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Answers To Questions in The Workbook

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40 views2 pages

Answers To Questions in The Workbook

answers to book

Uploaded by

Mala Varma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Cambridge IGCSETM and O Level Accounting

Answers to Cambridge IGCSETM and O Level


Accounting Workbook
21 Calculation and understanding of
accounting ratios
1 D
2 A
3 B
4 B
5 D
6
a Two of the following drawbacks:
• The suppliers may stop selling goods to the business on credit.
• The relationship with the suppliers will be damaged.
• The business will lose cash discounts for early payment
b Two of the following:
• By sending reminders such as a statement of account.
• By offering cash discounts for early payment.
• Charging interest on overdue amounts
• Stop supplying customers with outstanding debts
c Two of the following:
• Money, that could be used elsewhere, is tied up in inventory.
• Inventory could become unfashionable, damaged or stolen
• It could mean that sales are slowing down due to a fall in demand
d One of the following:
• So that it can take steps to avoid a liquidity problem, if there is one.
• To know that it can pay its immediate liabilities with its liquid assets
e Two of the following:
• By selling off non-current assets that are not being used.
• By taking a long-term loan.
• Introduction of more capital by the owner
• Reduction in drawings
7
a Capital employed: the total funds being used (employed) by the business on a given day.
Therefore, it is the sum of the capital invested in the business and the non-current
liabilities. It could also be calculated by adding non-current assets to working capital.
b Working capital is the difference between current assets and current liabilities. It is the
capital used in the day-to-day running of the business.

Cambridge IGCSE and O Level Accounting Teacher’s Guide © June Baptista 2018 1
Answers to Workbook

c Return on capital employed: This ratio measures a business’ efficiency with which money
invested in it is used. It is used to gauge the value gained by the business from its use of the
assets and liabilities it has.
d Rate of inventory turnover: This ratio measures the number of times a business sells its
inventory and replaces it in a year. The ratio is measured in times. If a business has a high
rate of inventory turnover, it follows that it is selling a lot of products.
8 Any two of the following disadvantages:
• The business cannot take advantage of cash discounts for prompt payment.
• The business cannot take advantage of any new opportunities that may require
immediate liquidity.
• The business not be able to pay off its liabilities on time and thus lose its standing and
relationships with its trade payables.
• The business could end up in a liquidity crisis which may result in insolvency.
9
Profit before interest
Return on capital employed = x 100
(Owner ′ s equity + Non current liabilities)
($3 450 + $600
𝑥 100 = 11.98%
($23 800 + $10 000)
10
a
Trade receivables
Trade receivables turnover = x 365 (in days)
Credit sales
$3 600
= x 365 = 37 days
$36 000

b
Trade payables
Trade payables turnover = = 365 (in days)
Credit purchases

$5 900
= x 365 = 36 days
$60 000

c
Cost of sales
Rate of inventory turnover =
(Opening inventory + Closing inventory) ÷ 2

𝐶𝑜𝑠𝑡 𝑜𝑓 𝑠𝑎𝑙𝑒𝑠
13 =
($6 000 + $4 000) ÷ 2

Cost of sales = $65 000

Cambridge IGCSE and O Level Accounting Teacher’s Guide © June Baptista 2018 2

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