Question 1:
A company has:
- Current assets: $500,000
- Current liabilities: $350,000
- Net sales: $1,000,000
Calculate the working capital turnover ratio.
Answer:
Formula:
The working capital turnover ratio is calculated as:
Working Capital Turnover Ratio= Net Sales / Working Capital
First, calculate the working capital:
Working Capital = Current Assets − Current Liabilities
=500,000 − 350,000 = 150,000
Now, use the formula to calculate the turnover ratio:
Working Capital Turnover Ratio= 1,000,000 / 150,000 = 6.67
The correct ratio should be 6.67.
Working Capital Turnover Ratio
Question 2:
The question asks which error would not be detected by a trial balance.
The trial balance only checks the mathematical accuracy of debits and credits, but it doesn't check for:
- Transactions recorded in the wrong accounts
- Errors of omission (not recorded at all)
- Errors of commission (correct amount but wrong account)
- Timing errors (recorded in the wrong period)
Answer:
The error that would not be detected by a trial balance is a transaction recorded in the wrong accounting period.
Trial Balance
Question 3:
A company enters into a contract to provide services with a total price of $50,000, with services provided evenly in September and October 2024. According to IFRS 15, revenue is recognized when the performance obligation is satisfied.
- Since the services are provided evenly over two months (September and October), half of the total contract amount ($50,000) should be recognized in each month.
- Therefore, for September 2024, the revenue to be recognized is:
50,000 / 2 = 25,000
IFRS 15