Accounting 0452 · IGCSE · Calculation and understanding of accounting ratios

Calculation and understanding of accounting ratios — practice question

Jabir runs an electrical wholesale business. The balances below were listed in his books on 30 September 2021. Inventory $8000 Purchases $109 000 Trade payables $11 600 Revenue $160 000 Trade receivables $22 600 Operating expenses $35 200 The inventory on 1 October 2020 stood at $11 000. Every sale and purchase was made on credit.
(a)[2]

Calculate the gross profit and the profit for the year.

(b(i))[2]

Calculate the gross margin for this business.

(b(ii))[2]

Advise Jabir on two measures he could take to improve his gross margin.

(c)[2]

Calculate the trade receivables turnover. Round your answer up to the next whole day.

(d)[5]

Advise Jabir whether he should allow his credit customers an extra 14 days beyond his current trade receivables turnover. Justify your answer.

(e)[2]

Calculate the trade payables turnover. Round your answer up to the next whole day.

(f)[5]

Advise Jabir whether he should raise his current monthly purchases by 20% to gain the extra trade discount. Justify your answer.

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