Question

Part A

The following are the final accounts of Lumix Trading for the year ended 31 December 2019.

Lumix Trading

Income statement for the year ended 31 December 2019

RM RM

Sales 100,000 Less: Return inwards (3,200) Net Sales 96,800 Less: Cost of goods sold

Opening inventory 25,000 Purchases 35,000 60,000

Less: Closing inventory (12,000) 48,000

Gross profit 48,800 Add: Revenue 6,000 Less: Expenses (34,200) Net Profit 20,600

Lumix Trading

Balance sheet as at 31 December 2019

RM RM

Current assets

Bank 6,000 Account receivable 11,400 Inventories 12,000 29,400

Property, plant and equipment 169,000 Total assets 198,400

Current liabilities 11,400

Owner's equity

Capital 166,400 Add: Net Profit 20,600 187,000 Total liabilities and owner's equity 198,400

Required:

Compute and comment on the following ratios:

a) Gross profit

b) Profit margin

c) Inventory turnover

d) Account Receivable turnover

e) Debt to Asset ratio

f) Current ratio

Part B

Sofia Corporation had these transactions during 2020:

i) Purchased a machine for RM30,000, giving a long-term note in exchange. ii) Issued RM50,000 par value common stock or cash.

iii) Paid RM18,000 on accounts payable.

iv) Declared and paid a cash dividend of RM13,000.

v) Sold a long-term investment with cost RM15,000 for RM15,000 cash. vi) Collected RM16,000 of accounts receivable.

vii) Receipt of interest on notes payable amounting RM1,500.

Required:

Indicate whether each transaction resulted in a cash flow from operating activities, financing activities or investing activities.  

Answer 1

Part A

A. Gross profit ratio= gross profit/sales

= 48800/100000=0.488

B. Profit magin= Net profit/sales

= 20600/100000=0.206

C. Inventory turnover= closing stock/sales

= 12000/100000=0.12

D. Account receivable turnover=account receivable/turnover

=11400/100000= 0.114

E. Debt to asset ratio = debt/asset

= 11400/198400=0.0575

F. Current ratio= current asset/current liability

= 29400/11400= 2.5789

Part B

1. Purchase of machine using note payable doesn't involves a cash transaction. Therefore it will not form part of cash flow statement

2. Issue of common stock form part of financing activity

3. Payment of account payables form part of cash flow from operating activity

4. Payment of dividend form part of financing activity

5. Sale of long term investment form part of investing activity

6. Receipt from account receivable form part of operating activity

7 receipt of interest form part of investing activity