Question

Question 2

The following details appeared in the final accounts of a sole trader's business.

Current assets

R

8 400

Current liabilities 4 000

Gross profit 5 000

Net profit 2 400

Purchases 16 000

Sales 21 000

Capital 30 000

The opening and closing stocks, being identical figures, are not shown.

Required

Answer the following questions:

(a) What is the ratio between current assets and current liabilities, and

is it a satisfactory one?

(b) What is the percentage gross profit on turnover?

(c) What is the average mark-up percentage on purchases?

(d) What is the capital yield to the owner expressed as a percentage?

(e) Would the owner do better by investing his capital in a building

society at 2

7 1 % per annum? (15)

Answer 1

(a) The ratio between current assets and current liabilities is:

$8400/4000 = 2.1$

It is more than 1, so it is a satisfactory one.

(b) The percentage gross profit on turnover is:

$5000/21000×100 = 23.81 percent$

(c) The average mark-up percentage on purchases is:

$2400/16000×100 = 15 percent$

(d) What is the capital yield to the owner expressed as a percentage?

$2400/30000×100 = 8 percent$

(e) The owner would not do better by investing his capital in a building

society at 2.71 % per annum, because he gains 8% per annum.