ExpertEasy1 markMultiple Choice
ACCA · Question 62 · Interpretation of financial statements
Section B - Case 2: Single Entity Accounts & Ratio Analysis
*Scenario: Horizon Wind Farms Ltd has prepared draft financial statements for the year ended 31 December 20X8. The draft net profit is $850,000. Draft Revenue is $4,000,000 and Cost of Sales is $2,200,000. The following adjustments have not yet been processed:
- Depreciation on new turbines of $50,000 was omitted.
- An annual insurance premium of $12,000 paid on 1 July 20X8 was expensed in full.
- Closing inventory was overvalued by $30,000.
- An irrecoverable debt of $15,000 needs to be written off.
Equity comprises Share capital $1,000,000 and Retained earnings $2,000,000. There is a long-term loan of $1,500,000.*
If the adjusted Trade Receivables are $450,000, what is the Receivables Collection Period (in days)? (Use draft Revenue of $4,000,000 and a 365-day year. Round to the nearest whole day).
Section B - Case 2: Single Entity Accounts & Ratio Analysis
*Scenario: Horizon Wind Farms Ltd has prepared draft financial statements for the year ended 31 December 20X8. The draft net profit is $850,000. Draft Revenue is $4,000,000 and Cost of Sales is $2,200,000. The following adjustments have not yet been processed:
- Depreciation on new turbines of $50,000 was omitted.
- An annual insurance premium of $12,000 paid on 1 July 20X8 was expensed in full.
- Closing inventory was overvalued by $30,000.
- An irrecoverable debt of $15,000 needs to be written off.
Equity comprises Share capital $1,000,000 and Retained earnings $2,000,000. There is a long-term loan of $1,500,000.*
If the adjusted Trade Receivables are $450,000, what is the Receivables Collection Period (in days)? (Use draft Revenue of $4,000,000 and a 365-day year. Round to the nearest whole day).
Answer options:
A.
41 days
B.
74 days
C.
38 days
D.
45 days
How to approach this question
Formula: (Trade Receivables / Revenue) * 365.
Full Answer
A.41 days✓ Correct
Receivables Collection Period = (Trade Receivables / Revenue) * 365.
Days = ($450,000 / $4,000,000) * 365 = 41.0625 days.
Rounded to the nearest whole day = 41 days.
Common mistakes
Using Cost of Sales instead of Revenue as the denominator.
Practice the full ACCA FA — Financial Accounting Practice Exam 1
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