QUESTION ONE [30] You are provided with the following summarised information relating to Virgo Limited, a wheel caps and rims distributor: Statement of Financial Position (balance sheet) as at 31 December 2019: 2019 R Assets Non-current assets 936 000 Cash 168 000 Inventory 432 000 Trade debtors 288 000 TOTAL ASSETS 1 824 000 Equity Shareholders Equity 1 152 000 Liabilities Long term loan (15% p.a.) 408 000 Accounts payable 216 000 Dividends payable 48 000 TOTAL EQUITY AND LIABILITIES 1 824 000 Statement of Comprehensive Income (income statement) as at 31 December 2019: 2019 R Sales 4 800 000 Less Cost of Sales 3 120 000 Gross Profit 1 680 000 Operating profit 720 000 Interest expense 48 000 Profit before tax 672 000 15 Income taxation 268 800 Net profit for the year 403 200 Additional Information:

1. All purchases and sales of inventories are on credit. Inventories on 31 December 2018 amounted to R300 000.

2. The authorised share capital consists of 500 000 shares of which 300 000 were issued.

3. Interim dividends paid during the year amounted to R113 280.

4. The shares of Virgo Limited were trading at 350 cents per share on the stock/securities exchange on 31 December 2019.

5. The following ratios are available as at 31 December 2019 and 2018: 2019 2018 Debtors collection period 21.9 days 37.6 days Return on equity 35% 28% Inventory turnover rate 8 times 11.2 times Acid test ratio 1.73:1 1.42:1 Debt to Equity 35.42% 24.56% Current ratio ? 2.15:1 Creditors payment period ? 35 days Required:

1.1. Use the information provided above to calculate the following ratios for 2018. Where applicable, round off answers to 1.2 Using the ratios calculated in question 1.1 and the ratios provided in the additional information to answer the following questions:

1.2.2 Use two (2) appropriate to advise Virgo Limited whether it should increase its long term loan in order to expand its operations in the next year.