Tau & Co, CPAs are planning the audit of Delta Corp for the year ended April 30, 2020. The company produces specialized laboratory equipment and has been a client of the firm for 3 years; you joined the firm last year and your supervisor has provided you with the information below.

In 2020, Delta Corp's management undertook a number of strategic moves to improve the financial results compared to 2019. This included paying their salespeople with revenue-based bonuses and a new advertising campaign. For their customers, they relaxed the credit terms given to them.

As part of their inventory policy, Delta Corp now includes additional overhead costs in inventory. The VP Finance considers the additional overhead to be production related. He also believes the 2020 results show improved revenue levels.

Financial statement information for year ended April 30UnauditedAudited

20202019$millions$millions

Revenue2318

Cost of goods sold1110

Gross profit128

Operating expenses7.54

Income before interest and taxes4.54

Inventory2.11.6

A/R4.53.0

Cash0.02.3

A/P1.61.2

Line of credit0.90.0

Required:

Using the information above:

(i) You're asked you to compute 5 financial ratios for both years. These would assist in planning the 2020 audit.

(ii) Based on the info gathered in (i) above, your supervisor has asked you to discuss what important errors should be considered and effective responses by Tau.