Reference no: EM132524827

The trial balance of Miyanda Traders, after the calculation of the gross profit, was as follows:

Dr (K)

Cr (K)

Gross profit                                              120 000

Sundry expenses                                        57 000

Non-current assets (cost)                            400 000

Non-current assets (provision for depreciation)   82 000

Trade receivables                                         55 000

Trade payables                                           85 000

Inventory at 31 December 2019                   125 000

Cash                                                         5 000

Bank loan (repayable 31 January 2020)         35 000

Capital                                                     320 000

                                                                     642 000

642 000

Additional information for the year ended 31 December 2019:

1. Mark-up on cost of sales, 25%.

2. Depreciation for the year on non-current assets, K15 000.

Required

Question (a) Calculate the following for the year ended 31 December 2019:

(i) Revenue (sales)

(ii) Net profit ratio

(iii) Return on Capital Employed ratio

(iv) Quick ratio (acid test)

Question (b) Explain to Miyanda why the quick ratio (acid test) is a better measure of liquidity than the working capital ratio (current ratio).

Question (c) Comment upon the adequacy of Miyanda's cash for the next three months. Give one reason for your comment.

Question (d) Suggest four ways in which Miyanda might increase the cash in the business.