Month: October 2025

Alex Ltd’s Liquid Capital ratio (sometimes known as the Acid Test or Quick ratio) has fallen from 2:1 to 1.5:1.

Which one of the following might help to explain this decline?

Select ONE answer:

1. The provision for doubtful debts (or allowance for receivables) has been reduced
2. Credit control of receivables has been poor
3. The entity has purchased a property for cash
4. Inventory or stock levels have fallen

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct => If the entity has purchased a property for cash, this would reduce current assets without any corresponding reduction in current liabilities (i.e. Dr Non-Current Assets Cr Cash)
4. Not correct

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Which ONE of the following options are a sign of overtrading?

Select ONE answer:

1. Inventory decreasing
2. Payables decreasing
3. Cash decreasing
4. Receivables increasing

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct => Cash would be decreasing in a situation of overtrading, as cash flows out to fund the increases in working capital.
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Which ONE of the following options is a sign of overtrading?

Select ONE answer:

1. Inventory decreasing
2. Cash Increasing
3. Payables decreasing
4. Receivables increasing

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. Correct == >    Receivables would be increasing as the company expands without the resources to support the expansion.

This work is licensed under a Creative Commons Attribution 4.0 International License.

Audit risk can be split into three components: inherent risk, control risk and detection risk.

For each of the following examples, select the type of risk illustrated.

– The organisation operates in a fast-moving, high-tech environment.

Select ONE answer:

1. Inherent
2. Control
3. Detection
4. No Risk

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct => Inherent – a fast-moving, high-tech environment presents inherent risks both at the company level and at the individual account level (e.g., inventory).
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Audit risk can be split into three components: inherent risk, control risk and detection risk.

For each of the following examples, select the type of risk illustrated.

– The organisation only has a few employees in its accounting department.

Select ONE answer:

1. Inherent
2. Control
3. Detection
4. No Risk

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct => Control – a few employees indicates the risk of limited segregation of duties, which is a control deficiency.
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.