No. 2(a): Calculation of currents assets and current liabilities using the current ratio:
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: 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
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Accounting Lyceum
4/23/2019 08:03:05 pm
Hi Destiny,
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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,
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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?
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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
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AuthorThe 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
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