Determine the effect of each of the following transactions will have on working

Question

Determine the effect of each of the following transactions will have on working capital, current ratio, and Quick ratio.

s (b) Deternine the effect each o f the following transactions will have on Variform working capital, current ratio, and quick ratio by recalculating each and then indicating whether the measure is increased, decreased or not affected by the transaction. (For ratios round to two decimal points). Consider each transaction independently: that is, assume that it is the only transaction that takes place. Effect of Transaction on Working Current Quick Transaction ratio capital ratio 1. Purchase inventory on credit Sh.20M Purchase inventory on credit Sh 2. Purchased inventory for cash Sh.15M . Paid suppliers on credit Sh.30M 4. Received cash on A/C receivable Sh.40M 5 Paid insurance for next year Sh.20M 6. Made sales on credit Sh.60M 7. Repaid short-term loans at bank Sh.25M 8. Borrowed Sh.40M at bank for 90 days 9. Declared& paid Sh.45M cash dividend 10. Purchased Sh.20 M of trading securities (classified on as current Assets) 11. Paid Sh. 30M in salaries 12. Accrued additional Sh.15M in taxes (18 Marks)

Explanation / Answer

Answer:

(Note : Since the requisite information for calculating working capital, current ratio and quick ratio before the effect of following transactions is not given. Therefore, only change is indicated in the solution)

Effect of Transaction

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