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. Purchased inventory on credit	Quick ratio
2. a change in accounting method for depreciation from straight line to diminishing balance	Profit margin
3. Collected an account receivable	Average collection period

Word limit: 150

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

b) The partial financial statements of Smart Brain Ltd appear below:

Smart Brain Ltd

Comparative financial information

	2021($)	2020 ($)
Cash	30 000	40 000
Marketable securities	18 000	60 000
Accounts receivable (net)	60 000	30 000
Inventory	180 000	170 000
Property, plant and equipment (net)	192 000	200 000
Total assets	480 000	500 000
Accounts payable	24 000	30 000
Short-term notes payable	48 000	90 000
Bonds payable	96 000	160 000
Ordinary shares	204 000	145 000
Retained earnings	108 000	75 000
Total liabilities and equity	480 000	500 000
Net sales	432 000	520 000
Cost of sales	220 800	240 000
Gross profit	211 200	280 000
Total expenses	88 800	120 000
Profit before income taxes	122 400	160 000
Income tax expense	36 000	35 000
Profit	86 400	125 000

Additional information:

1. Inventory balance in 2019 was $140 000

2. Receivables (net) balance in 2019 was $40 000.

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

Required:

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

1. Current ratio _________

2. Receivables turnover _________

3. Profit margin _________

4. Return on assets _________

(2) Explain the changes in liquidity and profitability of Smart Brain Ltd from 2020 to 2021. (2 marks)

Word limit: 100

Round your answer to two decimal places.