IGCSE Accounting Paper-2: Specimen Questions with Answers 66 - 69 of 103

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

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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.

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Calculate the following ratios of Micromax Ltd

(ii) Debt equity ratio

Explanation

(iii)

(ii)

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Calculate the following ratios of Micromax Ltd

(i) Operating profit ratio

Explanation

(i

(i)

Passage

Singer and Dancer are partners sharing profit in the ratio of 3: 2. Their balance sheet on 31st March 2014 was as follows:

Singer and Dancer are partners sharing profit in the ratio

Find out ratio of amount

Liabilities

Amount

Assets

Amount

Singer’s Capital

32500

Bank

40500

Dancer’s Capital

11500

Stock

7500

Creditors

48000

Debtors - 21500

Less: Provision for doubtful debts - 500

21000

Reserve fund

13500

Fixed Assets

36500

105500

105500

On 31st March 2014, they decided to dissolve the firm and the following information was provided by them: (i) Debtors were realized at a discount of 5%; (ii) Stock at £7000; (iii) Fixed assets at £42000; (iv) realization expenses were £1500; (v) All the creditors were fully paid.

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Does Dissolution of firm mean the same as dissolution of partnership?

Explanation

No, Dissolution of firm is not the same as dissolution of partnership. Two of the basic differences between the two term’s are as follows:

(i) In dissolution of partnership, the business is not terminated, but in dissolution of a firm; the business is terminated.

(ii) In dissolution of partnership; the assets and liabilities are revalued and a new balance sheet is drawn, where as in the dissolution of a firm, the assets are sold and the liabilities are paid off in full settlement.