2. Overtrading happens when a business tries to do too much too quickly with too little term capital.

3. 1. Rapid increase in turnover. 2. Rapid increase in the volume of current assets and possibly also fixed assets. 3. Inventory turn over and accounts receivable turnover might slow down. 4. Increase in inventories and accounts receivable greater than increase in sales. 5. Small increase in capital. 6. Increase in accounts payables and bank overdraft. 7. The proportion of total assets financed by capital falls and the proportion financed by credit sales rises. 8. The current ratio and quick ratio fall.

4. Balance sheet (A) Rs. Non-current assets160000 Current assets Inventory60000 Accounts receivable64000 Cash1000 125000 Current liabilities Bank25000 Accounts payable50000 75000 50000 210000 Share capital10000 Income statement200000 210000 Sales1000000 Gross profit200000 Net profit50000

5. Balance sheet (A)Balance sheet (B) Rs. Non-current assets160000210000 Current assets Inventory60000150000 Accounts receivable64000135000 Cash10000 125000285000 Current liabilities Bank2500080000 Accounts payable50000200000 75000280000 500005000 210000215000 Share capital10000 Income statement200000205000 210000215000 Sales10000002000000 Gross profit200000300000 Net profit5000020000

6. Balance sheet (A)Balance sheet (B) %age Increase/de crease Rs. Non-current assets16000021000031.25% Current assets Inventory60000150000150.00% Accounts receivable64000135000110.94% Cash10000-100.00% 125000285000128.00% Current liabilities Bank2500080000220.00% Accounts payable50000200000300.00% 75000280000273.33% 500005000-90.00% 2100002150002.38% Share capital10000 0.00% Income statement2000002050002.50% 2100002150002.38% Sales10000002000000100.00% Gross profit20000030000050.00% Net profit5000020000-60.00%

7. Balance sheet (A)Balance sheet (B) %age Increase/de crease Rs. Non-current assets16000021000031.25% Current assets Inventory60000150000150.00% Accounts receivable64000135000110.94% Cash10000-100.00% 125000285000128.00% Current liabilities Bank2500080000220.00% Accounts payable50000200000300.00% 75000280000273.33% 500005000-90.00% 2100002150002.38% Share capital10000 0.00% Income statement2000002050002.50% 2100002150002.38% Sales10000002000000100.00% Gross profit20000030000050.00% Net profit5000020000-60.00% Rapid increase in the value of current assets.

8. Balance sheet (A)Balance sheet (B) %age Increase/decr ease Rs. Non-current assets16000021000031.25% Current assets Inventory60000150000150.00% Accounts receivable64000135000110.94% Cash10000-100.00% 125000285000128.00% Current liabilities Bank2500080000220.00% Accounts payable50000200000300.00% 75000280000273.33% 500005000-90.00% 2100002150002.38% Share capital10000 0.00% Income statement2000002050002.50% 2100002150002.38% Sales10000002000000100.00% Gross profit20000030000050.00% Net profit5000020000-60.00% Inventory turnover and accounts receivable turnover might slow down. Inventory turn over27.3832.21 A/R turn over23.3624.64 The rate of increase in inventories and accounts receivable would be greater than increase in sales.

9. Balance sheet (A)Balance sheet (B) %age Increase/de crease Rs. Non-current assets16000021000031.25% Current assets Inventory60000150000150.00% Accounts receivable64000135000110.94% Cash10000-100.00% 125000285000128.00% Current liabilities Bank2500080000220.00% Accounts payable50000200000300.00% 75000280000273.33% 500005000-90.00% 2100002150002.38% Share capital10000 0.00% Income statement2000002050002.50% 2100002150002.38% Sales10000002000000100.00% Gross profit20000030000050.00% Net profit5000020000-60.00% There is a small increase in the paid up capital. Increase in accounts payables. Increase in bank overdraft.