2. ) The follewing information relates to Omega General Wholesaler LD ended 31 D

Question

2. ) The follewing information relates to Omega General Wholesaler LD ended 31 December, 2013 Ead of year Irventory Acocunts receivable Accounts payable Beginning of year (Shs million) 4,000 1,200 1,000 4,600 1,600 600 Sales in the year were Shs 23 billion, of which 60% were on credit. Cost of goods sold to sales ratio was 85:100. Cash purchases were 30% of credit purchases. Required: (12 marks) i) The cash cycle for Omega during the year 2013. ii) What steps can Omega take in order to reduce the operating cycle. (5 marks) hade af canital investment evaluation.

Explanation / Answer

CASH CYCLE FOR OMEGA DURING 2013 PARTICULARS AMOUNT ($ in million) CASH RECEIPTS SALES - 40% CASH ON 2300 MILLION 920 AMOUNT RECEIVED FROM DEBTORS NOTE 1 780 CASH PAYMENTS Cost of goods sold - cash - 70% on total purchases 1788.5 amount paid to creditors - Note 3 1166.5 CASH REQUIRED FOR THE YEAR -1255 NOTE1 AMOUNT RECEIVED FROM DEBTORS PARTICULARS AMOUNT Opening amount revievables 4000 credit sales - 60% on 2300 million 1380 closing amount receivables 4600 Amount received = opening + credit sales- closing 780 NOTE 2 COMPUTAION OF PURCHASES FOR THE YEAR opening invetory 4000 cost of goods sold - 85% on sales 1955 closing inventory 4600 Purchases for the year 2555 Note2 amount paid to creditors PARTICULARS AMOUNT Opening amount payable 1000 credit purchases - 30% on 1955 million 766.5 closing amount payable 600 Amount received = opening + credit pruchases- closing 1166.5

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