Extract from the Balance Sheet as at 30 June 2024

Question

ScanSolve AI Tutor · Accepted Answer

Here are the calculations for the missing financial indicators for 2024:

1. Operating expenses on sales

Calculate the Gross Profit percentage on sales.
The mark-up percentage is given as 58%. Mark-up is calculated on Cost of Sales.
$\text{Gross Profit on Sales Percentage} = \frac{\text{Mark-up Percentage}}{1 + \text{Mark-up Percentage}}$ $= \frac{0.58}{1 + 0.58} = \frac{0.58}{1.58} \approx 0.3670886$ $= 36.71\%$
Calculate Operating Expenses on Sales.
Operating Profit on Sales is given as 22%.
$\text{Operating Expenses on Sales Percentage} = \text{Gross Profit on Sales Percentage} - \text{Operating Profit on Sales Percentage}$ $= 36.71\% - 22\%$ $= 14.71\%$
The operating expenses on sales for 2024 are \boxed{\text{14.71%}}.

2. Current ratio
Identify Current Assets and Current Liabilities for 2024 from the Balance Sheet.
Current Assets = R1 287 500
Current Liabilities = R368 750
Apply the Current Ratio formula.
$\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$ $= \frac{1\,287\,500}{368\,750}$ $\approx 3.4915$ $= 3.49 : 1$
The current ratio for 2024 is $\boxed{\text{3.49 : 1}}$ .

3. Acid test ratio (Quick ratio)
Identify Current Assets, Inventories, and Current Liabilities for 2024 from the Balance Sheet.
Current Assets = R1 287 500
Inventories = R300 000
Current Liabilities = R368 750
Apply the Acid Test Ratio formula.
$\text{Acid Test Ratio} = \frac{\text{Current Assets} - \text{Inventories}}{\text{Current Liabilities}}$ $= \frac{1\,287\,500 - 300\,000}{368\,750}$ $= \frac{987\,500}{368\,750}$ $\approx 2.6780$ $= 2.68 : 1$
The acid test ratio for 2024 is $\boxed{\text{2.68 : 1}}$ .

4. Solvency ratio
Determine the definition of the Solvency Ratio based on the 2023 data.
Given the 2023 Solvency Ratio is 3.3:1, and using the provided Balance Sheet figures for 2023:
Owner's Equity = R1 475 000
Noncurrent Liabilities = R625 000
If we use the formula: $\frac{\text{Owner's Equity} + \text{Noncurrent Liabilities}}{\text{Noncurrent Liabilities}}$
$= \frac{1\,475\,000 + 625\,000}{625\,000} = \frac{2\,100\,000}{625\,000} = 3.36$
This is consistent with the given 3.3:1 (allowing for rounding).
Apply this definition to 2024 data.
Owner's Equity 2024 = R2 500 000
Noncurrent Liabilities 2024 = R818 750
$\text{Solvency Ratio} = \frac{\text{Owner's Equity} + \text{Noncurrent Liabilities}}{\text{Noncurrent Liabilities}}$ $= \frac{2\,500\,000 + 818\,750}{818\,750}$ $= \frac{3\,318\,750}{818\,750}$ $\approx 4.0539$ $= 4.05 : 1$
The solvency ratio for 2024 is $\boxed{\text{4.05 : 1}}$ .

5. Return on owners' equity
State the formula for Return on Owners' Equity.
$\text{Return on Owners' Equity} = \frac{\text{Net Profit}}{\text{Owner's Equity}} \times 100\%$
Identify known values and missing information.
Owner's Equity for 2024 = R2 500 000.
Net Profit on Sales for 2024 = 19%. This means $\text{Net Profit} = 0.19 \times \text{Sales}$ .
To calculate Net Profit, the value of Sales for 2024 is required. Sales cannot be determined from the information provided in the Balance Sheet extract or the financial indicators. Therefore, the Return on Owners' Equity cannot be calculated with the given data.

Extract from the Balance Sheet as at 30 June 2024

Step-by-step solution

Calculate the Gross Profit percentage on sales.

Calculate Operating Expenses on Sales.

Identify Current Assets and Current Liabilities for 2024 from the Balance Sheet.

Apply the Current Ratio formula.

Identify Current Assets, Inventories, and Current Liabilities for 2024 from the Balance Sheet.

Apply the Acid Test Ratio formula.

Determine the definition of the Solvency Ratio based on the 2023 data.

Apply this definition to 2024 data.

State the formula for Return on Owners' Equity.

Identify known values and missing information.

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