a) Discuss how each of the following transactions will affect the financial ratios specified in the table (i. e. increase, decrease, no effect). You are required to provide the detailed explanations. (6 Marks)

Transaction	Ratio
1. Wrote off a bad debt against Allowance for Doubtful Debts	Current ratio
2. Collected an account receivable	Receivables turnover
3. recognising a loss through obsolescence of certain inventory items.	Quick ratio

Word limit: 150

(Type your response directly into the template in the text box below.)

b) The partial financial statements of Red Farmers Ltd appear below:

Red Farmers LTD

Comparative financial information

	2021	2020
Cash	25 000	32 000
Marketable securities	15 000	48 000
Accounts receivable (net)	50 000	24 000
Inventory	150 000	136 000
Property, plant and equipment (net)	160 000	160 000
Total assets	400 000	400 000
Accounts payable	20 000	24 000
Short-term notes payable	40 000	72 000
Bonds payable	80 000	128 000
Ordinary shares	170 000	116 000
Retained earnings	90 000	60 000
Total liabilities and equity	400 000	400 000
Net sales	360 000	416 000
Cost of sales	184 000	192 000
Gross profit	176 000	224 000
Total expenses	74 000	96 000
Profit before income taxes	102 000	128 000
Income tax expense	30 000	28 000
Profit	72 000	100 000

Additional information:

1. Inventory balance in 2019 was $140 000

2. Receivables (net) balance in 2019 was $60 000.

3. The total asset balance in 2019 was $460 000

Required:

(1) Using the financial statements, compute the following ratios for Red Farmers Ltd for 2021. (2 marks)

1. Receivables turnover _________

2. Profit margin_________

3. Current ratio _________

4. Return on assets _________

(2) Explain the change in liquidity and profitability of Red Farmers Ltd from 2020 to 2021. (2 marks)

Word limit: 100

Round your answer to two decimal places.