15 MARKS

The following information relates to the business of Ann Jones who is concerned about the profitability and financial structure of his business at 30 June 2018. 30 June 2018 Sales (credit) $60,000 Cost of goods sold 39,000 All other expenses 12,000 Cash at bank 12,000 Inventory 18,000 Accounts Receivable 12,000 Non-current assets 24,000 Accounts payables 6,000 Capital 60,000 Non-current liabilities Inventory at 1 July 2017 was $15,000 Required: a) Calculate profitability and liquidity ratios (10 Marks) b) State whether each transaction would cause the ratio listed with the transaction to increase, decrease or remain unchanged. Transaction Ratio 1. Purchased inventory on credit Quick ratio 2. Sold inventory for cash Current ratio 3. Wrote off a bad debt against allowance for doubtful debts Current ratio 4. Paid trade accounts payable Rate of return on total Assets 5. Sold inventory on credit Inventory turnover