1.6. Analysis and communication of accounting information
A subsection of Accounting, 9706, through 1. Financial accounting (AS Level)
Listing 10 of 137 questions
Huan owns a business selling electrical goods. He was unable to count his inventory at his year end of 31 March 2016. He counted his entire inventory on 6 April 2016, and valued it at cost, $57 760. The following information is available: Huan marks up the cost price of all goods by 25% to calculate the selling price. Purchases of inventory between 1 April 2016 and 6 April 2016 amounted to $6100. Sales between 1 April 2016 and 6 April 2016 amounted to $9600. Goods with a selling price of $2100 had been sent to a customer on a sale or return basis on 30 March 2016. The goods had not been sold at 31 March 2016 and had not been included when the inventory was counted. On 4 April 2016, a customer returned goods sold to him on 26 March 2016. The goods had a selling price of $650. REQUIRED Prepare a statement to show Huan the value of inventory to include in the financial statements at 31 March 2016. REQUIRED Prepare an income statement for Huan for the year ended 31 March 2016. Huan Income statement for the year ended 31 March 2016 Additional information All of Huan’s sales and purchases are made on a credit basis. He feels that his accounting records could be improved by preparation of control accounts. REQUIRED State three benefits and one limitation of preparing a sales ledger control account. Benefits Limitation Calculate the following ratios at 31 March 2016: operating expenses to revenue (to two decimal places) inventory turnover Additional information Huan’s sister Carla operates a bakery business. Both operating expenses to revenue ratio and inventory turnover ratio are lower for Carla’s business. REQUIRED Suggest one possible reason for the difference in each ratio: operating expenses to revenue inventory turnover
9706_w17_qp_21
THEORY
2017
Paper 2, Variant 1
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Francesco is a sole trader who runs a small bicycle distribution business. He does not keep full accounting records. REQUIRED State two benefits to a sole trader of keeping full accounting records. Explain the accounting treatment at the year-end in the income statement and statement of financial position of: Prepayments Accruals Additional information Francesco provided the following information for the year ended 30 April 2017. $ Opening inventory 16 250 Total sales 82 500 Total purchases 62 750 Mark-up is 25%. The normal rate of inventory turnover is 5 times. However, it was discovered at the year-end that some inventory had been stolen. No insurance claim has yet been made for this loss. REQUIRED Prepare an extract from the income statement to show gross profit for the year ended 30 April 2017. Show clearly the value of inventory stolen. Workings: REQUIRED Prepare the bank account for the year ended 30 April 2017. Clearly show the opening balance. Bank account $ $ Workings: Calculate the charge for total expenses which appeared in the income statement for the year ended 30 April 2017. Additional information Francesco’s brother, Marco, runs a similar business. He has calculated the following ratios for his own business: 30 April 30 April Current ratio 2.6 : 1 1.2 : 1 Liquid (acid test) ratio 1.4 : 1 0.8 : 1 REQUIRED Discuss the liquidity position of Marco’s business using only the current and liquid (acid test) ratios. Advise a potential new supplier whether or not to sell goods to Marco on a credit basis. Justify your answer.
9706_w18_qp_21
THEORY
2018
Paper 2, Variant 1
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H Limited provided the following information for its most recent year of trading. $ Cash sales 10 600 Credit sales 81 900 Purchases (all credit) 77 800 Purchases returns 1 600 Administrative and distribution expenses 14 800 Opening inventory 4 300 Closing inventory 6 500 H Limited calculates a number of different ratios to analyse its results each year. REQUIRED Explain the difference between gross margin and mark-up. Name one cost recorded in an income statement which would not be included in the calculation of the expenses to revenue ratio. Name two costs which might be included in the administrative expenses of a limited company. Calculate the following ratios for the year. gross margin expenses to revenue profit margin State how the three ratios calculated in are related. Suggest two reasons why H Limited’s gross margin may have been higher than the previous year.
9706_w18_qp_23
THEORY
2018
Paper 2, Variant 3
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Maria is a sole trader. Her financial statements for the year ended 31 December 2018 included the following: $ Revenue 163 000 Gross profit 42 700 Profit for the year 16 500 Inventory 1 January 2018 17 800 Inventory 31 December 2018 19 600 Trade receivables 15 900 Cash and cash equivalents 2 700 Trade payables 10 700 Capital 130 000 REQUIRED Calculate the following ratios to two decimal places: gross margin profit margin rate of inventory turnover (in times) current ratio liquid (acid test) ratio return on capital employed (ROCE). Additional information Maria’s ratios for 2017 were as follows: Gross margin 23.63% Profit margin 12.05% Rate of inventory turnover 7.36 times Current ratio 3.85 : 1 Liquid (acid test) ratio 2.04 : 1 ROCE 14.65% REQUIRED Suggest possible reasons for the changes in Maria’s business between 2017 and 2018 in respect of: profitability liquidity. Identify two external stakeholders. Explain why they may be interested in the financial statements of a business. Stakeholder 1 Interest Stakeholder 2 Interest
9706_w19_qp_23
THEORY
2019
Paper 2, Variant 3
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Questions Discovered
137