Question

Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2018
	RM	RM
Sales (-) Cost of sales:      Opening inventory      (+) Purchases      (-) Closing inventory Gross Profit (+) Revenues:      Discount received      Commission received (-) Expenses:      Salaries and wages      Repair and maintenance Net Profit	25,000 200,000 (15,000) 10,000 8,300 41,300 100,000	450,000 (210,000) 240,000 18,300 (141,300) 117,000

Statement of Financial Position as at 31 December 2018
	RM	RM
Non-current Assets Building Motor vehicles Current Assets Inventory Account receivables Bank Cash Financed by: Owner’s equity Capital (+) Net profit (-) Drawing Non-current Liabilities Long-term loan Current Liabilities Account payable	200,000 70,600 15,000 46,500 30,150 10,500 130,000 117,000 (10,650)	270,600 102,150 372,750 236,350 95,000 _41,000 372,750

Required:

1. Calculate the following ratios:

1. Current ratio
2. Quick ratio
3. Inventory turnover ratio
4. Average collection period
5. Gross profit margin
6. Net profit margin

2. Give interpretation for each of the above ratios

Answer 1

# Computation of ratios :

i. Current ratio = Current Assets ÷ Current Liabilities

• Current Assets = 102,150
• Current liabilities = 41,000

Therefore, Current ratio = 102,150÷41,000

Current ratio = 2.491

ii. Quick ratio = Current Asset Less Inventory ÷ Current Liabilities

• Current Asset Less Inventory = 102,150 — 15000 = 87,150
• Current Liabilities. = 41000

Therefore , Quick ratio = 2.126

iii. Inventory Turnover ratio = Cost of Goods sold ÷ Average inventory

• Cost of Goods sold = Opening inventory + Purchases - closing inventory (or) Sales - Gross profit

# Cost of Goods sold = 210,000

(25000+200,000-15000)

• Average inventory =Opening inventory + Closing inventory ÷ 2

Therefore Average inventory = 20000

( 25,000+15,000÷2)

• Inventory Turnover ratio = 210,000 ÷ 20000 = 10.5

iv. Average collection period= 365÷ Account recievable Turnover

• Account receivable Turnover= Net Credit sales ÷ Average Account recievables

# Account recievables turnover = 450,000÷46,500=9.677

( Since No data available For Credit sales and Account recievables of previous year we are taking current data of sales as Full Credit sales and Account recievables as Average Account recievables)

• Average collection period = 365÷Account Receivable Turnover = 37.7 or 38 days

V. Gross-Profit margin = Gross profit ÷ Net sales

• Gross Profit = 240000

(Net sales Less Cost of Goods sold)

• Net sales = 450000
• Gross-Profit margin = 240,000÷450,000= 0.5333 or 53.33%

​​​​​​​Vi. Net profit margin = Net Profit ÷ Net Sales

• Net profit = 117,000
• Net sales = 450,000
• Net profit margin = 117,000 ÷ 450,000 = 0.26 or 26%

​​​​​​​​​​​​​​