Question

TASKS 3: Use the following financial statements of Precise Company to answer the requirements. Precise Company Comparative Income Statements For the year ended 31 December 2018 and 2017 2018 2017 Sales RM2,486,000 RM2,075,000 Cost of goods sold 1,523,000 1,222,000 Gross profit 963,000 853,000 Operating expenses: Advertising 145,000 100,000 Staff salaries 240,000 280,000 Office salaries 165,000 200,000 Insurance 100,000 45,000 Supplies expense 26,000 35,000 Depreciation 85,000 75,000 Miscellaneous 17,000 15,000 Total operating expenses 778,000 750,000 Operating profit 185,000 103,000 Interest expense 44,000 46,000 Profit before tax 141,000 57,000 Income tax expense 47,000 19,000 Net profit RM94,000 RM38,000 Earnings per share RM0.99 RM0.99 Precise Company Comparative Statements of Financial Position As at 31 December 2018 and 2017 Assets RM RM Current Assets: Cash 79,000 42,000 Short-term investments 65,000 96,000 Accounts receivable 120,000 100,000 Merchandise inventory 250,000 265,000 Total current assets 514,000 503,000 Property, plant and equipment Store equipment 400,000 350,000 Office equipment 45,000 50,000 Buildings 625,000 675,000 Land 100,000 100,000 Total property, plant and equipment 1,170,000 1,175,000 Total assets RM1,684,000 RM1,678,000 Liabilities Current liabilities: Accounts payable 164,000 190,000 Short-term notes payable 75,000 90,000 Taxes payable 26,000 12,000 Total current liabilities 265,000 292,000 Long-term liabilities: Notes payable (secured by mortgage on buildings) 400,000 420,000 Total liabilities 665,000 712,000 Shareholders’ equity Share capital 475,000 475,000 Retained earnings 544,000 491,000 Total shareholders’ equity 1,019,000 966,000 Total liabilities and equity RM1,684,000 RM1,678,000 Required: a) Prepare common-size comparative statements of financial position for years 2018 and 2017. (10) b) Compute the following ratios as at 31 December 2017 and 2018 and compare the performance based on the ratios computed. i. Current ratio ii. Acid test ratio iii. Accounts receivable turnover iv. Inventory turnover v. Accounts payable turnover vi. Days’ sales uncollected vii. Total asset turnover viii. Debt ratio ix. Equity ratio x. Profit margin ratio (20) (Total: 30 marks)

Answer 1

As per rules I am answering the first 4 subparts of the question

Current ratio = Current assets/ current liabilities
Quick ratio=(cash + securities+ accounts receivable)/ current liabilities

Inventory turnover= Cost of goods sold/ Inventory
Receivables Turnover = Sales/ Average receivables

		2017	2018
a	Current ratio	1.94	1.72
b	Acid test ratio	1.00	0.82
c	Accounts receivable turnover	20.72	20.75
d	Inventory turnover	6.09	4.61