Albert Dejonge, a sole proprietor, received the following summarized balance sheets from his accountant for the years ended 31 December 19_4 and 31 December 19_5:

Required

(a) A source and application of funds statement showing the change in working capital over the year.

(b) (i) Calculate suitable ratios and comment on Dejonge’s liquidity position. Explain to him why liquid resources may fall despite an increase in trading profit.
(ii) Advise Dejonge whether it was financially necessary to secure the bank overdraft facility.

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Balance Sheets as at 31 December 19_4 19_5 15.000 65 000 9.000 50 000 Capital Net profit Less drawings 63.000 25 000 88 000 12.000 56 000 76.000 20 000 Long term loan finance 25 000 7 500 Trade creditors 9 000 1 500 Expenses owing 1.000 85.000 111 000 Assets 24 000 Premises 19.000 Motor vehicles (Net book value) 17.000 Stock 16.000 1 000 7 500 Trade debtors Expenses in advance Balance at bank 31 000 21 000 35 300 19.000 600 3.000 500 Cash 85.000 1 100 111 000