12.1 The chief executive officer of Sparkrite Ltd, a trading business, has just received summary sets of financial statements for last year and this year:

The chief financial officer has expressed concern at the increase in inventories and trade receivables levels.
Required:

(a) Show, by using the data given, how you would calculate ratios that could be used to measure inventories and trade receivables levels during last year and this year.

(b) Discuss the ways in which the management of Sparkrite Ltd could exercise control over the levels of:
(i) inventories; and (ii) trade receivables.

Transcribed Image Text:

Income statements for years ended 30 September Last year This year 000 000 000 000 Sales revenue 1,800 1,920 Cost of sales Opening inventories 160 200 Purchases 1,120 1,175 1,280 1,375 Closing inventories (200) (1,080) (250) (1,125) Gross profit 720 795 Expenses (680) (750) Profit for the year 40 45