QUESTION ONE [25]

The financial statements of Crafters Limited are presented below:

CRAFTERS LTD STATEMENT OF FINANCIAL POSITION As at 29 February 2020

29 February28 February

Notes2020 2019

ASSETS R R

Non-current assets1 146 0001 254 000

Property, plant and equipment 996 0001 134 000

Investments (listed shares)150 000120 000

Current assets834 000975 000

Cash and cash equivalents48000-

Inventory480000750000

Accounts receivable306000225000

Total assets1 980 0002 229 000

EQUITY AND LIABILITIES

Equity and reserves1 134 000996 000

Share capital600 000600 000

Preference share capital180 000180 000

Share premium60 00060 000

Retained earnings294 000156 000

Non current liabilities300 000240 000

15% Debentures300000240000

Current liabilities546 000993 000

Bank overdraft-330 000

Dividends payable24 00018 000

Accounts payable522 000645 000

Total equity and liabilities1,980,0002,229,000

ADDITIONAL INFORMATION:

1. Earnings before interest and taxation amounted to R 156 000 (2019 : R125 000)

2. The following balances are available for 28 February 2019:

Inventory R630 000

Accounts receivable R400 000

Accounts payable R575 000

3. Turnover for the year ended February 2020 amounted to R12 000 000 (2019: R10 000 000). The gross profit percentage is 25%.

4. Half of turnover (50 %) is credit sales and 75% of purchases are credit purchases.

REQUIRED:

Prepare the following ratios for 2020 and comment on the ratios calculated using the ratios for 2019 {presented in brackets}:

1. Debt ratio {2019: 0,55: 1}(6)

2. Current ratio {2019: 0,98: 1}(2)

3. Quick ratio {2019: 0,22: 1}(2)

4. Debt/equity ratio {2019: 1,24: 1}(4)

5. Debtors collection period {23 days}(3)

6. Creditors collection period {39 days}(4)

7. Solvency ratio {2019: 1,8:1}(4)