ACCOUNTING LYCEUM
  • Home
  • CAPE® Suggested Solutions
  • CSEC® Suggested Solutions
  • Tutorials & Tips
  • Home
  • CAPE® Suggested Solutions
  • CSEC® Suggested Solutions
  • Tutorials & Tips
Search
Csec Principles of Accounts

Suggested Solutions

Csec: May 2013, Question #3

4/4/2018

6 Comments

 
No. 2(a): Calculation of currents assets and current liabilities using the current ratio:

  1. The current ratio formula is Current Assets/Current liabilities.  Therefore the  current assets as at 30th June 2011 can be calculated as follows:
Current Assets/$12,000 = 2
 Current Assets = $12,000 x 2 = $24,000.
     2. The  current liabilities as at 30th June 2012 can be calculated as follows:
$60,000/Current Liabilities = 4
Current Liabilities = $60,000/4 = $15,000.
 
2(b): Calculation of:

    i.   Average Stock = Opening  stock + Closing stock/2 = ($6,800 + $4,400)/2 = $5,600.

    ii.   Stock Turnover = Cost of Sales/Average Stock = $118,400/$5,600 = 21.15 times.

    iii.  Gross Profit Percentage = Gross Profit/Sales = $131,600/$250,000 = 53%.
No. 2(c): Below is the summarized Balance Sheet of Reisse Holdings as at 30th June, 2012:
Picture
No. 2(d): Calculation of return on capital employed:
Return on Capital Employed is calculated as: Net Profit/Capital Employed = $69,900/170,000 = 42%.
 
No. 2(e): Below is a brief comment on the performance of Reisse Holdings based on current ratio of 4:1:
Reisse Holdings appears to have a high liquidity level as currently they have $4 of current assets to cover every $1 of liability. The benchmark for this ratio is 2:1 so the results seem to indicate excess liquidity. Reisse Holdings can consider investing this excess liquidity in short term investment options to gain interest as opposed to having the cash idle.
I hope that you found this proposed solution helpful! If you did please share it! Also, feel free to ask any questions or to make your comments below. Good Luck!
6 Comments
Destiny Wallace
4/19/2019 10:25:05 am

I dont understand how did you calculate current asset and current liability

Reply
Accounting Lyceum
4/23/2019 08:03:05 pm

Hi Destiny,

The formula for the Current Ratio is Current Assets divided by Current liabilities. Therefore if Current Assets divided by $12,000 = 2 it follows that Current Assets = $12,000 x 2 = $24,000.

Using the same formula; if $60,000 divided by Current Liabilities = 4, then Current Liabilities = $60,000 divided by 4 = $15,000.

Its simple mathematics really, where you make current assets and current liabilities the subject of the formula respectively, to solve for the missing figure, okay?

Hope this explanation helps to clear things up, if not feel free to ask away!

Reply
Aaliyah McKenzie
5/11/2019 08:54:05 am

I still don’t understand.

Accounting Lyceum
5/11/2019 09:39:34 am

Hi Aaliyah,

Can you be a bit more specific and tell me what you don't understand, please?

That why I can try to help you, okay,

Reply
Ruth
4/9/2021 09:04:28 am

Hey , what if I don't have the opening inventory figure specifically in the income statement and balance sheet but i have the closing inventory figure. How would I calculate the average stock, would I just use the closing stock figure from the previous year and that would be the opening stock for the current year?

Reply
Shanece Noel
2/6/2022 08:07:16 am

Can I have some help with a ratio question if u submit it to you thanks

Reply



Leave a Reply.

    Author

    The author holds a Bsc (Hons) Degree in Applied Accounting from Oxford Brookes University, England and enjoys a successful career as an Accounting Supervisor and a private tutor.

    Archives

    November 2021
    April 2021
    April 2019
    April 2018
    March 2018
    February 2018

    Categories

    All
    Bad And Doubtful Debts
    Bank Reconciliation Statements
    Books Of Original Entry
    Company Accounts
    Control Accounts
    Cooperative Accounts
    General Ledgers
    Manufacturing Accounts
    Partnership Accounting
    Payroll Accounting
    Ratio Analysis
    Sole Trader Accounts
    Trial Balance

    RSS Feed

    Picture
    Suggested Solutions for CSEC POA May/June 2019 only US$2.99! Available on Amazon.
    Picture
    Suggested Solutions for CSEC POA May/June 2018 only US$2.99! Available on Amazon.
Powered by Create your own unique website with customizable templates.
  • Home
  • CAPE® Suggested Solutions
  • CSEC® Suggested Solutions
  • Tutorials & Tips