QUESTION 2 (30 MARKS)

a) Explain TWO (2) possible scenarios which lead to increasing current ratio. (5 marks)

b) Elaborate any TWO (2) financial statements that are important to shareholders and potential investors of a company. (10 marks)

Sylvias main concern when choosing the customer is that they should pay her promptly. Advise Sylvia which customer she should choose. Justify your answer. (6 marks)

c) Sylvia has obtained the following data at 31 December 2020 in respect of Ravindran, a possible new customer. RM Trade receivables 18,460 Cash and cash equivalents 5,230 Inventory 34,200 Trade payables 28,560 Sales for the year 339,840 Gross profit 56,640 i. Calculate the following ratios for Sylvia's business to two decimal places: Current ratio Liquid (acid test) ratio Rate of inventory turnover (9 marks) ii. Sylvia has also obtained the following data in respect of Chong, another possible customer. Current ratio 4:1 Liquid (acid test) ratio 1.62:1 Rate of inventory turnover 8 times per year