CIE Accounting Paper-1: Specimen Questions with Answers 28 - 29 of 214

Question number: 28

MCQ▾

Question

The table shows information relating to two businesses trading in the same type of goods.

Two businesses trading in the same type of goods in term of ratio

Two businesses trading in the same type of goods in term of ratio in detail

Business

Rate of inventory turnover

Quick ratio

X

4 times a year

2.5: 2

Y

10 times a year

0.8: 1

Which statement is correct?

Choices

Choice (4) Response

a.

Business Y has a good rate of inventory turnover but has poor liquidity.

b.

Business Y has a poor rate of inventory turnover and has poor liquidity.

c.

Business X has a good rate of inventory turnover but has poor liquidity.

d.

Business X has a poor rate of inventory turnover and has poor liquidity.

Answer

a.

Explanation

The inventory ratio is calculated on the basis of turnover.

The liquidity ratio shows the liquidity among the liquid assets and liquid liability.

Hence Y has greater inventory turnover ratio where as poor liquidity ratio compare to the X

Question number: 29

MCQ▾

Question

On the admission of new partner, in which ratio profit and loss adjustment A/C should be transferred to the capital account?

Choices

Choice (4) Response

a.

Old partners in their old profit – Sharing ratio

b.

All partner in the new profit – Sharing ratio

c.

All partner in the old profit – Sharing ratio

d.

Old partner in their new profit – Sharing ratio

Answer

a.

Explanation

On the admission of new partner’s profit and loss adjustment A/C should be transferred to the capital account in the following ratio: