Question
QUESTION 3 Teras Company had the following comparative current assets and current liabilities: During the year 2022, credit sales and cost of goods sold were
QUESTION 3 Teras Company had the following comparative current assets and current liabilities:
During the year 2022, credit sales and cost of goods sold were RM600,000 and RM350,000, respectively. Note: Assume it has 365 days in a year.
2022 | 2021 | |
current asset | ||
cash | 20,000 | 30,000 |
short-term investment | 40,000 | 10,000 |
note receivables | 60,000 | 50,000 |
accounts receivables | 55,000 | 95,000 |
inventory | 50,000 | 40,000 |
prepaid expenses | 35,000 | 20,000 |
current liabilities | ||
accounts payable | 100,000 | 80,000 |
other payable | 40,000 | 30,000 |
salaries payable | 40,000 | 30,000 |
tax payable | 20,000 | 15,000 |
a. Determine the following ratios for the year 2022: i. Current ratio (10 marks) ii. Quick or acid-test ratio (4 marks) iii. Account receivable turnover ratio (3 marks) iv. Account receivable turnover in days (2 marks) v. Inventory turnover ratio (3 marks) vi. Inventory turnover ratio in days (2 marks)
b. Evaluate the company's financial performance by using the above findings of quick ratio, account receivable turnover ratio and inventory turnover ratio. (21 marks)
c. A higher inventory turnover ratio denotes a healthy business, whereas a lower ratio can indicate trouble. When inventory turnover is breakdown into business components, its significance as a critical business efficiency metric becomes clear. Describe THREE (3) importance to improve Inventory Turnover. (5 marks)
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