Payables 1 700 000 6 00 000

6 750 000 5 100 000  

calculate the account period (days) , noting that Newtech ltd has after tough negotiation secured 90 day account with all creditors.calculate the return on equity.

Calculte the invetory turnover

Solutions

Expert Solution

Ans 1) Account period is given in the question itself as 90 days

Ans 2)

Details Average 2017 2016
Share Capital 410000 420000 400000
Retained Income 450000 600000 300000
Total Equity (a) 860000 1020000 700000
Income Available to Equity-Increase in the retained income- [ 600000-300000) (b) 300000
Return on equity a/b 34.88%

Ans 3

Inventory turnover ratio

Creditors Turnover ratio 365/Avg No of Days creditors outstanding - 365/90                 4.06
Purchases divided by average creditors during the period is Creditors Turnover ratio
Hence , Purchases = Average Creditors *Creditors Turnover ratio= 4.055556*(1700000+600000)/2 46,63,889.40
As cost of goods sold is not given in the question, inventory turnover ratio is calculated using purchases
Inventory Turnover ratio Purchases/Average Inventory = 4663889.40/(400000+600000)/2                 9.33

jeff jeffy answered 3 months ago
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