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In the planning phase of the audit of Riyanna Limited for the year ending 30 June 2019, the
following ratios were calculated:
Eight months period Year ended 30 June Year ended 30 June
ended 29 February 2018
Quick asset ratio
Times interest earned
a. With reference to the data above, interpret each one of the ratios given.
b. Explain the risks that may arise from the data above (each ratio)
c. Identify the Audit objectives and the Evidence for each one of the items listed.
Note: 1 page answer 1.5 spacing (for all 3 sections)
a) In the year 2017 and 2018, gross profit percentage was 40% for both years. However,
this ratio decreased in year 2019 to 35%. This shows that gross profit decreased, which
implies that the profitability of the company decreased. In the year 2017, 2018, and
2019 inventory turnover days was 78 days, 105 days, and 120 days respectively. This
indicates that the period that the company takes to convert its inventory into sales
increased over the three years. The current ratio shows the ability of the company to
pay its current liabilities from its current assets. In the year 2017, 2018, and 2019
current ratio was 2.6, 2.3, and 1.5 respectively. Th...
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