Trent uses the formula: (trade receivables at year end/revenue for the year) × 365 to calculate how long on average (in days) its customers take to pay.Which of the following would not affect the correctness of the above calculation of the average number of days a customer takes to pay?
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1 .Fritwell has an asset turnover of 2.0 and an operating profit margin of 10%. It is launching a new product which is expected to generate additional sales of USD1.6 million and additional profit of USD120,000. It will require additional assets of USD500,000.Assuming there are no other changes to current operations, how will the new product affect these ratios?
A Operating profit margin: Decrease; ROCE: Decrease B Operating profit margin: Decrease; ROCE: Increase C Operating profit margin: Increase; ROCE: Decrease D Operating profit margin: Increase; ROCE: Increase
2 .Which of the following is a possible reason why a company's inventory holding period increases from one year to the next?
A An increase in demand for its products B A reduction in selling prices C Obsolete inventory lines D Seasonal fluctuations in orders
3 .Use of historical cost accounting means asset values can be reliably verified but it has a number of shortcomings which need to be considered when analysing financial statements.Which one of these is a possible result of the use of historical cost accounting during a period of inflation?
A Overstatement of non-current asset values B Overstatement of profits C Understatement of interest costs D Understatement of ROCE
4 .Creative accounting measures are often aimed at reducing gearing.Which one of these is not a measure which can be used to reduce (or not increase) gearing?
A Re-negotiating a loan to secure a lower interest rate B Treating a finance lease as an operating lease C Repaying a loan just before the year end and taking it out again at the beginning of the next year. D 'Selling' an asset under a sale and leaseback agreement
5 .If a company wished to maintain the carrying amount in the financial statements of its non-current assets, which one of the following would it be unlikely to do?
A Enter into a sale and operating leaseback B Account for asset –based government grants using the deferral method C Revalue its properties D Change the depreciation method for new asset acquisitions from 25% reducing balance to ten years straight line
7 .A company measures the average time to collect receivables as:[Receivables at end of financial year/Annual credit sales] × 365 daysAccounting ratios have just been calculated from the financial statements for the financial year that has just ended. These show an abnormally high average time to collect receivables, compared with ratios calculated for the previous financial year.Which of the following may help to explain this unusually high turnover period for trade receivables?1 There was an unusually large sale on credit close to the end of the financial year.2 The company has seasonal trade, and sales in the final quarter of the year are always higher than in the other quarters.3 However, sales in the final quarter of the year that has just ended were lower than in the previous year.
A Reason 1 only B Reason 2 only C Reason 3 only D Reasons 1, 2 and 3
8 .Quartile is in the jewellery retail business which can be assumed to be highly seasonal. For the year ended 30 September 2014, Quartile assessed its operating performance by comparing selected accounting ratios with those of its business sector average as provided by an agency. You may assume that the business sector used by the agency is an accurate representation of Quartile’s business.Which of the following circumstances may invalidate the comparison of Quartile’s ratios with those of the sector average?(i) In the current year, Quartile has experienced significant rising costs for its purchases.(ii) The sector average figures are complied from companies whose year end is between 1 July 2014 and 30 September 2014.(iii) Quartile does not revalue its properties, but is aware that other entities in this sector do.(iv) During the year, Quartile discovered an error relating to the inventory count at 30 September 2013.This error was correctly accounted for in the financial statements for the current year ended 30 September 2014.
A All four B (i), (ii) and (iii) C (ii) and (iii) only D (ii), (iii) and (iv)
9 .An entity has an average operating profit margin of 23% and an average asset turnover of 0.8, which is similar to the averages for the industry.The entity is likely to be:
A An architectural practice B A supermarket C A supermarket D A manufacturer
10 .Which of the following will increase the length of a company's operating cycle?
A Reducing the receivables collection period B Reducing the inventory holding period C Reducing the payables payment period D Reducing time taken to produce goods
