ACCA FM Syllabus C. Working Capital Management - Current ratio - Past Papers ^{2 / 7}

June 2017 ^Sample

1730 others answered this question

Question 31a iii

It is the middle of December 20X6 and Pangli Co is looking at working capital management for January 20X7.

Forecast financial information at the start of January 20X7 is as follows:

Inventory	$455,000
Trade receivables	$408,350
Trade payables	$186,700
Overdraft	$240,250

All sales are on credit and they are expected to be $3·5m for 20X6. Monthly sales are as follows:

November 20X6 (actual)	$270,875
December 20X6 (forecast)	$300,000
January 20X7 (forecast)	$350,000

Pangli Co has a gross profit margin of 40%. Although Pangli Co offers 30 days credit, only 60% of customers pay in the month following purchase, while the remaining customers take an additional month of credit.

Inventory is expected to increase by $52,250 during January 20X7.

Pangli Co plans to pay 70% of trade payables in January 20X7 and defer paying the remaining 30% until the end of February 20X7. All suppliers of the company require payment within 30 days. Credit purchases from suppliers during January 20X7 are expected to be $250,000.

Interest of $70,000 is due to be paid in January 20X7 on fixed rate bank debt. Operating cash outflows are expected to be $146,500 in January 20X7. Pangli Co has no cash and relies on its overdraft to finance daily operations. Thecompany has no plans to raise long-term finance during January 20X7.

Assume that each year has 360 days.

Required:
(a) (iii) Calculate the current ratios at the start and end of January 20X7. (4 marks)

Reveal answer

December 2014

1448 others answered this question

Question 1b

Flit Co is preparing a cash flow forecast for the three-month period from January to the end of March. The following sales volumes have been forecast:

	December	January	February	March	April
Sales (units)	1,200	1,250	1,300	1,400	1,500

Notes:
1. The selling price per unit is $800 and a selling price increase of 5% will occur in February. Sales are all on one month’s credit.

2. Production of goods for sale takes place one month before sales.

3. Each unit produced requires two units of raw materials, costing $200 per unit. No raw materials inventory is held. Raw material purchases are on one months’ credit.

4. Variable overheads and wages equal to $100 per unit are incurred during production, and paid in the month of production.

5. The opening cash balance at 1 January is expected to be $40,000.

6. A long-term loan of $300,000 will be received at the beginning of March.

7. A machine costing $400,000 will be purchased for cash in March.

Required:
(b) Calculate the forecast current ratio at the end of the three-month period. (2 marks)

Reveal answer