QUESTION THREE [25]

Use the data provided to answer the questions that follow relating to Newtech Ltd for 2019: Abbreviated Statement of Financial Position: Assets 2019 2018 Non Current/Fixed 4 200 000 3 000 000 Inventory 400 000 600 000 Receivables 1 550 000 1 200 000 Cash 600 000 300 000 6 750 000 5 100 000 Equity and Liabilities Share Capital (R2 shares) 4 200 000 4 000 000 Retained Income 600 000 300 000 Long term Debt 250 000 200 000 Payables 1 700 000 600 000 6 750 000 5 100 000 The abbreviated Statement of Comprehensive Income for the year ended 2019: Sales (10% on credit) 10 200 000 Cost of sales (80% on credit) 4 080 000 Expenses 3 200 000 Net Income after Tax 2 000 000 Dividends 1 700 000 Retained Income 3 000 000 NB: Shares are currently trading at R2, 80 per share. BACHELOR OF COMMERCE YEAR 2 ACADEMIC AND ASSESSMENT CALENDAR - DISTANCE REGENT BUSINESS SCHOOL (RBS) JULY 2020 19

Required: 3.1. Calculate the net profit on turnover for 2019. (2)

3.2. Calculate the current ratio for both years. (4)

3.3. Calculate the acid test ratio for both years. (4)

3.4. Accounts Payable Turnover

3.4.1 Calculate the accounts payable period (in days), noting that Newtech Ltd has, after tough negotiations secured a 90 day account with all its creditors. Note: Use average accounts payable for this calculation. (4)

3.4.2. Offer constructive advice to Newtech Traders as to whether this is an ideal situation. (3)

3.5. Calculate the return on equity. Explain if the shareholders will be satisfied with the return. (4)

3.6. Calculate the inventory turnover ratio (use average inventory) and explain the significance of this ratio. (4)