Chinedu, Afam, and Uche are customers who buy goods on credit from Abbey Company Limited. The following information shows the credit history of the customers of the Company:
Abbey Company Limited has extended the period that customers should pay from three months to six months.
Afam and Uche are currently experiencing liquidity problems, and there is a probability that they will not pay their obligations to Abbey Limited.
The sales of Abbey Company Limited for the year ended 30 June 2017 and 30 June 2018 are ₦100,000 and ₦90,000, respectively.
Required: Based on the information available, ascertain whether or not a shortage in cash resources exists in the Company for the accounting periods ended 30 June 2017 and 30 June 2018.
See the suggested answer to practice activity 9.20 here.
Suggested answer to practice activity 9.20
Credit sales amount to ₦97,000 for the year ended 30 June 2017. The sales value for the same accounting period is ₦100,000. If Afam and Uche are experiencing liquidity problems, it may be difficult to pay their obligations to Abbey Company Limited.
Out of the sales value of ₦90,000 for the year ended 30 June 2018, credit sales amounts to ₦82,000. If Afam and Chinedu are experiencing liquidity problems, they may not pay the obligations owed to Abbey Company Limited.
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