Pearson Edexcel International AS Level · Accounting (XAC11)

Analysis of accounting statements: Practice Questions

2 multiple-choice questions marked as you go, and 4 written questions with worked solutions. All on Analysis of accounting statements.

6 questions22 marksFree, no account

Question 1

1 mark

A business has a Return on Capital Employed (ROCE) of 15% and a profit for the year of $\$45,000$. The non-current liabilities are $\$100,000$. What is the value of the owner's capital (equity)?

Question 2

1 mark

A business provides the following information:
Revenue: $\$600,000$
Average Inventory: $\$50,000$
Gross Profit Margin: 20%
What is the inventory turnover ratio (in times)?

Question 3

4 marks

A business has a current ratio of 2.5:1 and a liquid (acid test) ratio of 0.8:1. If the total current liabilities are $\$40,000$, calculate the value of the inventory held by the business.

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Question 4

5 marks

The following data is available for a retail business:
Revenue: $\$240,000$
Gross Profit Margin: 25%
Opening Inventory: $\$18,000$
Closing Inventory: $\$22,000$
Calculate the inventory turnover ratio (in times).

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Question 5

5 marks

A business provides the following information:
Trade receivables at year-end: $\$54,000$
Revenue (80% on credit): $\$450,000$
Calculate the trade receivables collection period in days (using a 365-day year) and explain the impact on liquidity if this period increases.

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Question 6

6 marks

The following information is available for a retailer for the last two financial years:

- Revenue: Year 1 $ \$400,000 $; Year 2 $ \$500,000 $
- Gross Profit: Year 1 $ \$120,000 $; Year 2 $ \$140,000 $
- Profit for the year: Year 1 $ \$40,000 $; Year 2 $ \$35,000 $
- Closing Inventory: Year 1 $ \$30,000 $; Year 2 $ \$50,000 $
- Trade Receivables: Year 1 $ \$40,000 $; Year 2 $ \$65,000 $

(a) Calculate the Gross Profit Margin and Net Profit Margin for both years.
(b) Calculate the Trade Receivables Collection Period (in days) for Year 2, assuming all sales are on credit.
(c) Comment on the change in the business's profitability over the two years.

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