Question 2 (24 marks)Part A. (12 marks)Ganga Smith has calculated


Question 2 (24 marks)Part A. (12 marks)Ganga Smith has calculated profitability ratios using data extracted from his client’s pre-audittrial balance. He also has the values for the same ratios for the preceding two years (usingaudited figures).The data for the gross profit and profit margins ratios are as follows:Account201820172016Gross Profit Margin0.400.300.35Profit Margin0.090.150.18Ganga Smith is a little confu.sed because the profit margin shows declining profitability but thegross profit margin has improved in the current year and is higher in 2018 than in the previoustwo years.Required:(a) Explain the difference between (i) Gross Profit and Profit Margin(b) Make a list of possible explanations for the pattern observed in the gross profit and profitmargins.(c) Which of your explanations suggest additional audit work should be planned? For each,explain the accounts and/or transactions that would need special attention in the audi

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