IGCSE Accounting Paper-2: Specimen Questions with Answers 109 - 113 of 189

Question 109

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Mr. Abhishek sells shoes. He purchased goods costing $400 on credit from Mr. Albert. He also borrowed a sum of $1000 from his friend Ms. Aishwarya. What would be the amount of trade creditors in the books of Mr. Abhishek? (Marks 2)

Explanation

$400

  • Trade Creditors are those from whom the trader purchases GOODS on credit. Someone who lends money is a LENDER not a trade creditor.
  • Mr. Albert is a trade creditor whereas Ms. Aishwarya is a Lender in the given question.

Passage

The assets and liabilities of Aparajita’s business included the following:

The assets and liabilities of Aparajita’s business included The assets and liabilities of Aparajita’s business included
$
(I) Cash1500
(II) Unearned Income2000
(III) Trade Receivables10000
(IV) Inventory15000
(V) Prepaid Expenses4000
(VI) Trade Payables6000
(VII) Bank Overdraft5500

Question 110 (1 of 5 Based on Passage)

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Short Answer▾

Calculate Aparajita’s Working Capital (Marks 4)

Explanation

Question 111 (2 of 5 Based on Passage)

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Calculate Aparajita’s Working Capital Ratio (Marks 1)

Explanation

Question 112 (3 of 5 Based on Passage)

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If Aparajita wants to still improve her working capital ratio, which one of the above six transactions should she make? (Marks 1)

Explanation

Transaction (V)

Working Capital Ratio is improved when it is increased. Payment of a part or whole of trade payables will increase and hence improve the working capital ratio.

Question 113 (4 of 5 Based on Passage)

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Indicate with a tick whether the following transactions would increase, decrease or not alter the working capital ratio of Aparajita. (Marks 6)

Transactions would increaseTransactions would increase
TransactionsChange in Working Capital Ratio
IncreaseDecreaseUnaltered
(I) Cash collected from trade receivables
(II) Sale of inventory on credit
(III) Expiry of prepaid expenses
(IV) Purchase of goods for cash
(V) Payment to Trade payables
(VI) Purchase of goods on credit

Explanation

Transactions would increase.
TransactionsChange in Working Capital Ratio
IncreaseDecreaseUnaltered
(I) Cash collected from trade receivables
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(II) Sale of inventory on credit at par
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(III) Expiry of prepaid expenses
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(IV) Purchase of goods for cash
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(V) Payment to Trade payables
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(VI) Purchase of goods on credit
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  • One current asset (trade receivables) is being converted into another current asset (cash). Neither the total current assets nor the total current liabilities are changed. So, working capital ratio will also remain the same.
  • One current asset (inventory) is being converted into another current asset (receivables) by the same amount as the sale is at par. Neither the total current assets nor the total current liabilities are changed. So, working capital ratio will also remain the same.
  • Prepaid expense is a current asset till its expiry. On expiry, its balance is written off. Expiry of prepaid expenses will reduce current assets and hence the working capital ratio.
  • One current asset (cash) is being converted into another current asset (stock). Neither the total current assets nor the total current liabilities are changed. So, working capital ratio will also remain the same.
  • Payment to Trade payables reduces a current liability (trade payables) as well as a current asset (cash) by the same amount. The net effect of this is that working capital ratio is increased.
  • Purchase of goods on credit increases a current asset (stock) as well as a current Liability (trade payables) by the same amount. The net effect of this is that working capital ratio is decreased.

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