QUESTION 1 The following are extracts of the income statement and the statement of financial position for Morula Industries. STATEMENT OF INCOME FOR THE YEAR ENDED 31 DECEMBER 2019 Pula Sales 500,000 Less Cost of sales: Opening inventory 120,000 Purchases 415,000 Cost of goods available for sale 535,000 Closing inventory (115,000) (420,000) Gross profit 80,000 Operating expenses (40,000) Net surplus for the year 40,000 STAMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019 Pula Current assets Inventory 115,000 Receivables 133,000 Bank overdraft 124,000 Current Liabilities Payables 96,000 Capital and reserves Share capital 70,000 General reserve 110,000 Retained profit 110,000 Additional Information The receivables and payables opening balances were P50, 000 each. All sales and purchases were made on credit. Required: a. Calculate the: i. Average payment period. ii. Average age of inventory. iii. Average collection period. iv. Cash conversion cycle. b. Explain five strategies that can improve the cash conversion cycle.
QUESTION 1
The following are extracts of the income statement and the
Morula Industries.
STATEMENT OF INCOME FOR THE YEAR ENDED 31 DECEMBER 2019
Pula
Sales 500,000
Less Cost of sales:
Opening inventory 120,000
Purchases 415,000
Cost of goods available for sale 535,000
Closing inventory (115,000) (420,000)
Gross profit 80,000
Operating expenses (40,000)
Net surplus for the year 40,000
STAMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019
Pula
Current assets
Inventory 115,000
Receivables 133,000
Bank overdraft 124,000
Current Liabilities
Payables 96,000
Capital and reserves
Share capital 70,000
General reserve 110,000
Retained profit 110,000
Additional Information
The receivables and payables opening balances were P50, 000 each.
All sales and purchases were made on credit.
Required:
a. Calculate the:
i. Average payment period.
ii. Average age of inventory.
iii. Average collection period.
iv. Cash conversion cycle.
b. Explain five strategies that can improve the cash conversion cycle.
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