59 questions. Try each one, then open the answer to check yourself and read the explanation.
A bank is interested in accounting information of a client for the purpose of
Answer: C (assessing the credit worthiness of the customer.)
A bank lends money, so it wants to know whether the client can repay.
An item recorded in the profit and loss account is
Answer: D (general expenses.)
General expenses are a revenue expense; the other items are balance sheet items.
The concept which assumes that transactions should be expressed using a common denominator is
Answer: B (money measurement concept.)
Money measurement says only items expressed in money (the common unit) are recorded.
Use the following information to answer questions 4 and 5.
The yearly depreciation charge using the straight line method is (X − Y)/Z
The letter X in the formula represents
Answer: A (cost of the asset.)
Straight line = (cost − residual value) ÷ useful life, so X is the cost.
Use the following information to answer questions 4 and 5.
The yearly depreciation charge using the straight line method is (X − Y)/Z
The letter Z in the formula represents
Answer: C (estimated useful life of the asset.)
The depreciable amount is divided by the estimated useful life, Z.
In manufacturing account, wages of machine operators are classified as
Answer: A (prime cost.)
Machine operators work directly on the product, so their wages are direct labour, part of prime cost.
Use the following information to answer questions 7 to 9.
Opening stock: Le 6,000
Sales: Le 180,000
Closing stock: Le 4,200
Mark-up is 33⅓%
The value of purchases is
Answer: C (Le 133,200)
Cost of sales = 180,000 × 3/4 = 135,000; purchases = 135,000 + 4,200 − 6,000 = Le 133,200.
Use the following information to answer questions 7 to 9.
Opening stock: Le 6,000
Sales: Le 180,000
Closing stock: Le 4,200
Mark-up is 33⅓%
The cost of goods sold is
Answer: B (Le 135,000)
A mark-up of 1/3 on cost means sales = 4/3 of cost, so cost = 180,000 × 3/4 = Le 135,000.
Use the following information to answer questions 7 to 9.
Opening stock: Le 6,000
Sales: Le 180,000
Closing stock: Le 4,200
Mark-up is 33⅓%
The gross profit is
Answer: B (Le 45,000)
180,000 − 135,000 = Le 45,000 (one-third of cost).
A sole trader received the sum of N 4,860 cash from a debtor. The effect of this transaction in the balance sheet is
Answer: C (increase in cash and decrease in debtor.)
One asset (cash) goes up and another (debtors) goes down by the same amount.
According to the entity concept, ownership is
Answer: C (separated from the business.)
The entity concept keeps the owner separate from the business.
An item recorded in the trial balance is
Answer: A (opening stock.)
Opening stock is a ledger balance and appears in the trial balance; closing stock, accruals and the year's depreciation are year-end adjustments made afterwards.
The class of shares which are available only to the promoters of a company are
Answer: D (deferred shares.)
Deferred (founders') shares are taken up by promoters and are paid only after other shareholders.
Expense incurred but not yet paid is
Answer: B (current liability,)
An accrued expense is owed for a short time, so it is a current liability.
Work-in-progress is an item in
Answer: D (manufacturing account.)
Partly finished goods are adjusted in the manufacturing account.
In an incomplete record, the excess of opening capital over closing capital is
Answer: B (loss.)
If capital falls (with no drawings or new capital), the business made a loss.
Use the following information to answer questions 17 and 18.
Bayo issued a credit note to Ayo who returned defective goods. Each parties maintain sales ledger control account and purchases ledger control account.
Ayo will record this transaction on the
Answer: C (debit side of the purchases ledger control account.)
Ayo is the buyer returning goods (returns outwards), which reduces what he owes Bayo, so he debits his purchases ledger control account.
Use the following information to answer questions 17 and 18.
Bayo issued a credit note to Ayo who returned defective goods. Each parties maintain sales ledger control account and purchases ledger control account.
Bayo will record this transaction on the
Answer: B (credit side of the sales ledger control account.)
Bayo is the seller; the credit note (returns inwards) reduces what Ayo owes him, so he credits the sales ledger control account.
The concept that underlies the comparing of expenditure for a period with the revenue of same period is
Answer: C (matching concept.)
Matching sets the costs of a period against the revenue of the same period.
An item is classified as a current asset if it is
Answer: B (expected to be realized within the balance sheet date.)
Current assets are cash or items expected to turn into cash within the coming year.
Subscriptions classified in the balance sheet as a current asset is subscriptions
Answer: B (in arrears.)
Subscriptions in arrears are owed by members, so they are a current asset; subscriptions in advance are a liability.
Which of the following items will not be charged to the manufacturing account?
Answer: A (Warehouse rent.)
A warehouse holds finished goods for sale, so its rent goes to profit and loss, not manufacturing.
An account in the real ledger is
Answer: D (machinery account.)
Real accounts are for assets such as machinery; the others are nominal accounts.
Use the following information to answer questions 24 and 25.
The margin for a business is 2/5 and the cost of sales is $120,000.
The mark-up for the business is
Answer: C (2/3)
A margin of 2/5 means profit 2 on sales 5, so cost is 3: mark-up = 2/3.
Use the following information to answer questions 24 and 25.
The margin for a business is 2/5 and the cost of sales is $120,000.
The sales value for the business is
Answer: C ($200,000.)
Cost is 3/5 of sales, so sales = 120,000 × 5/3 = $200,000.
The objective of preparing a departmental account is to
Answer: B (ascertain the profit of each department.)
Departmental accounts show how much profit each department earns.
A debit balance of D 61,000 on a customer's bank statement means that
Answer: B (the customer owes the bank D 61,000.)
In the bank's records a debit balance is an overdraft: the customer owes the bank.
Use the following information to answer questions 28 and 29.
Trade creditors 1/1/2022: GH¢35,000
Payment to suppliers in 2022: GH¢30,000
Discounts received: GH¢1,800
Trade creditors 31/12/2022: GH¢24,000
The purchases for 2022 is
Answer: D (GH¢20,800.)
Purchases = payments 30,000 + discounts 1,800 + closing creditors 24,000 − opening creditors 35,000 = GH¢20,800.
Use the following information to answer questions 28 and 29.
Trade creditors 1/1/2022: GH¢35,000
Payment to suppliers in 2022: GH¢30,000
Discounts received: GH¢1,800
Trade creditors 31/12/2022: GH¢24,000
The balance sheet as at 31/12/2022 will show current liability of
Answer: B (GH¢24,000.)
The closing trade creditors of GH¢24,000 are the current liability.
A credit purchase of D 63 from Koffi has been entered in the accounts as D 36. This is an error of
Answer: B (original entry.)
The wrong amount was used from the start in both entries, so it is an error of original entry.
Use the following information to answer questions 31 to 33.
Taiyelolu and Ejire are partners sharing profits or losses equally. Extracts from their books showed: (Taiyelolu / Ejire)
Capital accounts (1/1/2023): ₦200,000 / ₦100,000
Current accounts (1/1/2023): ₦40,000 / ₦80,000
Drawings within the year: ₦20,000 / ₦30,000
Annual salaries: ₦28,000 / ₦24,000
Interest on capital is agreed at 10% and the net profit for the year is ₦120,000.
The interest on Taiyelolu's capital is
Answer: A (₦20,000.)
10% × 200,000 = ₦20,000.
Use the following information to answer questions 31 to 33.
Taiyelolu and Ejire are partners sharing profits or losses equally. Extracts from their books showed: (Taiyelolu / Ejire)
Capital accounts (1/1/2023): ₦200,000 / ₦100,000
Current accounts (1/1/2023): ₦40,000 / ₦80,000
Drawings within the year: ₦20,000 / ₦30,000
Annual salaries: ₦28,000 / ₦24,000
Interest on capital is agreed at 10% and the net profit for the year is ₦120,000.
Ejire's share of profit is
Answer: D (₦19,000.)
Residual profit = 120,000 − interest (20,000 + 10,000) − salaries (28,000 + 24,000) = 38,000, shared equally: ₦19,000 each.
Use the following information to answer questions 31 to 33.
Taiyelolu and Ejire are partners sharing profits or losses equally. Extracts from their books showed: (Taiyelolu / Ejire)
Capital accounts (1/1/2023): ₦200,000 / ₦100,000
Current accounts (1/1/2023): ₦40,000 / ₦80,000
Drawings within the year: ₦20,000 / ₦30,000
Annual salaries: ₦28,000 / ₦24,000
Interest on capital is agreed at 10% and the net profit for the year is ₦120,000.
Taiyelolu's balance of current account at the end of the year is
Answer: B (₦87,000.)
40,000 + interest 20,000 + salary 28,000 + profit share 19,000 − drawings 20,000 = ₦87,000.
Purchased goodwill is purchase consideration less the value of
Answer: B (net identifiable assets.)
Goodwill is what is paid above the fair value of the net assets taken over.
Errors in the trial balance are corrected using the
Answer: D (journal.)
Corrections are first entered in the journal (proper) and then posted.
The equivalent of income and expenditure account in a limited liability company is
Answer: D (profit and loss account.)
Both measure the result of the period on an accruals basis.
The owner's claim on the asset of a business is
Answer: A (capital.)
Capital is what the business owes its owner.
A partner who has not contributed any form of capital into the firm but only lends his name to be used as a partner is a
Answer: D (Nominal partner.)
A nominal partner only lends his name.
Liquid assets refer to
Answer: A (Cash and other assets that can be easily converted into cash.)
Liquid assets are cash and items quickly turned into cash (current assets less stock).
Use the following information to answer questions 40 and 41
Ade bought goods worth Le 30,000 from Ode and was given a 7.5% discount.
The evidence of payment for the goods Ade bought is the
Answer: A (Receipt.)
A receipt confirms that payment was made.
Use the following information to answer questions 40 and 41
Ade bought goods worth Le 30,000 from Ode and was given a 7.5% discount.
The amount paid for the goods is
Answer: C (Le 27,750.)
Discount = 7.5% × 30,000 = 2,250; amount paid = 30,000 − 2,250 = Le 27,750.
The proportion of the issued capital to be paid later is
Answer: C (Uncalled-up capital.)
The part of issued capital not yet called for is uncalled capital.
One of the columns in a single column cash book is
Answer: A (Bank.)
A single column cash book has just one money column, either cash or bank; discount columns appear only in two- and three-column books.
Use the following information to answer questions 44 and 45.
Purchases of motor van: D 370,000
Building of laboratories: D 760,000
Purchase of drugs: D 110,000
Electricity: D 26,000
Repair of equipment: D 10,000
The amount of recurrent expenditure is
Answer: A (D 146,000.)
Recurrent items: drugs 110,000 + electricity 26,000 + repairs 10,000 = D 146,000.
Use the following information to answer questions 44 and 45.
Purchases of motor van: D 370,000
Building of laboratories: D 760,000
Purchase of drugs: D 110,000
Electricity: D 26,000
Repair of equipment: D 10,000
The capital expenditure is
Answer: B (D 1,130,000.)
Motor van 370,000 + laboratories 760,000 = D 1,130,000.
Shares which are issued at no cost to existing shareholders in proportion to existing shares held are
Answer: D (Bonus shares.)
Bonus shares are free shares issued from reserves to existing holders.
Which of the following items will be recorded on the credit side of a club's income and expenditure account?
Answer: B (Donations received.)
Donations received are income, which goes on the credit side.
Where the head office maintains all books of account, the cost of goods returned is credited to
Answer: B (Branch Stock Account.)
Goods returned by the branch leave branch stock: debit goods sent to branch, credit branch stock.
Distribution of dividends to shareholders are made from profit
Answer: C (after tax.)
Dividends are paid out of profit left after tax.
The debit side of a trial balance total is GH¢2,000 more than the credit side. Which of the following errors would account for the difference?
Answer: D (Discount received of GH¢1,000 has been debited to discount allowed account.)
Debiting 1,000 instead of crediting it adds 1,000 to debits and removes 1,000 from credits: a 2,000 excess on the debit side.
(a) Identify the book of original entry in which each of the following transactions will be recorded.
(i) purchase of office equipment on credit; (ii) credit purchases; (iii) bank charges; (iv) goods returned by a customer.
(b) State one source from which each of the following items could be transferred into purchases ledger control account:
(i) purchases; (ii) cash payments; (iii) returns outwards; (iv) discount received; (v) petty cash payments.
(c) Explain the following types of ledgers.
(i) sales ledger; (ii) purchases ledger; (iii) general ledger.
(a) (i) Journal proper (general journal); (ii) purchases journal (day book); (iii) cash book; (iv) returns inwards (sales returns) journal.
(b) (i) Purchases journal; (ii) cash book; (iii) returns outwards journal; (iv) cash book (discount received column); (v) petty cash book.
(c) (i) Sales ledger: holds the personal accounts of credit customers (debtors).
(ii) Purchases ledger: holds the personal accounts of credit suppliers (creditors).
(iii) General (nominal) ledger: holds all other accounts – real accounts (assets), nominal accounts (income and expenses), capital and liabilities.
Match each transaction to the book where it is first written.
(a) List six adjustments that are shown in the final accounts.
(b) State three differences between capital expenditure and revenue expenditure.
(a) Any six: closing stock; accrued expenses; prepaid expenses; accrued income; income received in advance; depreciation; bad debts written off; provision for doubtful debts; provision for discounts; drawings of goods; correction of errors.
(b) Any three:
- Capital expenditure buys or improves fixed assets; revenue expenditure is the day-to-day running cost (or maintenance) of the business.
- Capital expenditure benefits several years; revenue expenditure benefits only the current year.
- Capital expenditure appears in the balance sheet (real account); revenue expenditure is charged to the trading/profit and loss account (nominal account).
- Capital expenditure is usually large and non-recurring; revenue expenditure recurs regularly.
- Capital expenditure increases earning capacity; revenue expenditure maintains it.
Six adjustments, then three clear contrasts.
Ose, a sole proprietor, does not keep proper books of account.
(a) Identify and explain the system of bookkeeping Ose operates.
(b) State three advantages and three disadvantages of the bookkeeping system Ose operates.
(a) Single entry (incomplete records): a system in which transactions are not recorded on the double-entry principle; usually only a cash book and personal accounts of debtors and creditors are kept, and profit is found by comparing capital at two dates.
(b) Advantages (any three): simple and easy to operate; cheap – no trained accountant needed; less time and paperwork; suitable for small businesses.
Disadvantages (any three): no trial balance, so arithmetic accuracy cannot be checked; errors and fraud are hard to detect; true profit or loss and financial position cannot be found accurately; not acceptable to tax authorities or banks; nominal and real accounts are not kept; hard to value the business on sale.
Name it as single entry and balance advantages against disadvantages.
(a) State three differences between equity shareholders and debenture shareholders.
(b) Explain the following types of preference shares.
(i) cumulative preference shares; (ii) redeemable preference shares; (iii) participating preference shares.
(a) Any three:
- Equity shareholders are owners (members) of the company; debenture holders are creditors (lenders).
- Shareholders receive dividends that depend on profit; debenture holders receive fixed interest whether or not there is profit.
- Shareholders have voting rights; debenture holders do not.
- Debentures are usually secured on assets and repaid on a fixed date; shares are not secured and not normally repaid.
- On winding up, debenture holders are paid before shareholders.
- Debenture interest is a charge against profit; dividends are an appropriation of profit.
(b) (i) Cumulative preference shares: unpaid fixed dividends of a bad year accumulate and must be paid in later years before ordinary dividends.
(ii) Redeemable preference shares: can be bought back (repaid) by the company at a stated date or at its option.
(iii) Participating preference shares: besides the fixed dividend, they share in surplus profits with ordinary shareholders after the ordinary dividend.
Owners vs lenders, then one sentence for each preference share type.
The trial balance of Ahoofe Trading Enterprises as at 31st December 2020 was as follows: (Dr / Cr, GH¢)
Fixtures and Fittings 120,400
Motor Vehicle 44,000
Debtors and creditors 9,400 / 7,600
Purchases 60,300
Sales / 184,900
Discounts 2,900 / 2,500
Electricity 3,100
Stock (1/1/2020) 16,300
Cash 54,600
Carriage inwards 4,000
Distribution expenses 2,200
Returns 4,500 / 3,000
Rent 24,000
Interest expenses 3,500
Loan / 30,000
Capital / 121,200
Totals 349,200 / 349,200
Additional information:
(i) Depreciation for all fixed assets is at 15% per annum on cost; (ii) Electricity prepaid was GH¢640 and rent in arrears was GH¢12,000. (iii) Closing stock was valued at GH¢24,200.
You are required to prepare:
(a) Trading, Profit and Loss Account for the year ended 31st December, 2020.
(b) Balance Sheet as at 31st December, 2020.
(a) Trading, Profit and Loss Account (GH¢):
Sales 184,900 − returns inwards 4,500 = 180,400
Opening stock 16,300 + purchases (60,300 − returns outwards 3,000) 57,300 + carriage inwards 4,000 = 77,600 − closing stock 24,200 = cost of sales 53,400
Gross profit 127,000; add discount received 2,500 = 129,500
Expenses: discount allowed 2,900; electricity (3,100 − 640) 2,460; distribution 2,200; rent (24,000 + 12,000) 36,000; interest 3,500; depreciation – fixtures (15% × 120,400) 18,060, motor vehicle (15% × 44,000) 6,600 = 71,720
Net profit GH¢57,780
(b) Balance Sheet as at 31 December 2020 (GH¢):
Fixed assets: fixtures 120,400 − 18,060 = 102,340; motor vehicle 44,000 − 6,600 = 37,400; total 139,740
Current assets: stock 24,200; debtors 9,400; electricity prepaid 640; cash 54,600 = 88,840
Less current liabilities: creditors 7,600; rent accrued 12,000 = 19,600
Working capital 69,240; total 208,980; less loan 30,000 = 178,980
Financed by: capital 121,200 + net profit 57,780 = 178,980
Dr returns are returns inwards and Dr discounts are discount allowed; adjust electricity and rent before charging them.
Red Top Manufacturing Enterprises produces plastic bowls. The information relating to its operations for the year ended 31st December, 2021 is as follows:
Stocks — 01/01/2021 / 31/12/2021 (₦)
Raw materials 140,000 / 220,000
Work-in-progress 260,000 / 340,000
Finished goods 550,000 / –
Sales 4,550,000
Purchase of raw materials 1,489,000
Direct wages 850,000
Royalties 77,000
Discounts allowed 92,000
Factory fuel 660,000
Administrative expenses 44,000
Electricity 64,000
Maintenance 48,000
Selling and distribution expenses 33,000
Additional information:
(i) 75% of electricity and maintenance costs are apportioned to the factory.
(ii) 60,000 units were produced and transferred to the trading account at a market value of ₦55 per unit.
You are required to prepare Manufacturing, Trading, Profit and Loss Account for the year ended 31st December, 2021.
Manufacturing Account (₦): Raw materials 140,000 + 1,489,000 − 220,000 = 1,409,000; direct wages 850,000; royalties 77,000; Prime cost 2,336,000.
Factory overheads: fuel 660,000; electricity (75% × 64,000) 48,000; maintenance (75% × 48,000) 36,000 = 744,000; total 3,080,000; add opening WIP 260,000, less closing WIP 340,000; cost of production 3,000,000.
Market value of goods produced (60,000 × ₦55) 3,300,000; manufacturing profit 300,000.
Trading Account: sales 4,550,000; opening finished goods 550,000 + goods transferred 3,300,000 = cost of sales 3,850,000 (no closing finished goods given); gross profit 700,000.
Profit and Loss Account: gross profit 700,000 + manufacturing profit 300,000 = 1,000,000; less discounts allowed 92,000, administrative 44,000, electricity (25%) 16,000, maintenance (25%) 12,000, selling and distribution 33,000 = 197,000; Net profit ₦803,000.
Goods go to trading at market value; the difference over cost of production is manufacturing profit.
Wale started business on 1st January, 2022 with D 100,000 as capital and kept few records. His assets and liabilities as at 31st December, 2022 were as follows:
Premises D 280,000
Loan D 150,000
Stock D 62,000
Debtors D 4,800
Creditors D 13,200
Bank D 12,400
Wale withdrew D 17,300 cash for his personal use and deposited an additional cash of D 8,000 into the business account.
You are required to:
(a) Calculate the Closing Capital;
(b) Prepare Statement of Net Profit for the year ended 31st December, 2022;
(c) Prepare the Balance Sheet as at that date.
(a) Closing capital = assets (280,000 + 62,000 + 4,800 + 12,400 = 359,200) − liabilities (150,000 + 13,200 = 163,200) = D 196,000.
(b) Statement of net profit: closing capital 196,000 + drawings 17,300 = 213,300 − additional capital 8,000 = 205,300 − opening capital 100,000 = net profit D 105,300.
(c) Balance Sheet as at 31 December 2022 (D):
Fixed asset: premises 280,000
Current assets: stock 62,000; debtors 4,800; bank 12,400 = 79,200
Less current liabilities: creditors 13,200; working capital 66,000
Total 346,000 less loan 150,000 = 196,000
Capital: opening 100,000 + additional 8,000 + net profit 105,300 = 213,300 − drawings 17,300 = 196,000
Profit = change in capital, adding back drawings and taking out new capital.
The Receipts and Payments Account of Queens Social Club for the year ended 31st December, 2021 is as follows:
Receipts and Payments Account for the year ended 31st December, 2021 ($)
Receipts: Balance b/d 20,000; Subscription 280,000; Bar sales 223,400; Donations 50,000; End of year dinner 170,000 — total 743,400
Payments: Expenses on dinner 105,000; Donations to hospital 190,000; Affiliation fees 6,000; Bar supplies 140,000; General expenses 183,000; Club equipment 24,000; Bar expenses 71,000; Balance c/d 24,400 — total 743,400
Additional Information: (1/1/2021 / 31/12/2021, $)
Club equipment (cost $50,000) 45,000 / –
Bar stocks 6,000 / 8,000
Subscriptions: In arrears 30,000 / 40,000; In advance 50,000 / 20,000
Creditors for bar supplies 15,000 / 18,000
Furniture and fittings 28,000 / 25,200
Provide depreciation of 10% on cost for club's equipment.
You are required to prepare:
(a) Statement of Affairs as at 1/1/2021
(b) Bar Trading Account for the year ended 31/12/2021;
(c) Subscriptions Account for the year;
(d) Income and Expenditure Account for the year ended 31/12/2021.
(a) Statement of Affairs at 1/1/2021 ($): Assets – club equipment 45,000; bar stock 6,000; subscriptions in arrears 30,000; furniture and fittings 28,000; cash 20,000 = 129,000. Liabilities – subscriptions in advance 50,000; bar creditors 15,000 = 65,000. Accumulated fund 64,000.
(b) Bar Trading Account: bar sales 223,400; opening stock 6,000 + purchases (140,000 + 18,000 − 15,000 = 143,000) = 149,000 − closing stock 8,000 = cost of sales 141,000; gross profit 82,400; less bar expenses 71,000; bar profit 11,400.
(c) Subscriptions Account: Dr balance b/d (arrears) 30,000; income and expenditure 320,000; balance c/d (advance) 20,000 = 370,000 | Cr balance b/d (advance) 50,000; cash 280,000; balance c/d (arrears) 40,000 = 370,000.
(d) Income and Expenditure Account: Income – subscriptions 320,000; bar profit 11,400; donations 50,000; dinner profit (170,000 − 105,000) 65,000 = 446,400. Expenditure – donations to hospital 190,000; affiliation fees 6,000; general expenses 183,000; depreciation of club equipment (10% × (50,000 + 24,000)) 7,400; depreciation of furniture (28,000 − 25,200) 2,800 = 389,200. Surplus of income over expenditure $57,200.
Work out the opening accumulated fund, bar profit and subscription income first, then build the income and expenditure account.
The following financial statements relate to Peter Associates for the year ended 31st December, 2021.
Trading, Profit and Loss Account for the year ended 31st December, 2021 (Le)
Opening Stock 110,500; Add: Purchases 545,250 = 655,750; Add: Carriage inwards 184,250 = 840,000; Less: Closing stock 140,000 = 700,000; Gross profit c/d 340,000; total 1,040,000 | Sales 1,040,000
Expenses: General expenses 50,000; Bad debt 50,000; Salaries 100,000; Net profit c/d 140,000; total 340,000 | Gross profit b/d 340,000
Balance Sheet as at 31st December, 2021 (Le)
Financed by: Ordinary share capital 200,000; General reserves 20,000; Profit 140,000
Current Liabilities: Bank overdraft 30,000; Trade creditors 20,000 = 50,000; total 410,000
Fixed Asset 190,000
Current Assets: Stock 140,000; Debtors 50,000; Bank 30,000 = 220,000; total 410,000
You are required to calculate:
(a) Returns on shareholders' fund;
(b) Acid test ratio;
(c) Net profit margin;
(d) Working capital ratio;
(e) Stock turnover ratio.
(a) Return on shareholders' fund = net profit ÷ shareholders' fund × 100 = 140,000 ÷ (200,000 + 20,000 + 140,000 = 360,000) × 100 = 38.89%.
(b) Acid test ratio = (current assets − stock) ÷ current liabilities = (220,000 − 140,000) ÷ 50,000 = 1.6:1.
(c) Net profit margin = 140,000 ÷ 1,040,000 × 100 = 13.46%.
(d) Working capital (current) ratio = 220,000 ÷ 50,000 = 4.4:1.
(e) Stock turnover = cost of sales ÷ average stock = 700,000 ÷ ((110,500 + 140,000) ÷ 2 = 125,250) = 5.59 times.
State each formula, substitute and give the unit.