AAFM CWM_LEVEL_2 Exam - Topic 1 Question 50 Discussion

Actual exam question for AAFM's CWM_LEVEL_2 exam

Question #: 50
Topic #: 1

Section C (4 Mark)

Zoya Ltd has the following Balance sheet for FY 2005-2006:

The Total Sales for the year was Rs. 6,00,000.

The company president believes the company carries excess inventory. Accordingly he wants the inventory turnover ratio to be 8x and would use the freed up cash to reduce current liabilities. If the company follows the president's recommendation and sales remain the same, the new quick ratio would be:

A2.4

C4.5

D1.2

Show Suggested Answer

Suggested Answer: B

by Angella at Oct 22, 2022, 04:43 PM

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Kenneth

4 months ago

I’m leaning towards 4.5, but it’s a tough call.

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Antione

4 months ago

Totally agree, excess inventory can really hurt liquidity!

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Rose

5 months ago

8x seems too high for this company, not sure it’s realistic.

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Lera

5 months ago

I think 3 is the right answer.

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Ora

5 months ago

The inventory turnover ratio is key for cash flow!

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Jean

5 months ago

I think if they reduce inventory to achieve that turnover, it should improve the quick ratio significantly, but I can't recall the exact numbers we used in practice.

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Ashley

5 months ago

I feel a bit lost on how to apply the turnover ratio here. Did we cover how to adjust the quick ratio based on inventory changes?

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William

5 months ago

This question seems similar to one we did in class about adjusting inventory levels. I think I need to recalculate the current liabilities after the inventory change.

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Francesco

5 months ago

I remember we practiced calculating the quick ratio, but I'm not entirely sure how the inventory turnover affects it directly.

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Nan

5 months ago

Hmm, I'm a bit confused. I'm not sure if checking the Access Keys is the right approach here. The question doesn't mention anything about Access Keys, so that might not be the best solution.

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