Question
JSS Apparel is one of the largest retail company in the country and usually reflects a healthy financial condition and operational performance through the years.
JSS Apparel is one of the largest retail company in the country and usually reflects a healthy financial condition and operational performance through the years. As expected, 2019 was another fruitful year for the company. Nevertheless, the Board of Directors directed the auditors to determine relevant financial ratios.
Presented below are the excerpts from the financial statements of BTS Apparel for years ended December 31, 2018 and December 31, 2019:
2019 | 2018 | ||
Current assets | |||
Cash and cash equivalents | P4,945,216 | P776,357 | |
Available for sale - securities | 3,946,210 | 1,049,796 | |
Accounts receivable 1/ | 10,073,785 | 3,145,736 | |
Inventories | 14,583,453 | 6,887,592 | |
Other current assets | 1,229,763 | 937,798 | |
TOTAL | P34,778,427 | P12,797,279 | |
2019 | 2018 | 2017 | |
Sales | P26,493,377 | P9,333,761 | P7,391,912 |
Cost of goods sold | 11,127,019 | 5,124,695 | 4,070,867 |
Gross margin | 15,366,358 | 4,209,066 | 3,321,045 |
1/ Allowance for doubtful accounts as of December 31, 2019 - P120,885 and December 31, 2018 - P125,829.
The company's credit term is 90 days.
Required:
A. Compute for the following for 2019:
1. Accounts receivable to total current assets
2. Inventory turnover
3. Cost of sales to sales
4. No. of days sales in receivable
5. No. of days in inventory
B. Based on your computation in letter A and other related financial ratios, identify at least three (3) fraud indicators. Support your answer with clear justification/ explanation.
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