Accounting 9706 · AS & A Level · Analysis and communication of accounting information

Analysis and communication of accounting information — practice question

The data below have been taken from Thaw Limited’s financial statements as at 31 December 2015.
(a(i))[1]

Calculate the current ratio correct to two decimal places.

(a(ii))[1]

Calculate the liquid (acid test) ratio correct to two decimal places.

(a(iii))[1]

Calculate the trade receivables turnover in days.

(a(iv))[1]

Calculate the trade payables turnover in days.

(a(v))[1]

Calculate the inventory turnover in days.

(b)[4]

Discuss the ratios calculated in part (a) with regard to Thaw Limited’s liquidity, and judge the overall position.

(c)[6]

Explain three limitations that apply to ratio analysis.

Worked solution & mark scheme

This 15-mark question has a full step-by-step worked solution and mark scheme. One marking point: Current ratio is calculated as (42 + 39 + 2 + 1) / (29 + 8 + 10) = 1.79 : 1

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