IGCSE Accounting Paper-2: Specimen Questions with Answers 62 - 64 of 103

Passage

Fancy dresses show the following information as on 31.12. 2012.

Debtors- £164000, Bad debts during the year 2012 amounts to £4000, Bad debts for the year 2013 amounts to £2000. Provision for bad and doubtful debts in 2012 is £5000 and for the year 2013 is@5%. Discount allowed in 2012 is £2000 and for the year 2013 a provision for discount on debtors is created@2%.

Question number: 62 (5 of 5 Based on Passage) Show Passage

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Essay Question▾

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What is the need for Fancy dresses to create a provision for bad and doubtful debts for the next accounting year in the current year itself?

Explanation

In the accounting system, the convention of conservatism is followed. According to this system, the business should foresee its loss in the future and make provisions for it, but however the future profits should not be accounted for. Similarly Fancy dresses as per the convention of conservatism provides for its doubtful debts for the next accounting year in the current year itself. Doubtful debts refer to those debts whose payments may or may not be received. As the goods are sold in the current year it is essential to make the provision also in the current year itself.

Passage

The following information is provided by Micromax Ltd:

Net Sales £100000; Cost of goods sold £60000; operating expenses £15000; Current assets £30000; Current liabilities £15000; Capital employed 120000; Long term debts £80000

Question number: 63 (1 of 6 Based on Passage) Show Passage

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Short Answer Question▾

Write in Short

Calculate the following ratios of Micromax Ltd

(i) Operating profit ratio

Explanation

(i

(i)

Question number: 64 (2 of 6 Based on Passage) Show Passage

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Short Answer Question▾

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What is the difference between current ratio and quick ratio?

Explanation

The difference between current ratio and quick ratio is as follows:

(i) In the computation of current ratio, the value of inventory is taken into consideration, while in quick ratio the value of inventory is not required.

(ii) For any firm, the benchmark current ratio is 2: 1, while quick ratio is 1: 1.