# IGCSE Accounting Paper-2: Specimen Questions with Answers 111 - 111 of 189

### 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 111 (1 of 5 Based on Passage)

### 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.

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