Interpretation of accounting ratios — Paper 1 · IGCSE Accounting (9-1) 0985

31 A company provided the following information about its liquid (acid test) ratio. Year 1 1.2 : 1 Year 2 1.4 : 1 Year 3 1.6 : 1 Which would explain the changes in the ratio? A Inventory is increasing. B Other payables are decreasing. C Trade payables are increasing. D Trade receivables are decreasing.

1 marks

Answer: B

This question in 0985/11 May/June 2020

30 Sabelo’s liquid (acid test) ratio was higher on 1 January 2019 than it was on 31 December 2019. What could have caused this? A bank overdraft decreased B inventory decreased C other payables decreased D trade receivables decreased

1 marks

Answer: D

This question in 0985/12 May/June 2020

31 The following ratios have been calculated for a trader. year 1 year 2 profit margin 15% 20% return on capital employed (ROCE) 9% 6% What explains these changes? A Drawings have increased by more than profit for the year. B Gross profit has increased but profit for the year has decreased. C Profit for the year has increased and capital has been introduced. D Profit for the year has increased and a long-term loan has been repaid.

1 marks

Answer: C

This question in 0985/12 May/June 2020

28 A company provided the following information about its current ratio. year 1 2.3 : 1 year 2 2.4 : 1 year 3 2.5 : 1 What would explain the changes in the ratio? A Inventory is decreasing. B Other payables are increasing. C Other receivables are increasing. D Trade receivables are decreasing.

1 marks

Answer: C

This question in 0985/12 Oct/Nov 2020

31 The current ratio of X is 2 : 1. The current ratio of Y is 1.3 : 1. What does a comparison of these ratios show? A X has fewer liabilities than Y. B X has more liquidity than Y. C Y has fewer current assets than X. D Y has more inventory than X.

1 marks

Answer: B

This question in 0985/11 May/June 2021

32 Sally’s business has reached the overdraft limit set by the bank of $1500 and is not able to pay its debts when they fall due. Sally is considering the following proposals. 1 asking the bank to increase the bank overdraft limit to $2000 2 borrowing $2000 from a relative and paying the money back in six months 3 obtaining a loan from the bank of $2000 repayable in two years 4 paying $2000 from Sally’s personal bank account into the business bank account Which proposals will improve the working capital of the business? A 1 and 2 B 1 and 4 C 2 and 3 D 3 and 4

1 marks

Answer: D

This question in 0985/12 May/June 2021

33 Company X and Company Y provided the following information. Company X Company Y gross margin 36.7% 42.6% profit margin 5.4% 5.4% Which statement is correct? A Both companies earned the same amount of profit for the year. B Company X had a better gross margin than Company Y. C Company Y had a larger proportion of expenses than Company X. D The cost of sales of Company X was lower than that of Company Y.

1 marks

Answer: C

This question in 0985/12 May/June 2021

34 The current ratio of X is 2 : 1. The current ratio of Y is 1.3 : 1. What does a comparison of these ratios show? A X has fewer liabilities than Y. B X has more liquidity than Y. C Y has fewer current assets than X. D Y has more inventory than X.

1 marks

Answer: B

This question in 0985/12 May/June 2021

30 What is the best indicator of the liquidity of a business? A current ratio B liquid (acid test) ratio C return on capital employed D working capital

1 marks

Answer: B

This question in 0985/12 Oct/Nov 2021

31 A business provided the following information about its gross margin. Year 1 40% Year 2 38% Year 3 35% What could explain the changes in the gross margin? A Cost of sales is decreasing. B Expenses are decreasing. C Quantity of goods sold is decreasing. D Selling price is decreasing.

1 marks

Answer: D

This question in 0985/12 Oct/Nov 2021

32 Sam and Rob each own a trading business. The income of each business is solely from the sale of goods. They provided the following information for the year ended 30 June 2020. Sam Rob return on capital employed 12% 10% gross margin 25% 30% profit margin 14% 12% current ratio 2.8 : 1 1.2 : 1 Which statement is correct? A Rob will find it easy to pay his current liabilities. B Rob’s expenses are a higher proportion of his sales. C Sam is not employing his capital effectively. D Sam’s goods are sold at a higher price.

1 marks

Answer: B

This question in 0985/12 Oct/Nov 2021

33 Which actions could a clothing retailer take to improve his rate of inventory turnover? 1 increase the selling prices of all clothing 2 offer discounts on last year’s designs 3 pay clothing suppliers as quickly as possible A 1 and 3 only B 1, 2 and 3 C 2 only D 3 only

1 marks

Answer: C

This question in 0985/11 May/June 2022

34 A trader is considering selling goods on credit to a new customer. What could be calculated from the customer’s financial statements to indicate the time normally taken to pay for goods purchased on credit? A current ratio B liquid (acid test) ratio C trade payables turnover D trade receivables turnover

1 marks

Answer: C

This question in 0985/11 May/June 2022

30 Samuel, a trader, decided to issue statements of account each month. Which ratio does Samuel hope to improve by doing this? A current ratio B liquid (acid test) ratio C trade payables turnover D trade receivables turnover

1 marks

Answer: D

This question in 0985/12 May/June 2022

31 John’s rate of inventory turnover was 10 times in year 1 and 8 times in year 2. What may have caused the change in the rate of inventory turnover? A fall in demand B higher sales C lower inventory levels D lower selling price

1 marks

Answer: A

This question in 0985/12 May/June 2022

32 Maya had annual revenue of $100 000. In year 1, her gross margin was 45% and her profit margin was 5%. In year 2, her gross margin was 40% and her profit margin was 3%. What happened to Maya’s cost of sales and expenses in year 2? cost of sales expenses A decreased decreased B decreased increased C increased decreased D increased increased

1 marks

Answer: C

This question in 0985/12 May/June 2022

32 A trader provided the following information. year 1 year 2 gross profit $40 000 $75 000 gross margin 35% 35% profit margin 11% 22% What would explain these changes? A an increase in selling price and a decrease in sales quantity B an increase in selling price and an increase in expenses C an increase in sales quantity and a decrease in selling price D an increase in sales quantity and a decrease in expenses

1 marks

Answer: D

This question in 0985/12 Oct/Nov 2022

32 The table shows the gross margin and profit margin for four businesses. Which business controls its overheads most efficiently? gross margin profit margin % % A 40 17 B 37 15 C 35 14 D 30 12

1 marks

Answer: D

This question in 0985/11 May/June 2023

33 Sabelo’s liquid (acid test) ratio was higher on 1 January 2022 than it was on 31 December 2022. What could have caused this? A bank overdraft decreased B inventory decreased C other payables decreased D trade receivables decreased

1 marks

Answer: D

This question in 0985/12 May/June 2023

34 The following ratios relate to the businesses of Ewa and Max. Ewa Max current ratio 2.2 : 1 2.4 : 1 liquid (acid test) ratio 1.4 : 1 1.0 : 1 An accounting student made the following statements. 1 Ewa can meet her current liabilities from her current assets more easily than Max. 2 Ewa can meet her current liabilities from her liquid assets more easily than Max. 3 Max has insufficient current assets to meet his current liabilities. 4 Max has sufficient liquid assets to meet his current liabilities. Which statements are correct? A 1 and 3 B 1 and 4 C 2 and 3 D 2 and 4

1 marks

Answer: D

This question in 0985/12 May/June 2023

34 The following ratios have been calculated for a trader. year 1 year 2 profit margin 15% 20% return on capital employed (ROCE) 9% 6% What explains these changes? A Drawings have increased by more than profit for the year. B Gross profit has increased but profit for the year has decreased. C Profit for the year has increased and capital has been introduced. D Profit for the year has increased and a long-term loan has been repaid.

1 marks

Answer: C

This question in 0985/11 May/June 2024

33 Miranda’s gross margin fell from 25% in year 1 to 15% in year 2. What may have caused this? A Miranda paid less for her purchases in year 2. B Miranda purchased fewer goods in year 2. C Miranda reduced her selling prices in year 2. D Miranda sold fewer goods in year 2.

1 marks

Answer: C

This question in 0985/12 May/June 2024

32 Omar had an increase in his gross profit margin. What could have caused this? A a decrease in the selling price of his goods B an increase in the quantity of goods purchased C a decrease in the purchase price of his goods D an increase in the quantity of goods sold

1 marks

Answer: C

This question in 0985/12 Oct/Nov 2024

33 The trade receivables turnover of a business is 42 days. Trade receivables are allowed 30 days to settle their accounts. The business has difficulty paying its credit suppliers. Which statements are correct? 1 Credit customers are taking longer than allowed to pay their accounts. 2 It takes on average 42 days to receive payments from credit customers. 3 It would be easier to pay credit suppliers if credit customers paid within 30 days. 4 The business has an efficient credit control system. A 1 and 2 only B 1, 2 and 3 C 2 and 4 D 4 only

1 marks

Answer: B

This question in 0985/11 May/June 2025