Chapter 9 - Funding Non-Current Assets & Resource Ratios Flashcards
What are the four most common methods of funding non-current assets ?
- Cash purchase
- Part-Exchange
- Loans
- Hire Purchase
Funding non-current assets
When would a business fund a non current asset through a cash purchase ?
When it has sufficient cash in its bank account to pay in full for the new asset
*Funding non current assets *
Part-exchange is common when a new ……….. has been purchased ?
Vehicle
*Funding non current assets *
What is part-exchange in terms of funding non-current assets ?
part-exchange is where an old asset is ‘traded in’ as part of the purchase price of a new asset.
Use of resource ratios measure how efficiently the owners and/or managers controll the ?
- inventories
- trade recievables
- trade payables
resource ratios
What is the calculation / formula to calculate the inventory holding period (days)
(inventories / cost of sales) x 365
inventory holding period cannot be used for a business that provides a ?
service
resource ratios
What is the calculation / formula to calculate the trade recievables collection period (days)
(trade recievables / revenue) x 365
resource ratios
What does the trade recievables collection period (days) calculation show business owners or managers ?
It shows how many days on average, trade recievables take to pay for the goods sold to them by the business
resource ratios
What is the calculation / formula to calculate the trade payables payment period (days)
(trade payables / cost of sales) x 365
resource ratios
What does the trade payables payment period (days) calculation show business owners or managers ?
It shows how many days on average it takes to pay trade payables
resource ratios
What is the calculation / formula to calculate the working capital cycle (days)
(inventory days - receivable days) - Payable days
