78 past-paper questions on this unit. Five of them are below. Answer on the page: each one is marked the moment you pick, the correct option is shown whether or not you found it, and the full explanation opens either way.
CIE 0452 AccountingPaper 1 MCQsFree account
Calculation of accounting ratios: five questions to try now
Real past-paper questions, the answer key from the mark scheme, and the explanation that goes with it. No account needed to answer them.
Question 1
A company provided the following information about its liquid (acid test) ratio. Year 1 1.2 : 1 Year 2 1.4 : 1 Year 3 1.6 : 1 Which would explain the changes in the ratio?
Answer: B.
The liquid ratio is current assets excluding inventory, over current liabilities, so it rises either when the liquid assets grow or when the liabilities shrink. Other payables are current liabilities, so a fall in them lifts the ratio, and B is correct. C moves the same denominator the other way. D reduces trade receivables, which are IN the numerator, so it lowers the ratio. A raises inventory, which is deliberately excluded, so it cannot lift the ratio and usually lowers it by consuming cash.
Question 2
Ralph wants to compare the accounting ratios for his business with the accounting ratios of his brother’s business. What would prevent Ralph from making a meaningful comparison?
Answer: D.
Ratios can only be compared if the figures behind them were measured the same way, so different accounting policies, such as a different depreciation method or a different basis for valuing inventory, make the comparison meaningless. D is correct. A and B describe genuine commercial differences that the ratios are SUPPOSED to reveal, so they are the point of the exercise rather than an obstacle. C concerns presentation, which changes how the ledger looks but not the totals the ratios use.
Question 3
A company provided the following information about its rate of inventory turnover. year 1 24 times year 2 25 times year 3 27 times What would explain the changes in the ratio?
Answer: C.
The rate of inventory turnover is cost of sales over average inventory, and it is rising, so goods are moving faster. Selling more units does that: the cost of sales climbs while the stock held stays much the same. C is correct. A moves the numerator the wrong way, since a smaller cost of sales gives a lower rate. B raises the denominator, which also lowers it. D changes the selling price, which touches neither the cost of sales nor the inventory and so leaves the ratio alone.
Question 4
Jake had current liabilities of trade payables and had current assets of inventory, trade receivables and cash at bank. Which measure would improve his current ratio?
Answer: B.
The current ratio is current assets over current liabilities, so only something that changes one of those two will move it. Drawings take cash out of the business, so taking less leaves more cash, which raises the current assets and improves the ratio. B is correct. A swaps cash for inventory at the same value, leaving the total unchanged. D swaps inventory for a receivable, again both current assets. C revalues a NON-current asset, which sits outside the ratio altogether.
Question 5
The following ratios have been calculated for a trader. year 1 year 2 profit margin 15% 20% return on capital employed (ROCE) 9% 6% What explains these changes?
Answer: C.
Read the two ratios together. A rising profit margin means the profit grew relative to revenue, so trading improved. A falling return on capital employed with a rising profit can only mean the capital employed grew even faster, and introducing capital does exactly that. C is correct. A and D both SHRINK capital employed, through drawings or repaying a loan, which would raise the return rather than lower it. B has the profit for the year falling, which contradicts the rising margin.
These questions are drawn from past CIE 0452 Accounting papers and filtered to calculation of accounting ratios. You answer, you find out immediately whether you were right, and you get the reasoning for the correct option and for each distractor. Wrong answers go to a mistakes locker so you can come back to exactly those.
Practice is free. You need an account only so your progress and your mistakes are still there next time.
These are the errors that cost marks on calculation of accounting ratios, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
Using revenue instead of cost of sales in an inventory ratio.
Including inventory in the liquid ratio.
Using total sales when credit sales are given.
Expressing a liquidity ratio as a percentage.
Using opening capital in ROCE when the question expects the closing figure.