Question B. Thanks

2 Strategic Marine Ltd, an importer of nautical equipment, supplies maritime companies with equipment. An inexperienced accountant who was recently hired produced the following: Balances at 1 January 2020 Non-current assets at cost Accumulated depreciation Prepaid general expenses Inventory Trade receivables Trade payables $$000 400 84 10 45 66 120 A summary of its bank account for the last 4 months ended 30 April 2020 is provided. Receipts Jan $000 Feb $000 Mar $000 Apr $000 76 66 84 228 78 252 Cash sales Credit sales Disposal of non-current assets Long term loan 38 234 15 - - 110 142 422 330 287 Payments Payment for credit purchases General expenses Dividends 85 210 30 120 29 20 169 (27) 85 58 350 45 30 425 (3) 58 55 Net cash flow Opening balance Closing balance 240 90 55 145 27 112 175 145 320 Additional information 1. 2. 25% of monthly sales are cash sales and credit sales are on one month's credit terms. Purchases are on one month's credit terms. Inventory of $130 000 was bought on credit on 18 April 2020. The long term loan which was taken on 1 February 2020, bears an interest rate of 8% per annum. 3. 4. 5. Depreciation is provided for on the cost of all non-current assets at 2% per month. Non-current assets costing $75 000 with an accumulated depreciation of $65 000 was sold in April. No depreciation is provided in the month of sale. An inventory count on 30 April revealed inventory costing $90 000. 6. REQUIRED (a) Prepare an income statement for Strategic Marine Ltd for the four months ended 30 April 2020. [6] (b) Prepare an extract of the Balance sheet at 30 April 2020, showing only the sections relevant for working capital for Strategic Marine Ltd. [6] A director made this comment - "The management of the company's working capital is quite good. This is evident from the current ratio, which is higher than industry standards of 2.80 : 1." Our working capital should also not only surpass industry standards, but it should always be kept as high as possible. REQUIRED (C) Compute the current ratio to two decimal places for Strategic Marine Ltd and explain its meaning to the company [2] (d) Advise the director regarding his comments on the company's working capital [4] (e) State 2 reasons why the current ratio of Strategic Marine Ltd could differ from industry standards? [2] [Total: 20]