Question
As an appointed Auditor, the company has provided you with following financial ratios for the year. Mobile X Ltd. Financial ratios Ratio Actual Budget (expected)
As an appointed Auditor, the company has provided you with following financial ratios for the year.
| Mobile X Ltd. Financial ratios | ||
| Ratio | Actual | Budget (expected) |
| Gross profit percentage | 40% | 45% |
| Net profit percentage | 25% | 40% |
| Trade payables ratio | 70 days | 30 days |
| Current ratio | 1.35:1 | 1.40:1 |
| Acid test ratio | 0.85:1 | 0.80:1 |
The company’s year end is the 31st March 2020.
The auditor compared the planned and actual ratios for the company. Complete the table to indicate which ratios should be accepted and which should be investigated further. Provide a reason for your answer.
| Mobile X Ltd. Financial ratios | ||||
| Ratio | Actual | Budget (expected) | Accept | Investigate further |
| Gross profit percentage | 40% | 45% | ||
| Net profit percentage | 25% | 40% | ||
| Trade payables ratio | 70 days | 30 days | ||
| Current ratio | 1.35:1 | 1.40:1 | ||
| Acid test ratio | 0.85:1 | 0.80:1 | ||
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Intermediate Accounting
Authors: Beechy Thomas, Conrod Joan, Farrell Elizabeth, McLeod Dick I
Volume 1, 6th Edition
1259103250, 978-1259103254, 978-0071339476
