IGCSEAccountingCambridge (CIE)Exam Questions6. Analysis & InterpretationAccounting Ratios

Accounting Ratios (Cambridge (CIE) IGCSE Accounting): Exam Questions

Exam code: 0452 & 0985

1 hour25 questions

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Accounting Ratios

1a
Sme Calculator4 marks

DF Limited is a company which sells clothes. The financial year of DF Limited ends on 30 September.

An extract from DF Limited’s statement of financial position at 30 September 2025 showed the following:

$

Non-current liabilities

7% Debentures (2029)

25 000

Bank loan

8 000

33 000

Current liabilities

Trade payables

2 500

Other payables

1 000

3 500

Additional information

  • The profit from operations for the year ended 30 September 2025 was $23 650

REQUIRED

Calculate the return on capital employed (ROCE) correct to two decimal places.

How did you do?

1b
Sme Calculator2 marks

On 30 September 2025 DF Limited's current ratio is calculated as 1.7:1.

REQUIRED

Calculate the total of the current assets.

How did you do?

21 mark

Yasmin opened a garment factory on 1 May 2016. Yasmin produces goods as well as purchasing finished goods.

The following figures are available for the year ended 30 April 2017:

$

Cost of sales

92 100

Gross profit

21 540

REQUIRED

Suggest one way in which Yasmin could increase the gross margin.

How did you do?

3a
Sme Calculator6 marks

K Limited provided the following information at 30 September 2017

$

Non-current assets at book value

102 200

Bank overdraft

6 100

Inventory

5 100

Trade receivables

8 500

Trade payables

4 300

Other payables

1 400

K Limited
Statement of Changes in Equity for the year ended 30 September 2017

Details

Share capital

General reserve

Retained earnings

Total

$

$

$

$

On 1 October 2016

90 000

4 000

5 500

99 500

Profit for the year

9 000

9 000

Transfer to the general reserve

2 000

(2 000)

Interim dividend paid

(4 500)

(4 500)

On 30 September 2017

90 000

6 000

8 000

104 000

REQUIRED

Complete the following table.

current ratio

workings

answer to two decimal places

liquid (acid test) ratio

workings

answer to two decimal places

return on capital employed (ROCE)

workings

answer to two decimal places

How did you do?

3b5 marks

The directors of K Limited wish to improve the liquidity and profitability of the business. The finance director has suggested that the business should reduce the amount of inventory by 50%.

REQUIRED

Advise the directors whether or not they should reduce the amount of inventory. Justify your answer.

How did you do?

4a1 mark

K Limited allows its credit customers a period of 60 days to pay their accounts. For the year ended 30 September 2017 the trade receivables turnover was 69 days.

REQUIRED

State whether K Limited would be satisfied with the trade receivables turnover.

How did you do?

4b3 marks

K Limited is allowed 30 days in which to pay its accounts to its credit suppliers. For the year ended 30 September 2017 its trade payables turnover was 52 days.

REQUIRED

Discuss how the trade payables turnover of 52 days may affect K Limited.

How did you do?

5
Sme Calculator2 marks

Q Limited prepares its financial statements to 31 March each year.

Q Limited
Statement of Financial Position at 31 March 2023

$

$

$

Assets

Non-current assets

Cost

Provision for depreciation

Net book value

Fittings and equipment

150 000

40 650

109 350

Motor vehicles

72 000

31 125

40 875

222 000

71 775

150 225

Current assets

Inventory

51 790

Trade receivables

19 700

Less Provision for doubtful debts

591

19 109

Bank

1 076

71 975

Total assets

222 200

Equity and liabilities

Equity

Ordinary share capital

120 000

Retained earnings

20 750

140 750

Non-current liabilities

5% Debentures

40 000

Bank loan

10 000

50 000

Current liabilities

Trade payables

31 450

Total equity and liabilities

222 200

REQUIRED

Calculate the liquid (acid test) ratio to two decimal places

How did you do?

6a
Sme Calculator2 marks

Amadi
Income Statement (trading section) for the year ended 31 March 2023

$

$

Revenue

73 250

Less Sales returns

(3 390)

Less cost of sales

69 860

Opening inventory

3 752

Purchases

41 785

Carriage inwards

1 223

46 760

Less Closing inventory

(3 965)

42 795

Gross profit

27 065

REQUIRED

Calculate Amadi’s gross margin, correct to two decimal places.

Gross margin

workings

answer

How did you do?

6b3 marks

Amadi’s main competitor is Hector who owns his own business premises. Amadi and Hector have similar gross margins but Hector has a slightly higher profit margin.

REQUIRED

Explain whether or not Amadi should be satisfied with these results.

How did you do?

7a
Sme Calculator11 marks

Nala is a retailer who sells toys and games. All sales are on a cash basis and all purchases are on credit.

She has provided the following information.

$

At 31 August 2023:

     Inventory

6 265

     Cash at bank

992

     Trade payables

4 880

     Capital

125 000

For the year to 31 August 2023:

     Revenue

98 420

     Purchases

78 130

     Expenses

11 325

Inventory at 1 September 2022 was valued at $6 175.

REQUIRED

Complete the following table.

Ratio

Working

Answer (to 2 decimal places )

Gross margin

Profit margin

Return on capital employed (ROCE)

Rate of inventory turnover (times)

Liquid (acid test) ratio

How did you do?

7b3 marks

Nala increased her advertising expenses over the year to 31 August 2023 and sells at a lower price than her nearest competitor. This has resulted in Nala selling her inventory faster than her nearest competitor. Nala and her nearest competitor buy inventory at the same prices. Nala is pleased with her results.

REQUIRED

Explain why Nala should not be entirely pleased with her results.

How did you do?

7c5 marks

Nala is planning to expand her business and to take out a bank loan to finance the expansion. The loan would be repayable after five years.

REQUIRED

Advise Nala whether she should obtain a bank loan to expand the business. Justify your answer by providing two points for and two points against obtaining the bank loan to expand the business.

How did you do?

7d1 mark

State why Nala’s bank manager would be interested in her financial statements if she requests the loan.

How did you do?