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14. The trading account of Calypso for the year ended 30 June 20X0 is set out below:
$ $
Sales 430,000
Opening inventories 50,000
Purchases 312,500
362,500
Closing inventories (38,000)
Cost of sales (324,500)
Gross profit 105,500
The following amounts have been extracted from the company’s statement of financial position at
30 June 20X0.
$
Trade receivables 60,000
Prepayments 4,000
Cash in hand 6,000
Bank overdraft 8,000
Trade payables 40,000
Accruals 3,000
Declared dividends 5,000
Calculate the inventories days (using average inventories) and the current ratio for Calypso Ltd for
the period.
Inventory days Current ratio
A 33 days 1.25:1
B 49 days 1.25:1
C 49 days 1.93:1
D 33 days 1.93:1HOW DID IT CALCULATE THE CURRENT RATIO AND WHY USED THESE VALUES????
The current ratio is current assets / current liabilities.
The current assets are 60,000 + 4,000 + 6,000 = 70,000
The current liabilities are 8,000 + 40.000 + 3,000 + 5,000 = 56,000Have you not watched our free lectures on this? The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.
I am sorry to intruded but the Kaplan has not mentioned closing inventory as part of SoFP. They use in calculation to find Current ratio.
I do not have Kaplan books and so I cannot check. However inventory is included in the calculation of the current ratio (but is not included when calculating the acid test / quick ratio). If Kaplan show differently then they are wrong or have mistyped.
Both ratios are as explained in my free lectures.
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