6. Analysis and interpretation
A section of Accounting, 7707
Listing 10 of 43 questions
Ajay is a retailer. He has provided the following information. $ At 1 April 2023 Inventory 5 200 Trade receivables 6 875 Cash at bank 1 946 Trade payables 5 115 For the year ended 31 March 2024 Revenue – credit sales 86 400 – cash sales 10 600 Purchases 51 300 Expenses 23 750 At 31 March 2024 Inventory 6 500 Trade receivables 9 550 Cash at bank 1 200 Trade payables 6 000 REQUIRED Complete the following table. ratio working answer Gross margin (to 2 decimal places) Profit margin (to 2 decimal places) Rate of inventory turnover (to 2 decimal places) Trade receivables turnover days (round up to next whole day) Liquid (acid test) ratio (to 2 decimal places) Ajay has been trading for 3 years and he has established a good reputation. He has never changed his selling price. His gross margin for the year ended 31 March 2024 is higher than for the previous years. REQUIRED Suggest one reason why Ajay’s gross margin has increased. State one reason why Ajay’s customers might be interested in his financial statements. Ajay is concerned about the levels of his inventory and trade receivables. He is considering reducing his selling price. REQUIRED Advise Ajay whether or not he should reduce his selling price. Justify your answer by providing advantages and disadvantages of reducing his selling price. Although Ajay’s gross margin has increased, his profit margin has fallen for each of the last two years. Sales revenue is Ajay’s only income. REQUIRED State two reasons why Ajay should be concerned about his falling profit margin.
7707_s24_qp_22
THEORY
2024
Paper 2, Variant 2
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Nala is a retailer who sells toys and games. All sales are on a cash basis and all purchases are on credit. She has provided the following information. $ At 31 August 2023: Inventory 6 265 Cash at bank Trade payables 4 880 Capital 125 000 For the year to 31 August 2023: Revenue 98 420 Purchases 78 130 Expenses 11 325 Inventory at 1 September 2022 was valued at $6175. REQUIRED Complete the following table. Ratio Working Answer (to 2 decimal places ) Gross margin Profit margin Return on capital employed (ROCE) Rate of inventory turnover Liquid (acid test) ratio Nala increased her advertising expenses over the year to 31 August 2023 and sells at a lower price than her nearest competitor. This has resulted in Nala selling her inventory faster than her nearest competitor. Nala and her nearest competitor buy inventory at the same prices. Nala is pleased with her results. REQUIRED Explain why Nala should not be entirely pleased with her results. Nala is planning to expand her business and to take out a bank loan to finance the expansion. The loan would be repayable after five years. REQUIRED Advise Nala whether she should obtain a bank loan to expand the business. Justify your answer by providing two points for and two points against obtaining the bank loan to expand the business. State why Nala’s bank manager would be interested in her financial statements if she requests the loan.
7707_w23_qp_22
THEORY
2023
Paper 2, Variant 2
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Questions Discovered
43