Cambridge IGCSE · Accounting (0452)

Calculation and understanding of accounting ratios: Practice Questions

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

6 questions14 marksFree, no account

Question 1

1 mark

A business has Current Assets of $\$60,000$ and Current Liabilities of $\$25,000$. Calculate the Current Ratio.

Question 2

1 mark

A business had credit sales of $\$450,000$ for the year. Its Trade Receivables at the beginning of the year were $\$40,000$ and at the end of the year were $\$50,000$. Calculate the Trade Receivables Turnover in days, assuming 365 days in a year.

Question 3

1 mark

Which accounting ratio is used to measure the average time taken by a business to collect debts from its credit customers?

Question 4

1 mark

A business has the following balances in its statement of financial position:
Current assets (including inventory of $\$20,000$): $\$50,000$
Current liabilities: $\$15,000$

What is the liquid (acid test) ratio?

Question 5

3 marks

A business provides the following data:
Current assets (including inventory): $\$80,000$
Inventory: $\$25,000$
Current liabilities: $\$40,000$
Calculate the liquid (acid test) ratio and state whether it meets the generally accepted 1:1 benchmark.

Write your answer out first, then check it against the worked solution.

Question 6

7 marks

Zainab Trading operates a retail business. The following financial information is available for two consecutive years:

	31 December 2022 ( $ \$ $ )	31 December 2023 ( $ \$ $ )
Revenue	250,000	320,000
Cost of sales	150,000	180,000
Operating expenses	65,000	90,000
Net profit before interest	35,000	50,000
Current assets:
Inventory	20,000	25,000
Trade receivables	15,000	18,000
Cash and cash equivalents	5,000	7,000
Current liabilities:
Trade payables	12,000	15,000
Accrued expenses	3,000	4,000
Capital employed	180,000	220,000

Required:

(a) Calculate the following ratios for both 2022 and 2023, showing your workings:

Gross margin
Profit margin
Current ratio
Liquid (acid test) ratio
Return on Capital Employed (ROCE)

(b) Based on your calculations, comment on Zainab Trading's profitability and liquidity performance between 2022 and 2023. Suggest one way Zainab Trading could improve its liquidity.

Write your answer out first, then check it against the worked solution.

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