Answer Happy

Question 1
(25 marks)
Worldwide
Communication Ltd. is a trading company selling computer
accessories. After the company’s financial report has come out on
December 31, 2021 with the below information:
The owner, David, has arranged a
meeting with the Sales Manager, John.
David: John, tell me about your
opinion from the financial report?
John: Boss, I think our company is
performing good as there are increasing in all ratios except the
Return on Asset.
David: Can you share with me how did
you achieve such a good performance?
John: We increased our advertising and
provided some very attractive price concessions to move the
products. We have no choice. New models of various computer
accessories are already out there, and we have to unload the
inventory of old ones.
David: But how about the increase in
Day’s Sales in Receivables?
John: As you may be aware, the company
is under tremendous pressure to expand sales. As a result, we
lowered our credit standards to our commercial customers so that we
would be able to sell products to a broader customer base.
David: Your responses have not been
reassuring to me.
John: I’m a little bit confused.
Assets are good, right? Why don’t you look at our current ratio? It
has improved, hasn’t it? I would think that you would view that
very favourably.
REQUIRED:
(Total: 25
marks)