Chapter+17+-+2009

# Chapter+17+-+2009 - Exercise 17.8 Liquidity analysis A 1...

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Unformatted text preview: Exercise 17.8 Liquidity analysis A. 1. 2006 1 : 15 . 2 800 174 000 14 000 192 000 74 000 64 000 32 = + + + + 2007 1 : 2 000 187 000 9 000 188 000 78 000 70 000 29 = + + + + 2. 2006 1 : 97 . 800 174 000 74 000 64 000 32 = + + 2007 1 : 95 . 000 187 000 78 000 70 000 29 = + + B. By comparison with the industry average, the company’s liquidity position is not strong. The current ratios for both years are well under the average for the industry. Likewise, the quick ratios are well below the industry average. There has been a slight decrease in both ratios over the two years but the trend is not large enough to be concerned about at this stage. If the small unfavourable trend continues, the company may end up with a poor liquidity position. Exercise 17.9 Financial stability analysis A. 2006 1. Debt ratio = 6 . 000 725 000 435 = 2. Equity ratio = 4 . 725000 000 30 000 260 = + 3. Capitalisation ratio = 5 . 2 30000 000 260 000 725 = + 2007 1. Debt ratio = 55 . 000 830 000 455 = 2. Equity ratio = 45 . 000 830 000 65 000 310 = + 3. Capitalisation ratio = 22 . 2 000 65 310000 000 830 = + B. The trend from 2006 to 2007 shows all ratios have improved which indicates the company is relying less heavily on debt financing, i.e. Gearing has decreased. Problem 17.3 Provision for warranty claim expenses A. 2006 30 June Cash at Bank/Accounts Receivable 2 896 000 Sales – Standard Units 896 000 Sales – Reverse Cycle Units 2 000 000 To record sales for year 2003. (Std – 280 x \$3 200; RC – 400 x \$5 000) 30 June Warranty Expense 29 600 Provision for Warranty 29 600 To provide for future warranty costs. (Std. – 280 x 0.1 x \$400 = 11 200; RC – 400 x 0.1 x \$460 – 18 400) B. 2007 30 June Cash at Bank/Accounts Receivable 3 042 000 Sales – Standard Units 992 000 Sales – Reverse Cycle Units 2 050 000 To record sales for year 2004. (Std – 310 x \$3 200; RC – 410 x \$5 000) 30 June Provision for Warranty 21 740 Accounts Payable 1 320 Cash at Bank 20 420 To record warranty costs....
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Chapter+17+-+2009 - Exercise 17.8 Liquidity analysis A 1...

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