MCQ past exam

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May 15, 2018 at 1:53 pm #452087
humai
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Which of the following is not a symptom of over trading
a)Rapid increase in current assets
b)increase in shareholders fund
c)Rapid increase in revenue
d)increase in inventory and debtors receivable period
Sir in the above, why the answer cannot be a) rapid increase in CA? As increase in CA will lead to increase in current ratio and increase in current ratio is not an indicator of over-trading. Decrease in current ratio is indicator of over-trading
May 15, 2018 at 6:49 pm #452149
John Moffat
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A rapid increase is a symptom of over-trading. As I explain in the lectures, over trading is where there is a rapid increase in sales without a corresponding increase in long term finance and if sales increase rapidly then so too will the current assets.
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