Certain items taken from the financial statements, the notes thereto and other records of Lucky Nine Ltd

Question:

Certain items taken from the financial statements, the notes thereto and other records of Lucky Nine Ltd have been expressed as percentages of net revenue:

Percentage of net revenue

2017

2016

Revenue (net)

Beginning inventories

Purchases (net)

Ending inventories

Selling and distribution expenses

Administrative expenses

Income tax expense

100

3.9

100

5.4

Net revenue was $600 000 in 2016; it increased by 12% in 2017. Average trade accounts receivable were $69 000 in 2017 and $66 000 in 2016. Credit sales were 75% of total revenue in both years.

Required

A. By what percentage did the entity’s profit increase or decrease in 2017 compared with 2016? Prepare a comparative statement of profit or loss (showing relevant items) including common size figures to support your answer.

B. Calculate and comment on the average collection period for the company’s trade accounts receivable for both years, showing the basis for your calculation.

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