The following scenario relates to questions 1 – 5:

It is 1 July 20X5. You are an audit senior in Simone & Co. You are planning the audit of Epica Co for the year ending 31 July 20X5. The audit manager has held a planning meeting with the finance director and has provided you with the following notes of his meeting and financial statement extracts. Epica Co has experienced difficult trading conditions this year which has resulted in sales prices being reduced. Despite this, revenue has continued to fall. In an attempt to improve profit, Epica Co has switched to a cheaper supplier which has resulted in lower quality goods being purchased and a corresponding increase in returns from customers.

During the year the directors performed a review of asset lives which has resulted in an increase in the useful life of the majority of tangible non‐current assets. Accordingly, the depreciation charge has reduced from $1 million in 20X4 to $0.8 million in 20X5.

Financial statement extracts for year ending 31 July
	Draft 20X5 $m	Actual 20X4 $m
Revenue	12.5	15.0
Cost of sales	(7.0)	(8.0)
Gross profit	5.5	7.0
Operating expenses	(5.0)	(5.1)
Operating profit	0.5	1.9
Inventory	1.9	1.4
Receivables	3.1	2.0
Cash	0.8	1.9
Trade payables	1.6	1.2
Loan due for payment 31 January 20X6	1.0	1.0

Question 1: Using the financial information provided, calculate the following ratios for both years.

	20X5	20X4
Gross profit margin	(1)	(2)
Current ratio	(3)	(4)

Calculate your answers to ONE decimal place and choose the correct answer into the relevant box.

Gross profit margin for 20X5:

(1) {{1}}

Gross profit margin for 20X4:

(2) {{2}}

Current ratio for 20X5:

(3) {{3}}

Current ratio for 20X4:

(4) {{4}}

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