Tag: Ethics

Alex plc’s current ratio this year is 1.5:1 compared to 1.25:1 last year.

Which ONE of the following might help to explain this increase in the ratio?

Select ONE answer:

1. Alex plc paid its payables earlier than usual out of a bank overdraft
2. Alex plc made an unusually large sale immediately before the year-end
3. Alex plc made an unusually large purchase of goods for cash immediately before the year-end, and these goods remain in inventory
4. Alex plc paid its payables later than usual, out of a negative cash balance

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 => An unusually large sale would increase receivables and the current ratio.
3. Not correct
4. Not correct

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

A furniture store and a local high-street bakery have the same markup on cost.

However, the gross profit margin of the furniture store is significantly higher than that of the bakery.

Which ONE of the following is a possible reason for this?

Select ONE answer:

1. The Bakery’s revenue is increasing, while that of the Furniture shop is decreasing
2. The Bakery has a higher level of wastage of inventory than the Furniture store
3. The Furniture shop takes advantage of trade discounts for bulk buying
4. The Bakery has a higher turnover of inventory than the Furniture store

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 => If the Bakery has a higher level of wastage of inventory than the Furniture shop, then the cost of wasted inventory will be treated as an expense in cost of sales. This will reduce the Bakery’s cost of sales independently of the mark-up applied. Cost of sales will therefore be high in relation to revenue, so the Bakery’s gross margin will be lower than the Furniture store’s.
3. Not correct
4. Not correct

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

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

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

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.