As an appointed Auditor, the company has provided you with following financial ratios for the...
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Accounting
As an appointed Auditor, the company has provided you with following financial ratios for the year.
Mobile X Ltd.
Financial ratios
Ratio
Actual
Budget (expected)
Gross profit percentage
40%
45%
Net profit percentage
25%
40%
Trade payables ratio
70 days
30 days
Current ratio
1.35:1
1.40:1
Acid test ratio
0.85:1
0.80:1
The companys year end is the 31st March 2020.
The auditor compared the planned and actual ratios for the company. Complete the table to indicate which ratios should be accepted and which should be investigated further. Provide a reason for your answer.
Mobile X Ltd.
Financial ratios
Ratio
Actual
Budget (expected)
Accept
Investigate further
Gross profit percentage
40%
45%
Net profit percentage
25%
40%
Trade payables ratio
70 days
30 days
Current ratio
1.35:1
1.40:1
Acid test ratio
0.85:1
0.80:1
Answer & Explanation
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