QUESTION 4 Use the information provided to answer the questions. 4.1 Study the ratios provided below which were calculated from a project of Colchester Limited for 2020 and 2019 and provide suitable comments for each ratio. INFORMATION Ratio 2020 2019 Acid test ratio 0.91:1 1.32:1 Return on capital employed 16.18% 24.28% Trade receivables period 38.5 days 29.45 days Trade payables period 30 days 60 days Operating profit margin 29.69% 20.47% Inventory turnover period 60 days 40 days Additional information Credit terms to debtors are 30 days and credit terms offered by creditors are 60 days. The interest rate on long-term borrowing is 12%. Calculate the weighted average cost of capital from the information provided below. 4.2 INFORMATION Mac Limited intends investing in a new project. Finance can be obtained from banks at 15% and dividends are expected to be paid out to investors at a rate of 12% of ordinary shares. Assets are financed in the ratio 3:2 in favour of equity.
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
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