14.19 The managing director of Winger Whalley Limited has just received a report from one of the...
Question:
14.19 The managing director of Winger Whalley Limited has just received a report from one of the accounting assistants employed by the business. The report shows key ratios and supplies explanations for any significant fluctuations.
The MD is concerned to find that the debtors turnover period has worsened significantly in the period from 20X2 to 20X3 (it was 36.4 days at the end of 20X2 and is 41.2 days at the end of 20X3). The accounting assistant has supplied the following reasons for the fluctuations:
1. The company's credit controller did a parachute jump for charity about three months ago. The parachute failed to open properly, and because of her injuries she was away from work in the last three months of 20X3. The temporary staff agency was unable to provide a suitable replacement for her, and during most of the three-month period her work was simply not done.
2. Sales have increased by 4% in the course of the year.
3. During 20X3 the board decided to introduce a system of early settlement discounts. Debtors paying within 30 days would receive a discount of 0.5% of the value of their invoices.
4. A new order of sales invoice stationery was received part way through the year. Usually the sales invoice stationery is printed with 'SETTLEMENT REQUIRED WITHIN 30 DAYS', but the printers had omitted this by mistake. The office general manager decided to use the stationery anyway.
Two of these reasons could be valid explanations for the increase in the debtors turnover period. The valid explanations are:
a) 1 and 2
b) 3 and 4
c) 1 and 4
d) 2 and 3.
Step by Step Answer:
Business Accounting And Finance For Non Specialists
ISBN: 9781861528728
1st Edition
Authors: Catherine Gowthorpe