IGCSE Accounting Paper-1: Specimen Questions with Answers 305 - 307 of 338

Passage

Iqbal is a trader whose financial year ends on 30 June. All the purchases and sales are on credit basis.

He provides the following information for the year ending 30 June 2,019.

Information for the Year Ending 30 June 2,019
1 July 2,018-

$

Inventory

4,600

Debtors

6,000

30 June 2,019-

5,600

Debtors

During the year-

Cheque received from debtors

54,300

Discount Allowed

2,400

Carriage Inward

1,300

Bad debts written off

250

Total Purchases

42,650

On 30 June, some goods were stolen from the warehouse of Iqbal and goods worth $ 1,300 were left. The profit mark up of Mr. Iqbal is 20% .

Question 305 (1 of 4 Based on Passage)

Edit

Write in Brief

One Liner▾

Calculate the inventory turnover ratio of Mr. Iqbal upto two decimal places. (Marks 2)

Explanation

Question 306 (2 of 4 Based on Passage)

Edit

Write in Short

Short Answer▾

Prepare the Trading A/c of Iqbal for the year and find out the value of inventory stolen. (Marks 8)

Explanation

Ans

Iqbal

Trading A/c for the year ended 30 June 2,019

Trading a/C for the Year Ended 30 June 2,019
$

$

$

Sales

56,550

Cost of Goods Sold:

Opening Inventory

4,600

Purchases

42,650

Carriage Inward

1,300

48,550

Closing Inventory Left in warehouse

(1,300)

Stolen

(125)

(1,425)

47,125

Gross Profit

9,425

Working Notes:

(I) Cost of Goods Sold - Since gross profit is 20% of Cost of Goods Sold, Cost of Goods Sold will be equal to -

(II) Closing Inventory

(III) Closing Inventory Stolen (Loss by theft)

Question 307 (3 of 4 Based on Passage)

Edit

Write in Short

Short Answer▾

State what does the inventory turnover ratio measure and what is the average age of inventory? (Marks 2)

Explanation

  • Inventory Turnover Ratio measures the speed with which the inventory is converted into sales. It is the number of times inventory is sold in a year. Greater inventory turnover implies faster sales and indicates efficiency in inventory management whereas lower turnover shows inefficiency or overstocking.
  • Average Age of Inventory is the average time it takes to sell an inventory. It is calculated by dividing 12months or 365 days by the inventory turnover. Greater turnover implies lower inventory age and vice versa.

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