Question Simulator

O Level Accounting (7707)

Analysis and interpretation Banker

51 questions · about 14% of the marks we indexed · examined in 9 of 9 sessions.

Questions by year

2026

  • 2026 May/June · Paper 12 · Q311 markCalculation of accounting ratios
  • 2026 May/June · Paper 12 · Q321 markInterpretation and decision-making
  • 2026 May/June · Paper 12 · Q331 markUsers, inter-firm comparison and limitations
  • 2026 May/June · Paper 22 · Q1 (c)5 marksInterpretation and decision-making
  • 2026 May/June · Paper 22 · Q2 (c(i), c(ii))5 marksCalculation of accounting ratios
  • 2026 May/June · Paper 22 · Q4 (c(i), c(ii), c(iii))5 marksCalculation of accounting ratios

2025

  • 2025 Oct/Nov · Paper 12 · Q321 markCalculation of accounting ratios
  • 2025 Oct/Nov · Paper 12 · Q331 markUsers, inter-firm comparison and limitations
  • 2025 Oct/Nov · Paper 12 · Q341 markInterpretation and decision-making
  • 2025 Oct/Nov · Paper 22 · Q3 (e)5 marksInterpretation and decision-making
  • 2025 Oct/Nov · Paper 22 · Q4 (a, d)15 marksInterpretation and decision-making
  • 2025 May/June · Paper 12 · Q311 markCalculation of accounting ratios
  • 2025 May/June · Paper 12 · Q321 markUsers, inter-firm comparison and limitations
  • 2025 May/June · Paper 12 · Q331 markUsers, inter-firm comparison and limitations
  • 2025 May/June · Paper 22 · Q1 (c)5 marksInterpretation and decision-making

2024

  • 2024 Oct/Nov · Paper 12 · Q321 markInterpretation and decision-making
  • 2024 Oct/Nov · Paper 12 · Q331 markUsers, inter-firm comparison and limitations
  • 2024 Oct/Nov · Paper 22 · Q5 (a, b, c, d(i), d(ii))16 marksCalculation of accounting ratios · Interpretation and decision-making
  • 2024 May/June · Paper 12 · Q321 markCalculation of accounting ratios
  • 2024 May/June · Paper 12 · Q331 markInterpretation and decision-making
  • 2024 May/June · Paper 12 · Q341 markUsers, inter-firm comparison and limitations
  • 2024 May/June · Paper 22 · Q2 (d)5 marksInterpretation and decision-making
  • 2024 May/June · Paper 22 · Q5 (a, b(i), b(ii), c, d)20 marksCalculation of accounting ratios · Interpretation and decision-making · Users, inter-firm comparison and limitations

2023

  • 2023 Oct/Nov · Paper 12 · Q291 markInterpretation and decision-making
  • 2023 Oct/Nov · Paper 12 · Q311 markCalculation of accounting ratios
  • 2023 Oct/Nov · Paper 12 · Q321 markCalculation of accounting ratios
  • 2023 Oct/Nov · Paper 12 · Q331 markCalculation of accounting ratios
  • 2023 Oct/Nov · Paper 22 · Q2 (d)5 marksInterpretation and decision-making
  • 2023 Oct/Nov · Paper 22 · Q3 (d)5 marksInterpretation and decision-making
  • 2023 Oct/Nov · Paper 22 · Q5 (a, b, c, d)20 marksCalculation of accounting ratios · Interpretation and decision-making · Users, inter-firm comparison and limitations
  • 2023 May/June · Paper 12 · Q321 markCalculation of accounting ratios
  • 2023 May/June · Paper 12 · Q331 markInterpretation and decision-making
  • 2023 May/June · Paper 12 · Q341 markInterpretation and decision-making
  • 2023 May/June · Paper 22 · Q1 (c)5 marksInterpretation and decision-making
  • 2023 May/June · Paper 22 · Q5 (d, e)5 marksCalculation of accounting ratios · Interpretation and decision-making

2022

  • 2022 Oct/Nov · Paper 12 · Q291 markCalculation of accounting ratios
  • 2022 Oct/Nov · Paper 12 · Q301 markCalculation of accounting ratios
  • 2022 Oct/Nov · Paper 12 · Q311 markCalculation of accounting ratios
  • 2022 Oct/Nov · Paper 12 · Q321 markInterpretation and decision-making
  • 2022 Oct/Nov · Paper 22 · Q1 (c)5 marksInterpretation and decision-making
  • 2022 Oct/Nov · Paper 22 · Q2 (d)5 marksInterpretation and decision-making
  • 2022 Oct/Nov · Paper 22 · Q3 (f)5 marksInterpretation and decision-making
  • 2022 May/June · Paper 12 · Q271 markCalculation of accounting ratios
  • 2022 May/June · Paper 12 · Q281 markCalculation of accounting ratios
  • 2022 May/June · Paper 12 · Q291 markCalculation of accounting ratios
  • 2022 May/June · Paper 12 · Q301 markInterpretation and decision-making
  • 2022 May/June · Paper 12 · Q311 markInterpretation and decision-making
  • 2022 May/June · Paper 12 · Q321 markInterpretation and decision-making
  • 2022 May/June · Paper 12 · Q331 markUsers, inter-firm comparison and limitations
  • 2022 May/June · Paper 22 · Q2 (e)5 marksInterpretation and decision-making
  • 2022 May/June · Paper 22 · Q5 (c)3 marksCalculation of accounting ratios

References only, not question text. Open Official paper ↗ where Cambridge publishes the paper, or see the official Cambridge past-papers page; for other papers, ask your school. “Paper 42” means Paper 4, variant 2.

Practice questions

Original questions written by HomiLabs in the style of the exam, with answers and mark schemes. They are not Cambridge past paper questions and have not been reviewed by Cambridge. Try each one before opening the answer.

Q1Interpretation and decision-making · Core · Paper 1 style · 1 mark
  1. (a) Which transaction will increase a business's current ratio? [1]
Show answer
  1. (a) C receiving a long-term loan into the bank account
    A long-term loan increases bank (current asset) with no change in current liabilities, so the ratio rises. D only changes one current asset into another, so the ratio is unchanged.
Q2Interpretation and decision-making · Core · Paper 2 style · 3 marks

A shoe retailer has a current ratio of 3.8 : 1.

  1. (a) State what a current ratio of 3.8 : 1 means. [1]
  2. (b) Explain why a very high current ratio may not be good for the business. [2]
Show answer
  1. (a) Current assets are 3.8 times current liabilities
    B1.
  2. (b) Too much money tied up in idle assets (high inventory, high receivables or large bank balance) that could be invested to earn a return; may show poor inventory or credit control.
    B1 idle resources. B1 example/consequence.
Q3Interpretation and decision-making · Core · Paper 2 style · 3 marks

The rate of inventory turnover of a mobile phone shop fell from 9 times to 6 times a year.

  1. (a) State what a fall in the rate of inventory turnover means. [1]
  2. (b) Suggest two ways the business could improve its rate of inventory turnover. [2]
Show answer
  1. (a) Inventory is being sold more slowly
    B1.
  2. (b) Any two: hold lower inventory levels / buy smaller quantities more often; reduce selling prices or run promotions; advertise; stop buying slow-selling lines.
    1 mark each.
Q4Interpretation and decision-making · Core · Paper 2 style · 3 marks

A furniture maker allows customers 30 days' credit. Its trade receivables turnover rose from 30 days to 52 days.

  1. (a) State what the change suggests about the customers. [1]
  2. (b) State two possible effects of this on the business. [2]
Show answer
  1. (a) Customers are taking longer to pay (beyond the 30-day credit terms)
    B1.
  2. (b) Any two: less cash available / liquidity problems; may need an overdraft and pay interest; greater risk of irrecoverable debts; may pay its own suppliers late and lose discounts.
    1 mark each.
Q5Interpretation and decision-making · Core · Paper 2 style · 4 marks
  1. (a) State two reasons why a business's gross margin may increase. [2]
  2. (b) Explain why the profit margin could fall even though the gross margin has increased. [2]
Show answer
  1. (a) Any two: higher selling prices; cheaper purchases (better trade discounts, new supplier); change in sales mix to higher-margin goods; less inventory loss or theft.
    1 mark each.
  2. (b) Expenses (e.g. rent, wages, advertising) may have risen faster than gross profit, so a smaller share of revenue is left as profit.
    B1 expenses increased. B1 relative to revenue / gross profit.
Q6Interpretation and decision-making · Standard · Paper 1 style · 1 mark
  1. (a) [1]
Show answer
  1. (a) B selling prices were reduced to attract more customers
    Lower selling prices reduce gross profit per $ of sales while increasing volume. A, C and D are expenses, which affect profit for the year but not gross margin.
Q7Interpretation and decision-making · Standard · Paper 2 style · 5 marks

Zubair owns a building materials business. Ratios for two years:Gross margin: 2025 38%, 2026 31%Profit margin: 2025 14%, 2026 8%Trade receivables turnover: 2025 35 days, 2026 58 daysCurrent ratio: 2025 1.9 : 1, 2026 1.1 : 1

  1. (a) Explain why Zubair should not be pleased with these results. Refer to three ratios. [3]
  2. (b) Suggest two ways Zubair could improve the trade receivables collection period. [2]
Show answer
  1. (a) Gross margin fell from 38% to 31%: less gross profit per $ of sales. Profit margin fell from 14% to 8%: expenses take a bigger share / profit per $ fell. Receivables collection rose from 35 to 58 days: customers pay more slowly, more risk of irrecoverable debts. Current ratio fell from 1.9 to 1.1: weaker ability to pay short-term debts.
    1 mark each for any three ratios with a correct comment.
  2. (b) Any two: offer cash discounts for early payment; send statements and reminders promptly; set and enforce credit limits; charge interest on overdue accounts; check customers' creditworthiness.
    1 mark each for any two.
Q8Interpretation and decision-making · Standard · Paper 2 style · 6 marks

Asma runs a bakery in Faisalabad and wants to buy a new oven costing $25,000. She can take a five-year bank loan at 9% interest per year, or use her personal savings, which earn 6% interest per year.

  1. (a) State one advantage and one disadvantage of using a bank loan. [2]
  2. (b) Advise Asma whether she should use the loan or her own savings to buy the oven. Justify your answer. [4]
Show answer
  1. (a) Advantage (any one): Asma keeps her savings for personal needs or emergencies; the cost is spread over five years; she still earns 6% on her savings. Disadvantage (any one): interest of 9% must be paid every year, reducing profit; repayments are needed even in poor years; the bank may require security.
    B1 each.
  2. (b) Loan: interest 9% × 25,000 = 2,250 a year reduces profit; increases liabilities. Savings: no interest, but she loses the 6% (1,500 a year) savings interest and has less personal cash for emergencies. Using savings is cheaper by $750 a year; reasoned recommendation either way.
    B1 cost of loan. B1 opportunity cost of savings. B1 a further relevant point (risk, liquidity, control). B1 recommendation.
Q9Interpretation and decision-making · Standard · Paper 2 style · 5 marks

Rehan owns a growing phone accessories shop. His records are often weeks behind. A part-time book-keeper would cost $6,000 a year. His profit last year was $34,000.

  1. (a) State two benefits of employing a part-time book-keeper. [2]
  2. (b) Advise Rehan whether he should employ the book-keeper. Justify your answer. [3]
Show answer
  1. (a) Any two: records kept up to date and more accurate; frees Rehan's time to manage sales; better information for decisions; errors and fraud more likely to be found.
    1 mark each.
  2. (b) Cost $6,000 a year reduces profit; but late records may cause lost discounts, missed irrecoverable debts and poor decisions; recommendation with reason.
    B1 cost. B1 benefit linked to his situation. B1 recommendation.
Q10Interpretation and decision-making · Standard · Paper 2 style · 4 marks
  1. (a) Explain why a business can make a profit but have a decreasing bank balance. [2]
  2. (b) Lubna's business made a profit of $22,000 but her bank balance fell by $5,000. Suggest two items that could explain this. [2]
Show answer
  1. (a) Profit includes credit sales not yet received and is after non-cash items; cash may be spent on non-current assets, loan repayments, drawings or extra inventory, which are not expenses.
    B1 timing / credit. B1 example of cash outflow not in profit.
  2. (b) Any two: drawings; purchase of non-current assets; repayment of a loan; increase in trade receivables; increase in inventory; decrease in trade payables.
    1 mark each.
Q11Interpretation and decision-making · Standard · Paper 2 style · 4 marks

Mustafa's wholesale business pays its suppliers on average in 25 days but collects from its customers on average in 60 days.

  1. (a) Explain why this situation may cause problems for the business. [2]
  2. (b) Suggest one way to increase the trade payables payment period without upsetting suppliers. [1]
  3. (c) Suggest one disadvantage of paying suppliers more slowly. [1]
Show answer
  1. (a) Cash leaves the business after 25 days but comes in only after 60 days, so it must finance 35 days of trade; it may run short of cash or need an overdraft.
    B1 comparison of the periods. B1 consequence for cash.
  2. (b) Negotiate longer credit terms with suppliers (or find suppliers offering longer credit)
    B1.
  3. (c) Loss of cash discounts / damaged reputation / suppliers may refuse credit
    B1.
Q12Interpretation and decision-making · Standard · Paper 2 style · 6 marks

Two branches of a stationery chain have the following at the year end:Shop P: current assets $36,000 (including inventory $22,000); current liabilities $15,000Shop Q: current assets $28,000 (including inventory $9,000); current liabilities $14,000

  1. (a) Calculate the current ratio and liquid ratio for each shop. Give answers to two decimal places. [4]
  2. (b) State which shop has the stronger liquidity. Justify your answer. [2]
Show answer
  1. (a) Shop P: current 2.40 : 1, liquid 0.93 : 1. Shop Q: current 2.00 : 1, liquid 1.36 : 1
    B1 each ratio.
  2. (b) Shop Q: although its current ratio is lower, its liquid ratio is above 1 : 1 (1.36), so it can pay current liabilities without selling inventory; Shop P relies heavily on inventory (liquid ratio below 1).
    B1 Shop Q. B1 reason based on liquid ratio / inventory.
Q13Interpretation and decision-making · Challenge · Paper 1 style · 1 mark
  1. (a) [1]
Show answer
  1. (a) B 1.2 : 1
    Current assets = 2 × 15,000 = 30,000; (30,000 − 12,000) ÷ 15,000 = 1.2 : 1. A divides inventory by current liabilities.
Q14Interpretation and decision-making · Challenge · Paper 2 style · 8 marks

Saima sells kitchen appliances for cash only. Revenue is $180,000 a year with a gross margin of 30%. If she offers 30 days' credit, she expects extra sales of $60,000 a year at the same margin. She estimates irrecoverable debts at 2% of the extra sales and extra administration costs of $3,000 a year.

  1. (a) Calculate the expected increase in profit for the year if Saima offers credit. [3]
  2. (b) Advise Saima whether she should start selling on credit. Justify your answer by giving two points for and two points against. [5]
Show answer
  1. (a) $13,800
    Extra gross profit 60,000 × 30% = 18,000 (M1); less irrecoverable debts 1,200 and admin 3,000 (M1) = 13,800 (A1).
  2. (b) For: higher profit (13,800); attracts customers who want credit, competitors may offer it; larger orders from trade customers. Against: cash is received later, may need an overdraft; risk of irrecoverable debts may be higher than 2%; extra book-keeping and credit control work; estimates may not be achieved. Recommendation consistent with the points, e.g. offer credit with credit limits and checks.
    B1 each for two points for (max 2), B1 each for two points against (max 2), B1 recommendation.
Q15Interpretation and decision-making · Challenge · Paper 2 style · 6 marks

Kamal runs a successful optician's shop in Rawalpindi and wants to open a second branch. Sara, an experienced marketing manager, offers to invest $40,000 and become a partner, sharing profits equally.

  1. (a) State two advantages and two disadvantages to Kamal of taking Sara into partnership. [4]
  2. (b) Advise Kamal whether he should take Sara into partnership. Justify your answer. [2]
Show answer
  1. (a) Advantages (any two): extra capital $40,000 without borrowing; her marketing skills; shared workload and decisions; shared losses. Disadvantages (any two): profits shared; loss of sole control; possible disagreements; unlimited liability for partner's actions.
    1 mark each, max 2 for and 2 against.
  2. (b) Recommendation with a reason that weighs the points, e.g. yes, because the extra capital lets him open the second shop, which may raise total profit enough that his share exceeds his current profit; a partnership agreement should be drawn up.
    B1 decision. B1 justification.
Q16Interpretation and decision-making · Challenge · Paper 2 style · 7 marks

Nabeel's printing business made a profit of $18,600; he has no loans, so there is no interest. Capital employed is $155,000. He could sell the business for $155,000 and invest the money at 9% a year, and also take a job paying $12,000 a year.

  1. (a) Calculate the return on capital employed. [2]
  2. (b) Calculate the total income Nabeel could earn if he sold the business, invested the money and took the job. [2]
  3. (c) Advise Nabeel whether he should sell the business. Justify your answer. [3]
Show answer
  1. (a) 12%
    18,600 ÷ 155,000 × 100 (M1) = 12% (A1).
  2. (b) $25,950
    155,000 × 9% = 13,950 (M1); + 12,000 = 25,950 (A1).
  3. (c) Financially the alternative gives $7,350 more than the business profit; but he would lose independence, the business may grow, investment returns and job may not be secure, and the business may not sell for $155,000. Reasoned recommendation.
    B1 financial comparison. B1 non-financial factor. B1 recommendation.
Q17Interpretation and decision-making · Challenge · Paper 2 style · 5 marks

Aliya is a sole trader who runs a catering business. She plans a large expansion financed partly by friends who would invest but do not want to manage the business. She worries about losing her house if the expansion fails.

  1. (a) State two advantages to Aliya of converting the business into a private limited company. [2]
  2. (b) State two disadvantages of converting. [2]
  3. (c) Advise Aliya whether she should convert. Justify your answer. [1]
Show answer
  1. (a) Any two: limited liability for shareholders; easier to raise capital by issuing shares; separate legal entity / continuity; may improve status with suppliers and banks.
    1 mark each.
  2. (b) Any two: formation costs; accounts must follow legal requirements and may need audit; financial statements are less private; profits shared with other shareholders; some loss of control.
    1 mark each.
  3. (c) A clear decision that follows from the points, e.g. yes, because the expansion is risky and limited liability protects her house.
    B1 decision with reason.
Q18Interpretation and decision-making · Challenge · Paper 2 style · 7 marks

Bashir's furniture business normally has revenue of $200,000 and cost of sales of $140,000 a year (gross margin 30%). A hotel offers to buy furniture with a normal selling price of $40,000 if Bashir gives a 10% discount. Cost of sales for this furniture would be at the normal rate (70% of normal selling price).

  1. (a) Calculate the gross profit on the special order. [2]
  2. (b) Calculate the new overall gross margin if the order is accepted. Give your answer to two decimal places. [2]
  3. (c) Advise Bashir whether he should accept the order. Justify your answer. [3]
Show answer
  1. (a) $8,000
    Revenue 40,000 × 90% = 36,000; cost 40,000 × 70% = 28,000 (M1); gross profit 8,000 (A1).
  2. (b) 28.81%
    (60,000 + 8,000) ÷ (200,000 + 36,000) × 100 (M1) = 28.81% (A1).
  3. (c) For: gross profit rises by $8,000; uses spare capacity; possible repeat business. Against: margin falls; regular customers may demand the same discount; may need extra expenses or credit risk. Recommendation.
    B1 point for. B1 point against. B1 recommendation.
Q19Calculation of accounting ratios · Core · Paper 1 style · 1 mark
  1. (a) [1]
Show answer
  1. (a) A 30%
    24,000 ÷ 80,000 × 100 = 30%. B is the mark-up (24,000 ÷ 56,000 cost of sales).
Q20Calculation of accounting ratios · Core · Paper 2 style · 5 marks

At 31 December 2025 Sadia's boutique had: inventory $14,600; trade receivables $9,800; bank $2,700; other receivables $400; trade payables $10,200; accrued expenses $800.

  1. (a) Calculate the current ratio. Give your answer to two decimal places. [2]
  2. (b) Calculate the liquid (acid test) ratio. Give your answer to two decimal places. [2]
  3. (c) Explain why inventory is excluded from the liquid ratio. [1]
Show answer
  1. (a) 2.50 : 1
    27,500 ÷ 11,000 (M1) = 2.50 : 1 (A1).
  2. (b) 1.17 : 1
    (27,500 − 14,600) ÷ 11,000 (M1) = 1.17 : 1 (A1).
  3. (c) Inventory is the least liquid current asset; it must be sold (and the money collected) before it becomes cash
    B1.
Q21Calculation of accounting ratios · Core · Paper 2 style · 4 marks

A grocery shop adds a mark-up of 40% to cost. Its cost of sales for the year was $60,000.

  1. (a) Calculate the gross profit. [1]
  2. (b) Calculate the revenue. [1]
  3. (c) Calculate the gross margin. Give your answer to two decimal places. [2]
Show answer
  1. (a) $24,000
    60,000 × 40% (B1).
  2. (b) $84,000
    60,000 + 24,000 (B1).
  3. (c) 28.57%
    24,000 ÷ 84,000 × 100 (M1) = 28.57% (A1).
Q22Calculation of accounting ratios · Standard · Paper 1 style · 1 mark
  1. (a) [1]
Show answer
  1. (a) C 25%
    Margin 20% means GP 20 on selling price 100, so cost 80; mark-up = 20 ÷ 80 = 25%. A confuses the conversion the other way round.
Q23Calculation of accounting ratios · Standard · Paper 2 style · 6 marks

For the year ended 30 June 2026 an electrical goods wholesaler had credit sales of $146,000 and credit purchases of $109,500. At 30 June 2026 trade receivables were $16,000 and trade payables $13,500.

  1. (a) Calculate the trade receivables turnover in days (use a 365-day year). [2]
  2. (b) Calculate the trade payables turnover in days (use a 365-day year). [2]
  3. (c) Comment on the two results. [2]
Show answer
  1. (a) 40 days
    16,000 ÷ 146,000 × 365 (M1) = 40 days (A1).
  2. (b) 45 days
    13,500 ÷ 109,500 × 365 (M1) = 45 days (A1).
  3. (c) Customers pay in 40 days, but the business pays suppliers in 45 days, so it receives cash before it has to pay; good for cash flow, provided suppliers' credit terms are not exceeded.
    B1 comparison. B1 effect on liquidity / supplier terms.
Q24Calculation of accounting ratios · Standard · Paper 2 style · 5 marks

A bicycle shop in Hanoi had revenue $125,000, cost of sales $81,250 and total expenses $30,000 for the year ended 31 December 2025.

  1. (a) Calculate the gross margin. [2]
  2. (b) Calculate the profit margin. [2]
  3. (c) Calculate the expenses as a percentage of revenue. [1]
Show answer
  1. (a) 35%
    43,750 ÷ 125,000 × 100 (M1) = 35% (A1).
  2. (b) 11%
    Profit 43,750 − 30,000 = 13,750 (M1); ÷ 125,000 × 100 = 11% (A1).
  3. (c) 24%
    30,000 ÷ 125,000 × 100 (B1).
Q25Calculation of accounting ratios · Standard · Paper 2 style · 5 marks

A hardware store had opening inventory of $12,400 and closing inventory of $15,800. Cost of sales for the year was $102,930.

  1. (a) Calculate the average inventory. [1]
  2. (b) Calculate the rate of inventory turnover in days (use a 365-day year). [2]
  3. (c) Last year the figure was 38 days. Suggest two possible reasons for the change. [2]
Show answer
  1. (a) $14,100
    (12,400 + 15,800) ÷ 2 (B1).
  2. (b) 50 days
    14,100 ÷ 102,930 × 365 (M1) = 50 days (A1).
  3. (c) Any two: sales have slowed; more inventory bought (e.g. bulk buying or before a price rise); slow-moving or obsolete items held; poor inventory control.
    1 mark each for any two.
Q26Calculation of accounting ratios · Challenge · Paper 1 style · 1 mark
  1. (a) [1]
Show answer
  1. (a) B 12 times
    Average inventory (7,400 + 9,000) ÷ 2 = 8,200; 98,400 ÷ 8,200 = 12 times. A uses closing inventory only.
Q27Calculation of accounting ratios · Challenge · Paper 2 style · 5 marks

Yasir's capital on 1 January 2025 was $60,000. His profit for the year was $14,400, after charging loan interest of $1,600, and his drawings were $9,600. He has a long-term bank loan of $20,000. Capital employed = owner's capital at the end of the year + non-current liabilities.

  1. (a) Calculate Yasir's capital at 31 December 2025. [2]
  2. (b) Calculate the capital employed. [1]
  3. (c) Calculate the return on capital employed (ROCE). Give your answer to two decimal places. [2]
Show answer
  1. (a) $64,800
    60,000 + 14,400 − 9,600 (M1) = 64,800 (A1).
  2. (b) $84,800
    64,800 + 20,000 (B1).
  3. (c) 18.87%
    Profit before interest 14,400 + 1,600 = 16,000 (M1); 16,000 ÷ 84,800 × 100 = 18.87% (A1).
Q28Calculation of accounting ratios · Challenge · Paper 2 style · 5 marks

Information about Hina Traders for the year: opening inventory $11,000; closing inventory $13,000; rate of inventory turnover 8 times (based on average inventory); gross margin 25%.

  1. (a) Calculate the cost of sales. [2]
  2. (b) Calculate the revenue. [2]
  3. (c) Calculate the gross profit. [1]
Show answer
  1. (a) $96,000
    Average inventory 12,000 (M1); × 8 = 96,000 (A1).
  2. (b) $128,000
    Cost of sales is 75% of revenue: 96,000 ÷ 0.75 (M1) = 128,000 (A1).
  3. (c) $32,000
    128,000 − 96,000 (B1).
Q29Users, inter-firm comparison and limitations · Core · Paper 1 style · 1 mark
  1. (a) [1]
Show answer
  1. (a) C liquid (acid test) ratio
    The supplier wants to know if the customer can pay short-term debts, which the liquid ratio shows. ROCE (B) measures profitability, which is more relevant to owners and investors.
Q30Users, inter-firm comparison and limitations · Standard · Paper 2 style · 5 marks

Imtiaz owns a pharmacy in Hyderabad and wants to compare its ratios with those of a pharmacy owned by his cousin in Karachi.

  1. (a) Name two users of a sole trader's financial statements, other than the owner, and state what each would want to know. [2]
  2. (b) State three limitations of comparing the ratios of two businesses. [3]
Show answer
  1. (a) Any two, with a matching interest: bank/lender (ability to repay loan and interest); trade payables (ability to pay on time); employees (job security, ability to pay wages); tax authorities (profit for tax); potential buyer or partner (profitability).
    1 mark each user with interest.
  2. (b) Any three: different accounting policies (e.g. depreciation methods, inventory valuation); different sizes or locations; financial statements are historical; figures may be at different dates or for different periods; non-financial factors (staff, reputation) are ignored; one business may own premises and the other rent.
    1 mark each.

Similar questions

Questions that test the same subtopic in different years, grouped so you can work on one skill at a time.

References only: find each question in its paper (official link where available, otherwise through your school).

Interpretation and decision-making Banker27 questions · 9/9 sessions
Calculation of accounting ratios Banker21 questions · 9/9 sessions
Users, inter-firm comparison and limitations 9 questions · 7/9 sessions

Subtopics

Our analysis of how often each subtopic was examined and how many marks it carried, 2022 to May/June 2026.

SubtopicMarks indexedSessions
Interpretation and decision-making Banker1099/9
Calculation of accounting ratios Banker589/9
Users, inter-firm comparison and limitations 97/9

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