Accounting for IGCSE & O level - Advanced Principles (Section 3)
1
What is a key benefit of managing inventory effectively, as described in the text?
Answer(A)
Reduces the need for working capital
2
What does the term 'materiality' in accounting mean?
Answer(B)
The size or significance of an item or event.
3
What happens to the current ratio if a company receives cash from customers?
4
Which of the following is NOT a factor that will increase the gross profit margin?
Answer(C)
Reducing the selling price of each item
5
Which of the following best describes the accruals concept?
Answer(B)
Revenues are recognized when earned, and expenses are recognized when incurred, regardless of cash flow.
6
Which of the following will reduce the profit margin?
7
What will be the impact of not managing inventory correctly on the company's financial well being?
Answer(C)
Negative effects on profitability.
8
What happens to the inventory turnover ratio if a company reduces the amount of inventory it holds while maintaining the same level of sales?
9
If a company consistently uses the same accounting method for inventory valuation, which principle is being followed?
10
What does a high inventory turnover ratio generally indicate?
11
What does the 'consistency' principle in accounting emphasize?
Answer(B)
That businesses should use the same accounting methods from period to period.
12
Which action will increase the current ratio?
13
Which of the following situations are impacted by the principle of consistency?
Answer(C)
Using the same depreciation method as in the previous year
14
In the context of business, what does the 'going concern' assumption mean?
Answer(C)
The business is likely to continue operating for the foreseeable future.
15
What is the purpose of the 'duality principle' in accounting?
Answer(B)
To ensure every transaction is recorded with two equal and opposite effects.
16
How is the average inventory calculated for the purpose of calculating the inventory turnover ratio?
Answer(A)
Opening Inventory + Closing Inventory / 2
17
Which principle is most concerned with recording losses when they are likely to occur?
18
Which action can positively impact a company’s liquidity and its working capital?
19
What does the term 'Capital Employed' refer to?
Answer(A)
Total assets minus current liabilities
20
What would be the effect on a company's profitability and financial position if the value of its inventory is incorrect?
21
What is the definition of the current ratio?
Answer(A)
Current Assets / Current Liabilities
22
What is the effect on working capital of taking a loan?
23
What does an efficient inventory management system contribute to?
Answer(B)
A reduction in working capital needs
24
In financial analysis, what is the main reason for comparing ratios over time?
Answer(A)
To see how the business performs over a period of time.
25
Which of the following actions generally leads to an increase in a company's inventory turnover ratio?
Answer(D)
Increasing the sales volume
26
What impact would writing off obsolete inventory have on a company's profit for the period?
27
What is an example of an accounting concept?
28
What is the significance of comparing financial ratios over time?
Answer(B)
To understand the company's performance trends.
29
What does analyzing financial information from comparison of ratios do?
Answer(B)
Helps to compare the performance of a business and also to monitor it for a period of time.
30
Which financial ratio is most useful in evaluating the ability of a company to meet its short-term debts?
31
Which of the following is an advantage of offering credit terms to customers?
32
What is the purpose of the inventory turnover ratio?
Answer(A)
To measure the speed at which inventory is sold and replaced.
33
What will result from a significant increase in the ratio of inventory sold in a given time period?
34
What information does the Inventory Turnover ratio provide?
Answer(A)
How quickly a company sells and replaces its inventory
35
If a company is aiming to improve its current ratio, which of the following actions would be most beneficial?
Answer(B)
Selling inventory for cash
36
What is a potential benefit of adopting international accounting standards?
Answer(C)
Easier access to global capital markets.
37
Which of the following are key financial data used in financial analysis?
38
If a company's inventory turnover ratio increases, what does this typically indicate?
Answer(B)
The company is selling inventory more quickly.
39
How does an increase in accounts receivable affect the current ratio?
40
What is a simple way to evaluate the performance of a business?
Answer(B)
By creating a financial analysis of its ratios.
41
Which of the following is the best measure for evaluating a company's efficiency in managing its short-term liabilities?
42
What does an increase in 'average days to settle inventory' imply for a business?
Answer(C)
That inventory is moving slower
43
If a company's sales increase while its inventory level remains constant, what will happen to its inventory turnover ratio?
44
Which of the following best describes what happens when holding too much cash?
45
What does a decreasing ROCE suggest about a company?
Answer(B)
The company is becoming less profitable in relation to its capital.
46
What are some actions taken to improve working capital position?
47
What is the formula for calculating the profit margin for the year in revenue?
Answer(B)
Profit for the year / Revenue * 100
48
Which of the following is a key element in an income statement?
49
Which is NOT an advantage of the historic cost concept?
Answer(C)
Reflects the current market value of assets.
50
What is the impact on the current ratio if a company uses cash to pay off a short-term liability?
Answer(C)
The current ratio will remain unchanged.
