Business Studies

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Answers to revision activities - Joan & Kate's Modern Swimwear

  1. Current Assets: Cash in Bank, Inventory, Prepaid Expenses, Accounts Receivable. Current Liabilities: Overdraft, Accounts Payable.
  2. Jun/Aug: CA $10 000, CL $9000. Dec/Feb: CA $22 000, CL $8000.
  3. Working capital = CA - CL. Jun/Aug = $10 000 - $9000 = $1000. Ratio = 1.12 : 1 (poor). Dec/Feb = $22 000 - $8000 = $14 000. Ratio = 2.75 : 1 (more than adequate).
  4. The seasonal nature (Jun/Aug - winter, Dec/Feb - summer) of the business has affected its liquidity.
  5. Carry less stock over into winter, prepay expenses from summer profits, close down in winter.

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