IGCSE Accounting Paper-1: Specimen Questions with Answers 304 - 305 of 338

Question number: 304

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MCQ▾

Question

Ramzan isuues a cheque to shehnaz in payment for goods purchased from her previous month. How should this transaction be entered in the books of Ramzan?

Choices

Choice (4)

a.

Debit- Shehnaaz, Credit- Bank A/c

b.

Debit- Purchases A/c, Credit- Shehnaz

c.

Debit- Purchases A/c, Credit- Bank A/c

d.

Credit- Shehnaaz, Debit- Bank A/c

Answer

c.

Explanation

Shehnaz is Ramzan’s supplier. Suppliers are creditors and normally have a credit balance. When a supplier is paid off, its balance decreases by that amount. To record decrease Shehnaz would be debited.

Bank A/c normally has a debit balance. When a cheque is paid, the bank balance decreases, so to record the decrease, Bank A/c will be credited.

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 2019.

Information for the year ending 30 June 2019Information for the year ending 30 June 2019

1 July 2018-

$

Inventory

4600

Debtors

6000

30 June 2019-

5600

Debtors

During the year-

Cheque received from debtors

54300

Discount Allowed

2400

Carriage Inward

1300

Bad debts written off

250

Total Purchases

42650

On 30 June, some goods were stolen from the warehouse of Iqbal and goods worth $1300 were left. The profit mark up of Mr. Iqbal is 20%.

Question number: 305 (1 of 4 Based on Passage) Show Passage

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Short Answer Question▾

Write in Short

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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