Answer to Question #304683 in Financial Math for Bros

Question

a)     A sole trader fixes his prices to achieve a gross profit percentage on sales revenue of 40%. All his sales are

for cash.  He suspects that one of his sales assistants is stealing cash from sales revenue.

His trading account for the month of June 20X3 is as follows:

$

Recorded sales revenue 181,600

Cost of sales 114,000

Gross profit    67,600

Assuming that the cost of sales figure is correct, how much cash could the sales assistant have taken?  (3 marks)

b) The profit earned by a business in 20X7 was $72,500. The proprietor injected new capital of $8,000 during

the year and withdrew goods for his private use which had cost $2,200.

If net assets at the beginning of 20X7 were $101,700, what were the closing net assets? (3 marks)

c) Explain the uses of cash flow statements. (4 Marks)

d) Outline and explain the three types of capital reserves. (6 Marks)

e) Explain using examples the various categories of financial ratios. (4 Marks)

Answer 1

If gross profit Percentage is 40%, then we find what the current gross profit Percentage is to sales and the difference is what was stolen.

%$\frac{67600}{181600}=0.37*100=37$

Difference is 40-37=3%

a). Stolen amount=$0.03\times181600=5,448$

b). Closing net assets.

Opening+injections+Withdrawal

=101,700+8,000+2,200=$111,900

c). Uses of cash flow statement.

Cash flow statement shows a businesses' operating, investing, and financing activities.

It is usually used to trace the actual cash movement and balance for a business.

It provides useful information for decision making.

d). Three types of capital reserves

cash received by selling current assets.

Premium earned on the issue of share and debentures.

Excess on revaluation of assets and liabilities.

e). Categories of financial ratios

Liquidity ratios like Current Ratio

Profitability ratios like net profit margin

Solvency ratio like debt to equity ratio