Commerce Department Baghdad Campus IUB

Page | 1

Practice Questions for Ratio

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

QUESTION 1
The information below relates to the partnership of Moosa Butt and Waqar Butt. Moosa Butt and
Waqar Butt provided the following information.
Year ended 30 April 2019
Rs.
Page | 2
Opening inventory 17 000
Closing inventory 15 000
Purchases 238 000
Sales 300 000
REQUIRED

Rs.
Sales 120 000
Inventory at 1 October 2018 12 000
Purchases 91 000
Inventory at 30 September 2019 28 000
Expenses 15 000
Trade receivables 30 000
Trade payables 43 000
Bank overdraft 15 000
Capital 150 000

REQUIRED
(a) Calculate, to two decimal places, the following ratios. Show your workings.
(i) Gross profit to sales percentage
(ii) Rate of inventory turnover
(iii) Net profit to capital percentage
(iv) Working capital ratio (current ratio)

Jamal Ltd. obtained the following ratios for a similar business:

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

1 Gross profit to sales percentage 40 %

2 Rate of inventory turnover 6 times
3 Net profit to capital percentage 12 %
4 Working capital ratio (current ratio) 1.8 : 1

REQUIRED
Page | 3
(b) Using the information above and your answer to (a) compare and comment upon the
performance of Zainab Butt under the following headings.
(i) Controlling inventory
(ii) Net profit to capital percentage
(iii) Ability to pay trade payables

QUESTION 3
The following information was extracted from the books of Zoya Butt for the year ended 31 July 2019.
Rs.
Sales 174 600
Opening inventory 6 350
Purchases 89 150
Closing inventory 8 200
Sundry expenses 69 840
Drawings 6 984
Current assets 24 600
Current liabilities 16 400
REQUIRED
(a) Calculate, to one decimal place, the following ratios. Show your workings in the box provided.
Workings
(i) Gross profit/sales %
(ii) Net profit/sales %
(iii) Rate of inventory turnover
(iv) Current (working capital)ratio
(v) Quick ratio (acid test)
Zoya Butt’s main competitor generates gross profit/sales of 100% and net profit/sales of 15%.

REQUIRED
(b) Suggest how Jack could improve his ratios for gross profit/sales and net profit/sales to a
competitive level.

QUESTION 4
Zainab Butt is in business buying and selling goods on credit. The following balances were extracted from
her books on 30 April 2020
Rs.
Revenue (Sales) 200 000
Cost of sales 130 000
Expenses 65 000

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

Inventory 1 May 2019 20 000

Inventory 30 April 2020 60 000
Trade receivables 16 000
Trade payables 35 000
Loans repayable within 12 months (Bank overdraft) 5 000
Closing capital 100 000 Page | 4
REQUIRED
(a) Calculate, to one decimal place, the following ratios for the year ended 30 April
2020. Clearly show all workings.
(i) Gross profit to revenue (sales) percentage
(ii) Working capital ratio (current ratio)
(iii) Quick ratio (acid test)
(iv) Profit for the year to capital percentage
(b) Comment on the following ratios at 30 April 2020:
(i) Quick ratio (acid test)
(ii) Profit for the year to capital percentage.
In the previous year, ended 30 April 2009, the business of Zainab Butt achieved the following ratios:

Gross profit to revenue (sales) percentage 50%

Working capital ratio (current ratio) 1.7:1
REQUIRED
(c) Suggest one possible reason for the change over the year ended 30 April 2020 in the:
(i) gross profit to sales percentage;
(ii) working capital ratio (current ratio).

QUESTION 5
Moosa Butt Ltd. supplied the following information relating to his financial year ended 30 April 2020.
Rs.
Revenue (sales) 250 000
Inventory 1 May 2019 10 000
Inventory 30 April 2020 25 000
Gross profit to sales 40%
Profit for the year to sales 8%
REQUIRED
Calculate the following for the year ended 30 April 2020. Show all your workings.
(a) Cost of sales
(b) Raw materials (purchases)
(c) Expenses
(d) Rate of inventory (rate of inventory) turnover

QUESTION 6
Zoya Butt Ltd is in business buying and selling goods on credit. The following balances were taken from
the books of Zoya Butt Ltd.

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

Year ended Year ended

30 September 2019 30 September 2020
Non-current assets 80 000 200 000
Inventory 55 000 60 000
Trade receivables 50 000 90 000
Trade payables 30 000 75 000 Page | 5
Amount due in more than one year(long-term loan) - 50 000
Bank 15 000 -
Bank overdraft - 45 000

REQUIRED
(a) Calculate the following. Give your answers to two decimal places. Show your workings.
(i) Current ratio at 30 September 2019 and at 30 September 2020
(ii) Quick (acid test) ratio at 30 September 2019 and at 30 September 2020
(b) Suggest one reason for the change in liquidity between 30 September 2019 and 30 September
2020.
(c) Suggest four actions which Zoya Butt Ltd might take to improve its bank balance.

QUESTION 7
Zainab Butt is a trader who buys and sells goods on credit. She provided the following information:
For the year ended 30 April 2020 (Rs.) 2021 (Rs.)
Sales 220 000 180 000
Gross profit 110 000 72 000
Expenses 66 000 63 000
At 30 April 2020 (Rs.) 2021 (Rs.)
Inventory 46 000 35 000
Capital 160 000 180 000
Bank 20 000 (overdraft) 15 000
Trade receivables 50 000 40 000
Trade payables 60 000 60 000

Ratios/percentages 2020 2021

Percentage profit for the year/sales ? 5%
Percentage profit for the year/capital ? 5%
Working capital ratio (current ratio) 1.2:1 ?
Quick ratio (acid test) 0.6:1 ?

REQUIRED
(a) Calculate the following to one decimal place.
(i) Percentage profit for the year/sales for the year ended 30 April 2020
(ii) Percentage profit for the year/capital for the year ended 30 April 2020
(iii) Working capital ratio (current ratio) on 30 April 2021
(iv) Quick ratio (acid test) on 30 April 2021
(b) Suggest two possible reasons for the change in the profit for the year between the two years.
(c) Suggest two possible reasons for the change in bank balance in the year ended 30 April 2021.

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

QUESTION 8
Zoya Butt is in business buying and selling goods on credit. The following information was available at 30
April 2021.
Rs.
Inventory 1 May 2020 5 500
Inventory 30 April 2021 7 500 Page | 6
Capital 30 April 2021 75 000
Operating expenses for the year 23 500
Purchases for the year 72 000
Mark-up 50%

REQUIRED
(a) Calculate for the year ended 30 April 2021:
(i) Revenue (sales)
(ii) Rate of inventory turnover (correct to one decimal place)
(iii) Profit for the year
(iv) Percentage profit for the year /revenue (correct to one decimal place)
(v) Percentage profit for the year / capital (correct to one decimal place).
(b) Explain why businesses with a high rate of inventory turnover often have a low percentage net
profit to revenue.
(c) Zoya Butt is considering ways in which she might increase her rate of inventory turnover.
For each of the options below, place a (✓) to indicate whether the option would increase or decrease the
rate of inventory turnover.
Increase rate of Decrease rate of
inventory turnover inventory turnover
(i) Hold a ‘Sale’ and reduce prices by 20%.
(ii) Increase the inventory by $20 000.
(iii) Raise selling prices by10%.

QUESTION 9
The following information relates to the business of Mahad Butt, a wholesaler.
Rs.
Revenue (sales) for year ended 30 September 2021 200 000
Inventory 1 October 2020 18 000
At 30 September 2021
Inventory 36 000
Trade receivables 24 000
Bank overdraft 10 000
Trade payables 40 000
Mark up 25%
Profit for the year / sales 6%
REQUIRED
(a) Calculate for the year ended 30 September 2021:

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

(i) purchases
(ii) expenses
(b) Calculate at the 30 September 2021:
(i) working capital ratio (current ratio), correct to one decimal place
(ii) quick ratio (acid test), correct to one decimal place.
(c) Explain why the quick ratio (acid test) is a more accurate measure of the liquidity of a business Page | 7
than the working capital ratio (current ratio).
(d) State three actions that Samara could take to improve his bank balance.

QUESTION 10
The following information was extracted from the books of Fatima Butt.
Rs.
Revenue (sales) for the year ended 30 September 2021 80 000
Purchases for the year ended 30 September 2021 58 000
Inventory at 1 October 2020 6 000
Inventory at 30 September 2021 8 000
Bank overdraft at 30 September 2021 2 000
Trade payables at 30 September 2021 14 000
Trade receivables at 30 September 2021 16 000
REQUIRED
(a) Calculate the following:
(i) cost of sales
(ii) rate of inventory turnover .
(b) (i) Calculate the gross profit/sales percentage.
(ii) Anika's gross profit/sales percentage for the year ended 30 September 2020 was 40%.
Suggest two possible reasons for the change in the gross profit/sales percentage
between 30 September 2010 and 30 September 2021.
(c) Calculate the working capital (current) ratio correct to one decimal place.

QUESTION 11
Shah Ltd. provided the following information for the year ended 31 March 2022:
Rs.
Revenue (sales) 120 000
Inventory 1 April 2021 22 500
Inventory 31 March 2022 26 500
Gross profit/sales 20%
Profit for the year/sales 8%
REQUIRED
(a) Calculate for the year ended 31 March 2022:
(i) Cost of sales
(ii) Purchases
(iii) Expenses
(b) Calculate to two decimal places the rate of inventory turnover for the year ended 31 March 2022.
(c) Suggest two ways in which Shah Ltd. might increase his rate of inventory turnover.

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

Shah Ltd. is investigating a possible error in the valuation of the closing inventory on 31 March 2022. The
revised valuation may be Rs.30 000.
(d) Calculate the profit for the year if the closing inventory is valued at Rs.30 000.
(e) State three disadvantages of holding too much inventory.

QUESTION 12 Page | 8
Labib Shah Ltd. is a trader, buying and selling goods on credit. The following balances were available on
30 April 2022.
Rs.
Capital 350 000
Revenue 200 000
Expenses 40 000
Inventory 30 April 2022 25 000
Trade payables 50 000
Trade receivables 47 000
Bank overdraft 10 000
Profit for the year/sales 15%
REQUIRED
(a) Calculate the cost of sales. Show your workings.
(b) Calculate, to two decimal places, the following ratios:
(i) Percentage profit for the year/capital
(ii) Working capital ratio (current ratio)
(iii) Quick ratio (acid test)
Labib Shah Ltd. has been considering how he might improve his working capital ratio
(current ratio). The following proposals have been made.
1 Obtain a long term loan from the bank, Rs.5 000.
2 Pay half the trade payables in exchange for a cash discount of 4%.
3 Sell non-current assets with a net book value of Rs.12 000 for Rs.8 000.
REQUIRED
(c) Complete the following table showing the effect on the current assets, current liabilities and the
working capital ratio (current ratio). The first item has been completed as an example.
Current assets Current liabilities Working capital ratio
1 +Rs.5 000 No effect Increase
2
3

QUESTION 13
The trial balance of Fatima Butt Ltd., after the calculation of the gross profit, was as follows:
Fatima Butt Ltd.
Trial Balance at 30 September 2022
Dr (Rs.) Cr (Rs.)
Gross profit 120 000
Sundry expenses 57 000
Non-current assets (cost) 400 000

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

Non-current assets (provision for depreciation) 82 000

Trade receivables 55 000
Trade payables 85 000
Inventory at 30 September 2022 125 000
Cash 5 000
Bank loan (repayable 31 October 2022) 35 000 Page | 9
Capital 320 000
642 000 642 000
Additional information for the year ended 30 September 2022:
1 Mark-up on cost of sales, 25%.
2 Depreciation for the year on non-current assets, Rs.15 000.
REQUIRED
(a) Calculate the following for the year ended 30 September 2022:
(i) Revenue (sales)
(ii) Net profit/sales percentage
(iii) Net profit/capital percentage
(iv) Quick ratio (acid test)
(b) Explain to Fatima Butt Ltd. why the quick ratio (acid test) is a better measure of liquidity than the
working capital ratio (current ratio).
(c) Comment upon the adequacy of Fatima Butt’s cash for the next three months. Give one reason
for your comment.
(d) Suggest three ways in which Fatima Butt Ltd. might increase the cash in the business.

QUESTION 14
Chawala Ltd. is in business buying and selling goods on credit. The following information was available:
Rs.
Cost of sales 320 000
Inventory at 1 October 2021 25 000
Inventory at 30 September 2022 65 000
Expenses 60 000
Trade receivables 70 000
Trade payables 75 000
Bank overdraft 15 000
Mark up 25%

REQUIRED
(a) Calculate the following for the year ended 30 September 2022.
(i) Profit for the year
(ii) Rate of turnover of inventory
(iii) Gross profit to sales percentage
(iv) Net profit to sales percentage
(v) Working capital ratio (current ratio)
(b) Chawala’s rate of turnover of inventory last year was 4 times. Suggest two possible reasons for
any change between the years.
(c) Comment upon Chawala’s working capital ratio (current ratio) at 30 September 2022.
(d) Suggest one way in which Chawala Ltd. could improve his liquidity.

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

QUESTION 15
Tanzeela Ltd. supplied the following information for year ended 30 April:
1 2023 Rs.
Revenue 60 000
Cost of sales 48 000
2 2022 Page | 10
Revenue 58 000
Gross profit to sales ratio 33.3%

REQUIRED
(c) Calculate Tanzeela’s gross profit to sales ratio for the year ended 30 April 2023.
(d) Compare the gross profit to sales ratio in 2022 with your answer in (c) and suggest three possible
causes for any changes that may have taken place.
(e) Make two suggestions on how Tanzeela may use the gross profit to sales ratio.

QUESTION 16
The following balances were extracted from the books of Ahad Butt Ltd. on 31 March 2023.
Rs.
Equipment (net book value) 40 000
Delivery vans (net book value) 22 000
Inventory 10 670
Trade receivables 11 200
Other receivables 4 130
Bank overdraft 4 200
Trade payables 8 800
6% Bank loan (repayable 23 May 2026) 15 000
Capital 31 March 2023 70 000
Drawings 10 000

During the year Ahad Butt Ltd. had purchased non-current assets to the value of Rs.20 000.

REQUIRED
(a) Calculate the working capital.
(b) Calculate the following to two decimal places:
(i) Working capital ratio (current ratio)
(ii) Quick ratio (acid test ratio)

For the year ended 31 March 2012 Ahad Butt’s working capital ratio (current ratio) was 3:1 and his quick
ratio (acid test ratio) was 1:1.

(c) Suggest three reasons why Ahad Butt’s liquidity position may have changed.
(d) Suggest two courses of action Ahad Butt Ltd. could take to improve its liquidity.

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

QUESTION 17
BUTT Ltd. provided the following information for the year ended 30 April 2023.

Rs.
Inventory 1 May 2022 14 841 Page | 11
Inventory 30 April 2023 21 159
Cost of goods sold 90 000
Administration expenses 4 890
Selling expenses 7 485
Capital employed 1 May 2022 101 250
Mark up 25%
REQUIRED
(a) Calculate for the year ended 30 April 2023:
(i) Sales
(ii) Purchases
(iii) Profit for the year

(b) Calculate the following ratios. Comparative figures for the previous year are shown in the last
column.
Workings 30 April 2023 30 April 2022
Gross profit margin (gross profit to sales) 25%
Net profit margin (net profit to sales) 11%
8 times /
Rate of inventory turnover
45.6 days
Return on capital employed (ROCE) 12%

(c) Give two comments on the performance of Butt Ltd.’s business over the two years.
(d) Suggest three actions of Butt Ltd. may take to improve her rate of inventory turnover.

QUESTION 18
Shan’s accounting year ends on 30 April. The following information is supplied for 2021, 2022 and 2023.

2021 (Rs.) 2022 (Rs.) 2023 (Rs.)

Revenue (Sales) 150 000 225 000 300 000
Gross profit 37 500 56 250 75 000
Profit for year (Net profit) 18 750 23 400 27 990
Capital 150 000 195 000 240 000
Gross profit margin 25% 25% ?
Net profit margin 12.50% 10.40% ?
Percentage of expenses to sales 12.50% 14.60% 15.67%
Return on capital employed 12.5% 12% ?
REQUIRED
(a) Calculate, to two decimal places, the following ratios at 30 April 2023:
Gross profit margin
Net profit margin
Return on capital employed
(b) Using the ratios calculated in (a) comment on the profitability over the three years.

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

QUESTION 19
Weqar Butt’s Ltd. trial balance on 30 April 2023 was as follows:
Trial Balance as at 30 April 2023
Account Debit Credit
Rs. Rs.
Bank 1 750 Page | 12
Capital 113 500
Cash 250
Inventory 20 000
Long-term loan 30 000
Non-current assets 122 500
Other payables 6 860
Other receivables 1 400
Trade payables 12 140
Trade receivables 16 600
162 500 162 500
REQUIRED
(a) Calculate the following correct to two decimal places, at 30 April
2023: Working capital (current) ratio;
Quick (acid test) ratio.

Wenger’s working capital (current) ratio and quick (acid test) ratio at 30 April 2022 were 4:1 and 2:1
respectively.
REQUIRED
(b) (i) Comment on the change in the ratios between 2022 and 2023.
(ii) State three possible causes for any changes that have taken place.
(c) Advise Wenger on two measures he may take to improve his working capital.

QUESTION 20
Dil Ltd. is a trader, buying and selling goods on credit. The following information was available on 31
March 2024.
Rs.
Revenue 300 000
Inventory 31 March 2024 50 000
Purchases 170 000
Capital 100 000
Bank 5 000 Dr
Trade payables 60 000
Trade receivables 11 000
Gross profit/sales 20%
REQUIRED
(a) Calculate the:
(i) Cost of goods sold.
(ii) Inventory at 1 April 2023.
(b) Suggest two possible effects of holding too much inventory.

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

(c) Calculate, to two decimal places, the:

(i) Working capital ratio (current ratio)
(ii) Quick ratio (acid test ratio)
(d) Comment upon the sufficiency of the working capital ratio (current ratio).

During the year ended 31 March 2014, Dil Ltd. took the following actions. Page | 13
1 Repaid a Rs.40 000 long term bank loan.
2 Purchased Rs.20 000 of non-current assets on credit.
3 Sold inventory for Rs.20 000 on credit (cost Rs.15 000).

REQUIRED
(e) Complete the following table showing the effect on the current assets, current liabilities and the
working capital ratio (current ratio) for each of the actions 1 to 3 above. The first item has been
completed as an example.

Current Working capital ratio

Current assets
liabilities (current ratio)
Repaid a Rs.40 000 long
1 term bank loan. Decreased Rs.40 000 No effect Decreased
Purchased Rs.20 000 of
2 non-current assets
on credit.
Sold inventory for Rs.20
3
000
on credit (cost Rs.15 000).

QUESTION 21
Nabiha Butt Ltd. provided the following information for the year ended 31
March 2024. Rs.
Revenue 168 000
Inventory 1 April 2023 20 000
Inventory 31 March 2024 16 000
Purchases 122 000
Trade receivables 24 500
Trade payables 35 000
Capital 100 000
Bank 1 500 Dr
REQUIRED
(a) Calculate the:
Cost of goods sold
Gross profit/sales percentage
Rate of inventory turnover
Working capital ratio (current ratio)
In the previous year, ended 31 March 2023, Nabiha Butt Ltd. calculated the
following ratios: Gross profit /sales percentage 20%
Rate of inventory turnover 6 times
Working capital ratio (current ratio) 1.7:1

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

REQUIRED
(b) Comment upon the performance of Nabiha Butt Ltd. under the following headings, using the
information above and your answer in (a).
Controlling inventory
Ability to pay trade payables
Page | 14
(c) Suggest two possible reasons for the change in gross profit/sales percentage.
Nabiha Butt Ltd. is considering the following proposals to improve his working capital.
1 Sell obsolete inventory costing Rs.1 000 for cash Rs.500.
2 Sell non-current assets for Rs.3 000 cash.
3 Allow trade receivables to pay debts of Rs.4 000 less 5% cash discount.
4 Bring Rs.5 000 additional capital into the business: Motor vehicle Rs.3 000 and cash Rs.2 000.
REQUIRED
(d) Complete the following table showing the changes to working capital. The first proposal has been
completed as an example.
Working capital Amount of change
Proposals
increase decrease (Rs.)
1 ✔ Rs.500
2
3
4

QUESTION 22
Humna Butt Ltd. provided the following information.
Rs.
Profit from operations (before bank loan interest) 36 000
Capital 200 000
Trade payables 50 000
Trade receivables 45 000
8% Bank loan (repayable 2044) 100 000
Bank 60 000 Dr
Closing inventory 75 000
Cost of sales 480 000
Revenue 600 000

REQUIRED
(a) Calculate to one decimal place:
Ratio Workings Answer
Percentage gross profit/sales
Percentage net profit/sales
Return on capital employed (ROCE)
Working capital ratio (Current ratio)

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

(b) Comment upon the sufficiency of the working capital ratio (current ratio).
Humna Butt Ltd. is considering ways in which she might improve her return on capital employed
(ROCE).
She is considering the following proposals.
1 Introduce additional capital of Rs.10 000.
2 Repay half of the 8% bank loan. Page | 15
3 Sell Rs.20 000 non-current assets, saving Rs.3 000 in depreciation.
4 Convert Rs.25 000 of the 8% bank loan into a bank overdraft at 12% interest per annum.

REQUIRED
(c) Complete the following table, by placing a tick (√) in the appropriate box, to show the effect on
the profit for the year and the capital employed.
The first item has been completed as an example.

Profit for the year Capital employed

Proposals
increase decrease no effect increase decrease no effect
1
2
3
4

Humna Butt Ltd. is also considering improving her profit for the year by:
1 revaluing her business premises to the market value of Rs.120 000 (cost Rs.100 000)
2 removing the provision for doubtful debts.

REQUIRED
(d) Name which accounting concept would not be complied with if Humna Butt Ltd. implemented her proposals.

QUESTION 23
The following information relates to the business of Lilly Ltd..
Rs.
Revenue 200 000
Inventory 1 October 2023 15 500
Inventory 30 September 2024 24 500
Rate of inventory turnover 8 times
Net profit/sales 7%
REQUIRED
(a) Calculate the following.
Workings Answer
cost of sales
purchases
percentage gross profit to sales
expenses
profit for the year

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

Lilly’s inventory of Rs.24 500 needs to be adjusted for the following.

1 5 items costing Rs.10 each had been omitted from the inventory.
2 10 items costing Rs.25 each were damaged and could only be sold for Rs.15 each.
3 4 items were included in the inventory at the list price of Rs.300 each, having been marked up by
50%.
4 1 item costing Rs.20 was recorded in error in the inventory as Rs.200. Page | 16
REQUIRED
(b) Complete the following table showing the effect that each adjustment will have upon the
inventory valuation at 30 September 2024. The first item has been completed as an
example.

Effect on inventory value Value

Adjustment
increase decrease Rs.
1 √ 50
2
3
4

QUESTION 24
Baloch Ltd. provided the following information for the year ended 31 March 2019.
Rs.
Revenue 900 000
Inventory 1 April 2014 65 000
Inventory 31 March 2015 35 000
Expenses 105 000
Owner’s capital 300 000
Long term loan 150 000
Mark up 20%
REQUIRED
(a) Calculate for the year ended 31 March 2019:
(i) Cost of goods sold
(ii) Profit for the year
(b) Calculate the following ratios.
Workings 31 March 2019 31 March 2018
Profit margin (profit for the year to revenue) 5%
Rate of inventory Turnover 7 times
Return on capital employed (ROCE) 4%

(c) Give two comments on the performance of Baloch’s business over the two years.

QUESTION 25
Moosa Butt Ltd. provided the following information for the year ended 31 March 2019.
Rs.
Capital 40 000
Bank loan (repayable 1 Jan 2025) 10 000

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

Inventory 1 April 2018 15 000

Inventory 31 March 2019 35 000
Cost of sales 125 000
Trade receivables 25 000
Trade payables 70 000
Bank overdraft 30 000 Page | 17
Mark up 20%
Profit margin (profit for the year to revenue) 5%
REQUIRED
(a) Calculate the following for the year ended 31 March 2019.
(i) Revenue
(ii) Purchases
(iii) Expenses for the year

(b) Calculate the following ratios, correct to two decimal places. The previous year’s ratios are
shown in the last column.

Workings 31 March 2019 31 March 2018

Gross profit margin (gross profit to
25.61%
revenue)
Return on capital employed (ROCE) 12.00%
Rate of turnover of inventory 2.82 times
Quick ratio (acid test ratio) 0.91:1

(c) Comment on the changes to Moosa Butt Ltd’s business over the two years under the following
headings.
(i) Profitability
(ii) Liquidity

QUESTION 26
Naheed Butt Ltd. buys and sells goods on credit. The following information was available on 30 September 2019.
Rs.
Inventory 1 October 2018 11 000
Inventory 30 September 2019 37 000
Cost of goods sold 90 000
Profit for the year 18 900
Trade receivables 14 200
Trade payables 27 000
Bank 2 800 debit

Mark up 40%
REQUIRED
(a) Calculate the following for the year ended 30 September 2019.
(i) Revenue
(ii) Purchases
(iii) Expenses for the year

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

(b) Calculate the following ratios to two decimal places. Comparative figures for the previous year
are shown in the last column.
30 September 30 September
Workings
2019 2018
Profit margin (profit for the year to revenue) 12.13%
Rate of inventory turnover 2.00 times Page | 18
Working capital ratio (current ratio) 2.60:1
Quick ratio (acid test ratio) 1.10:1

(c) Comment on the performance Naheed Butt’s business over the two years under the following
headings.
(i) Inventory turnover
(ii) Ability to pay trade payables

QUESTION 27
Danish Ali Ltd. provided the following
information. For the year ended 31 July 2019
Rs.
Revenue 380 000
Purchases 295 000
Profit for the year 35 000
Gross profit margin 25%
At 31 July 2019
Rs.
Inventory 65 000
Trade receivables 42 000
Trade payables 52 000
Bank 13 000 debit
Expenses accrued 8 000
REQUIRED
(a) Calculate the following:
Workings Answer
Inventory at 1 August 2018
Rate of inventory turnover (to two decimal places)
Expenses paid in the year ended 31 July 2019
Working capital ratio (current ratio)
Quick ratio (acid test ratio)

Danish Ali Ltd. is considering the following proposals to improve his working capital.
1 Sell excess non-current assets for Rs.4 000
2 Sell old inventory costing Rs.15 000, for Rs.9 000 cash
3 Allow a trade receivable 5% cash discount for early payment of a debt of Rs.10 000
4 Pay expenses accrued of Rs.8 000
5 Bring additional capital into the business, motor vehicle Rs.5 000 and cash Rs.1 000

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

REQUIRED
(b) Complete the table, to show the effect on the working capital of each proposal. The first one has
been completed as an example.

Working capital
Amount
Proposal (Increase, decrease,
no effect)
Rs. Page | 19
1 Sell excess non-current assets for Rs.4 000 Increase 4 000
2 Sell old inventory costing Rs.15 000, for Rs.9000 cash
3 Allow a trade receivable 5% cash discount for early payment
of a debt of Rs.10 000
4 Pay expenses accrued of Rs.8 000
5 Bring additional capital into the business, motor vehicle Rs.5
000 and cash Rs.1 000

QUESTION 28
Labib Shah’s accounting year ends on 31 December. The following information is available.
2019(Rs.) 2018 (Rs.)
Revenue 750 000 600 000
Expenses 200 000 175 000
Profit for the year 100 000 50 000
Capital 250 000 250 000
Bank loan repayable 30 December 2014 ----- 120 000
Bank loan repayable 30 December 2020 80 000 -----
Inventory 60 000 260 000
Trade receivables 22 000 40 000
Trade payables 50 000 60 000
Other receivables 1 500 2 500
Other payables 8 500 3 500
Bank 28 000 Debit 40 000 Credit

REQUIRED
(a) Calculate the following ratios for 2019. Comparative figures for 2018 are shown. Your answers
should be calculated to one decimal place.
Workings Answer 2018
Gross profit to revenue (Gross profit margin) 37.5%
Return on capital employed (ROCE) based on
20%
profit for the year
Current ratio (Working capital ratio) 2.9:1
Quick ratio (acid test ratio) 0.4:1

(b) Using the ratios calculated in (a) and the information provided, comment on the:
(i) profitability over the two years
(ii) liquidity over the two years.

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

QUESTION 29
Robina Naheed Butt Ltd. provided the following information for the year ended 30 September 2019.
Rs.
Cost of sales 240 000
Trade payables 180 000
Trade receivables 120 000 Page | 20
8% Bank loan (repayable 2024) 30 000
Bank 20 000 Credit
Closing inventory 130 000

Gross profit margin 25%

REQUIRED
(a) Calculate the following for the year ended 30 September 2019. Comparative figures for the
previous year are shown.
Year ended 30 September 2016 Year ended 30
Workings Answer September 2014
Revenue Rs.220 000
Working capital ratio (Current ratio)
1.93:1
(to two decimal places)
Quick ratio (acid test ratio)
1.12:1
(to two decimal places)

(b) Comment on the liquidity position of Ng over the two years.

On 31 October 2019 Robina Naheed Butt Ltd. had Rs.15 000 in his business bank account. He is considering
ways to further improve his working capital.
REQUIRED
(c) Complete the table showing the effect on the working capital of the following
proposals. The first item has been completed as an example.

Proposal Effect on
Current Current Working
assets liabilities capital
Sell Rs.15 000 non-current assets for cash. + Rs.15 No effect +Rs.15 000
000
Introduce additional capital of Rs.10 000, consisting of Rs.5000
in cash and Rs.5000 non-current assets.
Obtain an additional bank loan for Rs.30 000, repayable in equal
instalments over five years.
Offer trade receivables a cash discount of 10% for quick
payment. Credit customers owing Rs.60 000 will accept this
offer.

From the desk of Jahanzaib Butt

Commerce Department Baghdad Campus IUB

QUESTION 30
Zainab Butt Ltd. is a trader, buying and selling goods on credit. The following information is available on
31 August 2016.
Rs.
Capital 60 000 Page | 21
Bank loan (repayable 2028) 20 000
Inventory 1 September 2014 29 000
Inventory 31 August 2019 31 000
Purchases 170 000

Percentage of gross profit to revenue (Gross profit margin) 25%

Percentage of profit for the year to revenue (Profit margin) 5%

REQUIRED
(a) Calculate the following for the year ended 31 August 2016. Comparative figures for the previous
year are shown.

Year ended 31 August 2019 Year ended

Workings Answer 31 August 2014
Revenue for the year Rs.200 000
Percentage mark-up 27%
Expenses for the year Rs.36 000
Return on capital employed (ROCE)
21%
based on profit for the year

(b) Give three comments about the performance of Zainab Butt Ltd.’s business over the two years.

From the desk of Jahanzaib Butt