QUESTION THREE $[25]$

The condensed and other financial information for Igloo Fashions appear below:

Statement of Comprehensive Income for the year ended $31$ December $2021.$

R

Sales

$803750$

Cost of sales

$(676500)$

Gross profit

$127250$

Operating expenses

$(92250)$

Operating profit

$35000$

Interest expense

$(12250)$

Profit before tax

$22750$

Income tax

$(9100)$

Profit after tax

$13650$

Statement of Financial Position as at $31$ December $2021$

Assets

R

Non$-$current assets

$146250$

Current assets

$327500$

Total assets

$473750$

Equity and liabilities

Shareholders$$ equity

$196650$

Non$-$current liabilities

$128250$

Current liabilities

$148850$

Total equity and liabilities

$473750$

Note:

$1.$ Current assets $($R$327500)$ include accounts receivable of R$168000,$ inventories of

R$75000$ and cash of R$84500.$

$2.$ Inventories as at $31$ December $2020$ amounted to R$105000.$

$3.$ Current liabilities comprise accounts payable only.

$4.$ The following ratios were calculated:

$2021$

$2020$

Current ratio

$2\mathrm{.}20$:$1$

$1\mathrm{.}85$:$1$

Gross margin

$15\mathrm{.}83\%$

$24\mathrm{.}12\%$

$5.$ All purchases of inventory and sales are on credit.

Required:

$3\mathrm{.}1.$ Calculate the following ratios $($Where applicable, round off answers to two decimal places$)$:

$3\mathrm{.}1\mathrm{.}1$ Gross Profit margin $(2)$

$3\mathrm{.}1\mathrm{.}2$ Debtor collection period $(2)$

$3\mathrm{.}1\mathrm{.}3$ Creditor payment period $(2)$

$3\mathrm{.}1\mathrm{.}4$ Inventory turnover $(2)$

$3\mathrm{.}1\mathrm{.}5$ Return on own capital $(2)$

$3\mathrm{.}1\mathrm{.}6$ Acid test ratio $(2)$

$3\mathrm{.}1\mathrm{.}7$ Debt to assets $(2)$

$3\mathrm{.}2$ Comment on the current ratio. $(6)$

$3\mathrm{.}3$ Igloo Fashions experienced a drop in gross profit margin in $2021.$ Provide two possible

reasons for the drop in gross profit margin.