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Boom Ltd has the following comparative data.    BOOM LTD Statement of financial position as at...

Boom Ltd has the following comparative data.   
BOOM LTD
Statement of financial position as at 30 June
2020 2019
$ $
Cash 20,050            29,380
Receivables (net) 63,560            57,190
Inventories 59,200            51,300
Property, plant and equipment (net) 207,980          179,170
350,790          317,040
Accounts payable 47,670            57,610
Loan payable (15%) 99,000            99,000
Share capital, $10 each 138,000          118,000
Retained earnings 66,120            42,430
350,790          317,040

Additional information for 2020:
1 Profit was $19,120
2 Sales on account were $376,000.  Sales returns and allowances amounted to $29,700
3 Cost of sales was $199,400.   
4 Net cash provided by operating activities was $52,400   
5 The loan payable is a non-current liability in both years.   
6 Depreciation for the year was $22,500 and there were no disposals in the year.   

Required
Calculate the following at 30 June 2020 (round your final answers to 2 decimal places):
a) Current ratio.
b) Quick ratio.
c) Average collection period.
d) Average days in inventory.
e) Cash return on sales ratio.
f) Cash debt coverage.
g) Current cash debt coverage.
h) Capital expenditure ratio
i) Free cash flow

Solutions

Expert Solution

a. Current Ratio for 2020 : Formula= Current Assets/ Current Liabilities

Current Assets: Cash + Receivables + Inventories

$ 20050+$ 63560+$ 59200

$ 142810

Current Liabilites: Accounts Payable which is 47670

Therefore Current Ratio= 142810/47670

= 3 times (approx)

b. Quick Ratio for 2020 = Quick assets/ Current Liabilites

Quick Assets:    Cash + Receivables

$20050+ $ 63560

$83610

Quick Ratio= 83610/47670

1.75 times (approx)

c. Average Collection period: The average collection period is calculated by dividing the average balance of accounts receivable by total net credit sales for the period and multiplying the quotient by the number of days in the period.

Formula- (Average Debtors/Net Credit Sales) Multiply 365 days

Average Debtors: (Receivables of 2020+ Receivables of 2019) /2

(63560+57190)/2= $ 60375/-

Net Credit Sales= Credit Sales less Returns

376000-29700

= $ 346300

Average Collection period= (60375/346300) Multiply 365 days

64 days approx

4. Average days in inventory; Formula- (Average Inventory/ Cost of Goods Sales) Multiply 365 days

  Average Inventory: Ending inventory (Inventory of 2020)+ Beginging inventory (Inventory of 2019) /2

(59200+51300)/2= $ 55250/-

Cost of Sales: $ 199400

Average days in inventory- (55250/199400) Multiply 365 days

101 days approx

ekkarill92 answered 1 year ago
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