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Secondary 4 Principles of Accounts Ratios Analysis Quiz

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Questions

Secondary 4 Principles of Accounts Quiz - Ratios Analysis

Name: _______________________
Class: _______________________
Date: _______________________
Score: _______________________

Duration: 60 minutes
Total Marks: 40

Instructions:

This quiz contains 20 questions on Ratios Analysis.
Section A: Short-answer questions (1–5)
Section B: Calculation questions (6–15)
Section C: Interpretation and analysis questions (16–20)
Show all workings clearly. Method marks are awarded.
Write your answers in the spaces provided.

Section A: Short Answer (1–5)

1. [2 marks] State the formula for the current ratio.

2. [2 marks] Explain what a higher inventory turnover rate indicates about a business.

3. [1 mark] Name one profitability ratio.

4. [2 marks] State the basis on which inventory should be valued, and name the accounting concept behind it.

5. [1 mark] If the quick ratio is 0.8, is the business able to pay its current liabilities using only cash and receivables? (Yes/No)

Section B: Calculation (6–15)

6. [2 marks] Calculate the gross profit margin for Bake Haven Ltd given: Revenue = $120,000, Cost of Sales =$ 84,000.
Working: _______________________________________________
Answer: _______________________________________________

7. [2 marks] Calculate the net profit margin for Bake Haven Ltd if net profit is $18,000 and revenue is$ 120,000.
Working: _______________________________________________
Answer: _______________________________________________

8. [2 marks] Calculate the current ratio for Craft Supplies given: Current Assets = $45,000, Current Liabilities =$ 30,000.
Working: _______________________________________________
Answer: _______________________________________________

9. [2 marks] Calculate the quick ratio (acid-test ratio) for Craft Supplies if current assets include inventory of $15,000 and the other figures are as in Q8.
Working: _______________________________________________
Answer: _______________________________________________

10. [2 marks] Calculate the inventory turnover rate for Toy World: Opening Inventory = $10,000, Closing Inventory =$ 14,000, Cost of Sales = $60,000.
Working: _______________________________________________
Answer: _______________________________________________

11. [2 marks] Calculate the trade receivables collection period (in days) for Tech Zone: Credit Sales = $180,000, Average Trade Receivables =$ 30,000. (Use 365 days)
Working: _______________________________________________
Answer: _______________________________________________

12. [2 marks] Calculate the trade payables payment period (in days) for Tech Zone: Credit Purchases = $120,000, Average Trade Payables =$ 20,000. (Use 365 days)
Working: _______________________________________________
Answer: _______________________________________________

13. [3 marks] Calculate the return on capital employed (ROCE) for Green Farms: Net Profit = $25,000, Capital =$ 100,000, Long-term Liabilities = $50,000.
Working: _______________________________________________
Answer: _______________________________________________

14. [3 marks] From the following extract, calculate the gross profit margin and current ratio for Luna Stores.

Revenue: $200,000
Cost of Sales: $140,000
Current Assets: $80,000
Current Liabilities: $40,000
Working: _______________________________________________
Answer (GPM): _________________________________________
Answer (CR): __________________________________________

15. [3 marks] Calculate the inventory holding period (in days) for Fresh Foods: Opening Inventory $8,000, Closing Inventory$ 12,000, Cost of Sales $50,000. (Use 365 days)
Working: _______________________________________________
Answer: _______________________________________________

Section C: Interpretation and Analysis (16–20)

16. [3 marks] Compare the inventory turnover of Company A (8 times) and Company B (4 times). Comment on their efficiency.

17. [4 marks] The following ratios are for Starlight Pte Ltd and its competitor Moonlight Pte Ltd:

Ratio	Starlight	Moonlight
Current Ratio	1.2	2.0
Gross Profit Margin	30%	25%
Inventory Turnover	6 times	10 times

Explain which company is more liquid and which controls stock better.

18. [3 marks] A business has a quick ratio of 0.5 and a current ratio of 1.5. Explain what this suggests about its inventory level.

19. [4 marks] Using the data below, calculate the net profit margin and comment on the profitability trend if last year's net profit margin was 10%.

This year: Revenue $300,000, Net Profit$ 36,000.
Working: _______________________________________________
Comment: _______________________________________________

20. [3 marks] State two limitations of using ratio analysis for decision-making.

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Answers

Secondary 4 Principles of Accounts Quiz - Ratios Analysis (Answer Key)

Total Marks: 40
Topic: Ratios Analysis

Section A: Short Answer

1. [2 marks]
Formula: Current Ratio = Current Assets ÷ Current Liabilities
Teaching note: The current ratio measures ability to pay short-term debts using all short-term assets. Award 1 mark for "Current Assets" and 1 mark for "÷ Current Liabilities" (or equivalent).

2. [2 marks]
A higher inventory turnover rate indicates the business sells and replaces its inventory more frequently. This suggests efficient stock management, lower holding costs, and less obsolescence risk.
Marking: 1 mark for "faster stock movement / sells more frequently", 1 mark for link to efficiency / lower costs.

3. [1 mark]
Any one: Gross Profit Margin, Net Profit Margin, Return on Capital Employed (ROCE).
(1 mark for valid profitability ratio.)

4. [2 marks]
Inventory should be valued at the lower of cost and net realisable value (NRV). The concept is prudence (conservatism).
Marking: 1 mark for "lower of cost and NRV", 1 mark for "prudence / conservatism".

5. [1 mark]
No. Quick ratio below 1 means cash + receivables are insufficient to cover current liabilities.
(1 mark for "No".)

Section B: Calculation

6. [2 marks] Bake Haven Ltd
Gross Profit Margin = (Gross Profit ÷ Revenue) × 100
Gross Profit = 120,000 − 84,000 = 36,000
= (36,000 ÷ 120,000) × 100 = 30%
Marking: 1 mark for working, 1 mark for 30%.

7. [2 marks]
Net Profit Margin = (Net Profit ÷ Revenue) × 100 = (18,000 ÷ 120,000) × 100 = 15%
Marking: 1 mark working, 1 mark answer.

8. [2 marks]
Current Ratio = 45,000 ÷ 30,000 = 1.5 times
Marking: 1 mark working, 1 mark answer.

9. [2 marks]
Quick Assets = 45,000 − 15,000 = 30,000
Quick Ratio = 30,000 ÷ 30,000 = 1.0
Marking: 1 mark for quick assets calc, 1 mark for ratio.

10. [2 marks]
Average Inventory = (10,000 + 14,000) ÷ 2 = 12,000
Turnover = 60,000 ÷ 12,000 = 5 times
Marking: 1 mark avg inv, 1 mark answer.

11. [2 marks]
Collection Period = (30,000 ÷ 180,000) × 365 = 60.83 days ≈ 61 days
Marking: 1 mark working, 1 mark answer.

12. [2 marks]
Payment Period = (20,000 ÷ 120,000) × 365 = 60.83 days ≈ 61 days
Marking: 1 mark working, 1 mark answer.

13. [3 marks] Green Farms
Capital Employed = Capital + Long-term Liabilities = 100,000 + 50,000 = 150,000
ROCE = (25,000 ÷ 150,000) × 100 = 16.67%
Marking: 1 mark CE, 1 mark working, 1 mark answer.

14. [3 marks] Luna Stores
GPM = ((200,000−140,000) ÷ 200,000) × 100 = 30%
CR = 80,000 ÷ 40,000 = 2.0
Marking: 1 mark GPM, 1 mark CR, 1 mark working shown.

15. [3 marks] Fresh Foods
Avg Inv = (8,000+12,000)÷2 = 10,000
Holding Period = (10,000 ÷ 50,000) × 365 = 73 days
Marking: 1 mark avg, 1 mark working, 1 mark answer.

Section C: Interpretation and Analysis

16. [3 marks]
Company A (8 times) turns over inventory twice as fast as B (4 times). A is more efficient in stock management, lower storage cost, less obsolescence. B may be holding too much stock or has slower sales.
Marking: 1 mark comparison, 1 mark efficiency link, 1 mark context.

17. [4 marks]
Moonlight is more liquid (current ratio 2.0 > 1.2). Moonlight controls stock better (inventory turnover 10 > 6, faster sales). Starlight has better gross margin (30% > 25%) meaning more profit per dollar sales.
Marking: 1 mark liquidity, 1 mark stock control, 1 mark correct companies, 1 mark clear reasoning.

18. [3 marks]
Difference = 1.5 − 0.5 = 1.0, meaning inventory is large portion of current assets. Business relies heavily on inventory to meet ratio; may have slow-moving stock.
Marking: 1 mark difference, 1 mark inventory large, 1 mark interpretation.

19. [4 marks]
Net Profit Margin = (36,000 ÷ 300,000) × 100 = 12%.
Trend: increased from 10% to 12%, profitability improved.
Marking: 2 marks working+answer, 2 marks comment on improvement.

20. [3 marks]
Any two: ratios based on historical data; ignore qualitative factors; different accounting policies distort comparison; inflation not considered; window dressing possible.
Marking: 1.5 marks each valid limitation.