IGCSE Accounting Paper-2: Specimen Questions with Answers 65 - 68 of 189

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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 65 (3 of 6 Based on Passage)

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How can Micromax classify the various ratios based on the requirements of various users?

Explanation

Classification of ratios is done by Micromax Ltd based on the requirement of its users such as given below:

(i) Liquidity ratios – This is helpful for short term creditors.

(ii) Solvency ratios – this is helpful for long term creditors.

(iii) Activity ratios – This is helpful to the management.

(iv) Profitability ratios – These are helpful for the investors.

Question 66 (4 of 6 Based on Passage)

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Calculate the following ratios of Micromax Ltd

(i) Operating profit ratio

Explanation

(i)

= 25 %

(i)

Question 67 (5 of 6 Based on Passage)

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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.

Question 68 (6 of 6 Based on Passage)

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What is meant by Current ratio? What is the current ratio of Micromax Ltd?

Explanation

Current ratio is the relationship between the current assets and current liabilities of a firm. This ratio shows the ability of the firm to meet its short term obligations. The current ratio of Micromax Ltd is calculated to be 2: 1 which is the benchmark ratio of liquidity in any industry.

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