Question

SECTION A: FINANCIAL ACCOUNTING

Question 1                                                                                                                                          [10 marks]

Houston House (Pty) Ltd and Whitney Holdings are competitors in the same industry.

The following information was summarised from a recent annual report of Houston House (Pty) Ltd

(In millions)

Receivables:                                                                      

December 31, 2015                                                                          R 1,968

December 31, 2014                                                                          642

Revenue for the year ended:

December 31, 2015                                                                          46,980

December 31, 2014                                                                          40,023

The following information was summarised from a recent annual report of Whitney Holdings:

(In millions)

Accounts and notes receivable, net

December 31, 2015                                      R 246

December 31, 2014                                      264

Revenues for the year ended:

December 31, 2015                                      4,335

December 31, 2014                                       4,251

Required:

1. Calculate the accounts receivable turnover ratios for Houston House and Whitney Holdings for the most recent year.

2. Calculate the average collection period, in days, for both companies for the most recent year. Comment on the reasonableness of the collection periods for these companies considering the nature of their business.

3. Which company appears to be performing better? What other information should you consider in determining how these companies are performing?

Answer 1