IGCSE Accounting Paper-2: Specimen Questions with Answers 110 - 112 of 189
Question number: 110
One Liner Question▾
Write in Brief
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:
$ | |
(I) Cash | 1500 |
(II) Unearned Income | 2000 |
(III) Trade Receivables | 10000 |
(IV) Inventory | 15000 |
(V) Prepaid Expenses | 4000 |
(VI) Trade Payables | 6000 |
(VII) Bank Overdraft | 5500 |
Question number: 111 (1 of 5 Based on Passage) Show Passage
One Liner Question▾
Write in Brief
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 number: 112 (2 of 5 Based on Passage) Show Passage
Short Answer Question▾
Write in Short
Indicate with a tick whether the following transactions would increase, decrease or not alter the working capital ratio of Aparajita. (Marks 6)
Transactions | Change in Working Capital Ratio | ||
Increase | Decrease | Unaltered | |
(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 | Change in Working Capital Ratio | ||
Increase | Decrease | Unaltered | |
(I) Cash collected from trade receivables |  The Right Click | ||
(II) Sale of inventory on credit at par | The Right Click | ||
(III) Expiry of prepaid expenses | The Right Click | ||
(IV) Purchase of goods for cash | The Right Click | ||
(V) Payment to Trade payables | The Right Click | ||
(VI) Purchase of goods on credit | The Right Click | ||
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.