Accounting Ratios — Structured Questions (Cambridge International IGCSE Accounting): Exam Questions

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:

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.

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

REQUIRED

Calculate the total of the current assets.

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:

REQUIRED

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

K Limited provided the following information at 30 September 2017

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

REQUIRED

Complete the following table.

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.

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.

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.

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

Q Limited Statement of Financial Position at 31 March 2023

REQUIRED

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

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

REQUIRED

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

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.

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.

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

REQUIRED

Complete the following table.

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.

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.

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