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O Level Principles of Accounts Ratios Analysis Quiz

Free O Level POA Ratios Analysis quiz, HY3 Exam version, with questions, answers, and O Level-style practice for Singapore students.

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Questions

O-Level Principles of Accounts Quiz - Ratios Analysis

Name: ___________________________
Class: ___________________________
Date: ___________________________
Score: _______ / 40

Duration: 60 minutes
Total Marks: 40

Instructions:

Answer all 20 questions.
Show all working clearly for calculation questions.
Use the spaces provided.
Round ratios to two decimal places unless stated otherwise.

Section A: Basic Ratio Calculations (Questions 1–5)

1. (2 marks)
A business has current assets of $48,000 and current liabilities of$ 32,000. Calculate the current ratio.

2. (2 marks)
Trade receivables are $18,000. Credit sales for the year are$ 144,000. Calculate the trade receivables collection period in days (use 365 days).

3. (2 marks)
Opening inventory is $12,000, closing inventory is$ 16,000, and cost of sales is $56,000. Calculate the inventory turnover ratio.

4. (2 marks)
A company has total equity of $200,000 and total assets of$ 320,000. Calculate the debt-to-equity ratio.

5. (2 marks)
Net profit is $45,000 and revenue is$ 300,000. Calculate the net profit margin as a percentage.

Section B: Interpretation and Comparison (Questions 6–10)

6. (2 marks)
The current ratio of Business X is 1.5 and Business Y is 2.2. Which business is more liquid? Give one reason.

7. (3 marks)
A company's inventory turnover ratio fell from 8.0 to 5.5 over two years. Explain one possible cause and one effect on the business.

8. (2 marks)
Trade payables are $22,000 and credit purchases are$ 110,000. Calculate the trade payables payment period in days.

9. (2 marks)
Return on capital employed (ROCE) is 15% for Company A and 9% for Company B. Which company uses its capital more efficiently? Explain briefly.

10. (3 marks)
The following are extracted from two companies:

Ratio	Safe Ltd	Risk Ltd
Current ratio	1.8	0.9
Gross profit margin	40%	38%

State one strength and one weakness of Safe Ltd compared to Risk Ltd.

Section C: Multi-Step Analysis (Questions 11–15)

11. (4 marks)
From the following information, calculate: (a) Average inventory (b) Inventory turnover ratio (c) Days sales in inventory

Opening inventory: $20,000 Closing inventory:$ 28,000
Cost of sales: $96,000

12. (3 marks)
A business has the following:

Revenue: $500,000
Cost of sales: $350,000
Operating expenses: $90,000

Calculate: (a) Gross profit margin (b) Net profit margin

13. (3 marks)
Equity is $150,000. Non-current liabilities are$ 50,000. Profit before interest and tax is $30,000. Calculate ROCE.

14. (2 marks)
Quick assets are $40,000 and current liabilities are$ 25,000. Calculate the quick ratio (acid-test ratio).

15. (3 marks)
A firm's trade receivables collection period increased from 30 days to 55 days. State two possible business problems this may indicate.

Section D: Evaluation and Recommendation (Questions 16–20)

16. (2 marks)
A company has a current ratio of 0.8. State two actions it could take to improve liquidity.

17. (3 marks)
The debt-to-equity ratio is 1.5. Explain one risk and one benefit of this level of gearing.

18. (3 marks)
Net profit margin dropped from 12% to 6%. Suggest two possible reasons and one action to improve it.

19. (2 marks)
Days sales in inventory is 80 days, which is higher than the industry average of 45 days. What does this suggest about inventory management?

20. (4 marks)
Using the ratios below, advise whether the business is healthy. Include two strengths and two weaknesses in your answer.

Current ratio: 1.2
ROCE: 18%
Trade receivables period: 70 days
Inventory turnover: 4.0

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Answers

O-Level Principles of Accounts Quiz - Ratios Analysis (Answer Key)

Total Marks: 40
Topic: Ratios Analysis

Section A: Basic Ratio Calculations

1. (2 marks)
Current ratio = Current assets ÷ Current liabilities
= $48,000 ÷$ 32,000 = 1.50
Teaching note: Current ratio measures ability to pay short-term debts. Answer 1.50 (or 1.5:1).
Marking: 1 mark for formula, 1 mark for correct answer.

2. (2 marks)
Collection period = (Trade receivables ÷ Credit sales) × 365
= ( $18,000 ÷$ 144,000) × 365 = 0.125 × 365 = 45.63 days
Teaching note: Lower is better; shows how fast cash is collected.
Marking: 1 mark working, 1 mark answer.

3. (2 marks)
Average inventory = ( $12,000 +$ 16,000) ÷ 2 = $14,000 Inventory turnover = Cost of sales ÷ Average inventory =$ 56,000 ÷ $14,000 = 4.00
Teaching note: Turnover shows how many times stock is sold per year.
Marking: 1 mark avg inv, 1 mark ratio.

4. (2 marks)
Debt = Total assets − Equity = $320,000 −$ 200,000 = $120,000 Debt-to-equity =$ 120,000 ÷ $200,000 = 0.60
Teaching note: Below 1 means more equity than debt.
Marking: 1 mark debt, 1 mark ratio.

5. (2 marks)
Net profit margin = (Net profit ÷ Revenue) × 100 = ( $45,000 ÷$ 300,000) × 100 = 15%
Teaching note: Percentage of revenue kept as profit.
Marking: 1 mark formula, 1 mark answer.

Section B: Interpretation and Comparison

6. (2 marks)
Business Y (2.2) is more liquid. Reason: higher current ratio means more current assets per dollar of liability.
Marking: 1 mark identification, 1 mark reason.

7. (3 marks)
Cause: Slow-moving or obsolete stock / poor sales.
Effect: More cash tied up; higher storage cost; lower liquidity.
Marking: 1 cause, 1 effect, 1 clarity.

8. (2 marks)
Payment period = ( $22,000 ÷$ 110,000) × 365 = 0.2 × 365 = 73.0 days
Marking: 1 working, 1 answer.

9. (2 marks)
Company A (15%) uses capital more efficiently as it earns more profit per dollar of capital employed.
Marking: 1 identification, 1 explanation.

10. (3 marks)
Strength: Safe Ltd has better liquidity (1.8 > 0.9).
Weakness: Safe Ltd has slightly lower gross margin (40% vs 38% is actually higher, so weakness: marginally lower than possible / Risk has similar margin with less liquidity). Accept: Safe Ltd may hold too much stock.
Marking: 1 strength, 1 weakness, 1 comparison.

Section C: Multi-Step Analysis

11. (4 marks)
(a) Avg inv = ( $20,000 +$ 28,000) ÷ 2 = $24,000 (b) Turnover =$ 96,000 ÷ $24,000 = 4.00
(c) Days = 365 ÷ 4 = 91.25 days
Marking: 1 each part.

12. (3 marks)
GP = $500,000 −$ 350,000 = $150,000 (a) GPM =$ 150,000 ÷ $500,000 × 100 = 30% (b) Net profit =$ 150,000 − $90,000 =$ 60,000; NPM = $60,000 ÷$ 500,000 × 100 = 12%
Marking: 1 GP, 1 GPM, 1 NPM.

13. (3 marks)
Capital employed = Equity + NCL = $150,000 +$ 50,000 = $200,000 ROCE =$ 30,000 ÷ $200,000 × 100 = 15%
Marking: 1 CE, 1 working, 1 answer.

14. (2 marks)
Quick ratio = $40,000 ÷$ 25,000 = 1.60
Marking: 1 formula, 1 answer.

15. (3 marks)
Problems: (1) Customers taking too long to pay; (2) Weak credit control / bad debts risk.
Marking: 2 points (1.5 each) or 1+1+1 if elaborated.

Section D: Evaluation and Recommendation

16. (2 marks)
Actions: Collect receivables faster; delay paying payables; reduce inventory. (any two)
Marking: 1 each.

17. (3 marks)
Risk: High interest burden; bankruptcy risk.
Benefit: More funds for expansion; higher returns to equity if profitable.
Marking: 1 risk, 1 benefit, 1 explanation.

18. (3 marks)
Reasons: Higher costs; lower prices.
Action: Cut expenses / raise prices.
Marking: 1+1+1.

19. (2 marks)
Suggests poor inventory management; too much stock held; cash tied up.
Marking: 1 suggestion, 1 implication.

20. (4 marks)
Strengths: ROCE 18% good; Current ratio 1.2 acceptable.
Weaknesses: Receivables 70 days too long; Inventory turnover 4.0 low.
Advice: Not fully healthy; improve collection and stock control.
Marking: 2 strengths (1 each), 2 weaknesses (1 each).