Accounting 0452 · IGCSE · Interpretation of accounting ratios
Interpretation of accounting ratios — practice question
Ajay is a retailer. He has supplied the following data:
On 1 April 2023: inventory $5200, trade receivables $6875, cash at bank $1946, trade payables $5115
For the year ended 31 March 2024: revenue - credit sales $86 400, cash sales $10 600, purchases $51 300, expenses $23 750
On 31 March 2024: inventory $6500, trade receivables $9550, cash at bank $1200, trade payables $6000
Ajay has traded for 3 years and has built up a strong reputation. He has kept his selling price unchanged. His gross margin for the year ended 31 March 2024 is higher than in the previous years.
Ajay is worried about the amounts of his inventory and trade receivables. He is thinking about lowering his selling price.
Although Ajay’s gross margin has risen, his profit margin has decreased in each of the last two years. Sales revenue is Ajay’s only source of income.
(a)[11]
Fill in the table below.
(b(i))[1]
Suggest one reason for the rise in Ajay’s gross margin.
(b(ii))[1]
State one reason why Ajay’s customers may want to look at his financial statements.
(c)[5]
Advise Ajay on whether he ought to reduce his selling price. Support your view with advantages and disadvantages of lowering his selling price.
(d)[2]
State two reasons why Ajay ought to worry about his falling profit margin.
Worked solution & mark scheme
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