AQA A-Level Accounting: Analysis and evaluation of financial information (7127) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover section 3.8, Analysis and evaluation of financial information, of the AQA A-level Accounting (7127) specification (version 1.1, October 2026, A-level exams June 2019 onwards). The qualification is not tiered, and the specification lists section 8 in the content assessed by both Paper 1 and Paper 2. Use a calculator throughout. Give percentages and ratios to two decimal places and days to one decimal place. All businesses and figures are invented.

Learn the content with the study guide and the revision notes. See also the AQA A-level Accounting hub, the 7127 checklist and the free diagnostics.

Questions

1. State the formula for the liquid capital ratio and explain why it leaves out inventory. [2]

2. Felling Hardware has revenue of £250,000 and cost of sales of £175,000. Calculate the gross profit margin and the markup. [3]

3. Orla Gifts prices every product at cost plus 25%. Its revenue for the year was £180,000. Calculate the gross profit margin and the cost of sales. [3]

4. Weir Stationers had revenue of £210,000, gross profit of £79,800 and expenses of £54,600. Calculate expenses in relation to revenue and profit in relation to revenue, and state how they link to the gross profit margin of 38.00%. [3]

5. Pike Pet Supplies had cost of sales of £252,000, opening inventory of £18,000 and closing inventory of £24,000. Calculate the rate of inventory turnover in times and in days. [3]

6. Ravel Electrical had trade receivables of £41,000 and credit sales of £410,000. Trade payables were £22,500 and credit purchases £219,000.

(a) Calculate trade receivable days. [2] (b) Calculate trade payable days. [2] (c) Comment on the relationship between the two results. [1]

7. Tamsin Print Ltd’s statement of financial position shows share capital £250,000, share premium £50,000, retained earnings £100,000 and a bank loan repayable in 2031 of £200,000. Profit from operations was £72,000 and loan interest £16,000.

(a) Calculate return on capital employed. [2] (b) Calculate capital gearing. [2] (c) Explain what the gearing figure shows. [1]

8. A business has current assets of £60,000, including inventory of £24,000 and bank of £8,000. Current liabilities are £30,000. Treat each transaction separately. For each, calculate the new current ratio and liquid capital ratio, and state the effect on profit. [8]

• (i) Paid a trade payable £6,000 from the bank.
• (ii) Bought inventory of £5,000 on credit.
• (iii) Sold goods that cost £4,000 for £6,000 on credit.
• (iv) Charged depreciation of £3,000.

9. Brennan Plumbing made a profit for the year of £35,000. During the year: depreciation was £6,000; inventory rose by £4,000; trade receivables rose by £7,000; trade payables fell by £2,000; a van was bought for £18,000 cash; drawings were £22,000; and a loan of £5,000 was received.

(a) Calculate the change in the bank balance for the year. [4] (b) The owner says, “We made £35,000 profit, so the bank must be up.” Explain why he is wrong. [2]

10. Explain two financial limitations and one non-financial limitation of using ratio analysis to assess a business’s performance. [6]

11. Linton Cycles is a sole trader. Extracts for the year ended 31 March 2026:

Item	£
Revenue (credit sales £240,000)	300,000
Cost of sales	195,000
Expenses (including loan interest £3,000)	75,000
Capital at 31 March 2026	160,000
Bank loan (non-current)	40,000
Inventory	26,000
Trade receivables	30,000
Bank	2,000
Trade payables	29,000

Last year’s ratios: gross profit margin 38.00%; profit in relation to revenue 12.50%; ROCE 19.00%; current ratio 1.80:1; liquid capital ratio 1.20:1; trade receivable days 32.0.

(a) Calculate the same six ratios for this year, using closing capital. [6] (b) Evaluate the performance of Linton Cycles over the two years. [6]

12. A bank is deciding whether to lend £100,000 to one of two companies in the same industry.

	Halden Ltd £	Marsh Ltd £
Share capital	200,000	150,000
Retained earnings	80,000	50,000
Non-current liabilities	120,000	200,000
Profit from operations	60,000	48,000
Current ratio	1.40:1	0.90:1

(a) Calculate capital gearing and ROCE for each company. [4] (b) Evaluate which company the bank should lend to. [6]

Answers

1. (Current assets - inventory) / current liabilities, expressed as x:1 [1]. Inventory must be sold before it becomes cash, so it is the least liquid current asset [1]. [2] Examiner insight: A formula written in words is fine; give the result in the x:1 form the specification uses for this ratio.

2. Gross profit = 250,000 - 175,000 = £75,000 [1]. Margin = 75,000 / 250,000 × 100 = 30.00% [1]. Markup = 75,000 / 175,000 × 100 = 42.86% [1]. [3] Examiner insight: Swapping the denominators is the classic slip; write the formula before substituting so the base is visible.

3. Margin = 25 / 125 × 100 = 20.00% [1]. Gross profit = 20% × 180,000 = £36,000 [1]. Cost of sales = 180,000 - 36,000 = £144,000 [1]. [3] Examiner insight: Taking 25% of revenue as gross profit gives £45,000 and a wrong cost of sales; the 25% applies to cost, not to revenue.

4. Expenses to revenue = 54,600 / 210,000 × 100 = 26.00% [1]. Profit = 79,800 - 54,600 = £25,200, so profit to revenue = 12.00% [1]. Gross margin minus expenses to revenue equals profit to revenue: 38.00 - 26.00 = 12.00 [1]. [3] Examiner insight: The link is a quick arithmetic check on your own answers; use it whenever both ratios are asked for.

5. Average inventory = (18,000 + 24,000) / 2 = £21,000 [1]. Turnover = 252,000 / 21,000 = 12 times [1]. Days = 21,000 / 252,000 × 365 = 30.4 days [1]. [3] Examiner insight: Using closing inventory alone gives 10.5 times; the specification’s formula uses average inventory.

6. (a) 41,000 / 410,000 × 365 [1] = 36.5 days [1]. (b) 22,500 / 219,000 × 365 [1] = 37.5 days [1]. (c) Ravel collects about a day before it pays suppliers, so supplier credit finances its receivables, with little margin if collection slows [1]. [5] Examiner insight: A comment needs a consequence for cash, not just “payable days are higher”.

7. (a) Capital employed = 250,000 + 50,000 + 100,000 + 200,000 = £600,000 [1]. ROCE = 72,000 / 600,000 × 100 = 12.00% [1]. (b) 200,000 / 600,000 × 100 = 33.33% [1] [1]. (c) A third of long-term finance is borrowed, so the company has fixed interest to pay whatever its profit; this is moderate gearing [1]. [5] Examiner insight: For a limited company use profit from operations, not profit after interest; £56,000 here would understate ROCE.

8. Start: current ratio 2.00:1, liquid 1.20:1.

	Current ratio	Liquid ratio	Profit
(i)	54,000 / 24,000 = 2.25:1 [1]	30,000 / 24,000 = 1.25:1	No effect [1]
(ii)	65,000 / 35,000 = 1.86:1 [1]	36,000 / 35,000 = 1.03:1	No effect [1]
(iii)	62,000 / 30,000 = 2.07:1 [1]	42,000 / 30,000 = 1.40:1	Up £2,000 [1]
(iv)	No change [1]	No change	Down £3,000 [1]

[8] Examiner insight: In this scheme each ratio mark needs both ratios right; show the new totals so a slip in one figure can be followed through.

9. (a) Non-cash item: 35,000 + 6,000 = 41,000 [1]. Working capital: 41,000 - 4,000 - 7,000 - 2,000 = 28,000 [1]. Other cash flows: 28,000 - 18,000 - 22,000 + 5,000 [1] = bank fell by £7,000 [1]. (b) Profit counts sales and expenses when earned or incurred, not when cash moves, and ignores cash spent on the van and drawings [1]. Here cash went into inventory, receivables, the van and drawings, so the bank fell despite the profit [1]. [6] Examiner insight: Watch the signs: a fall in trade payables is a cash outflow, since suppliers were paid more than was bought.

10. Financial limitation 1: data is historic [1], so it may not predict next year if, for example, a key customer has just been lost [1]. Financial limitation 2: businesses use different policies, such as depreciation methods [1], so ratios comparing two firms may reflect policy, not performance [1]. Non-financial limitation: staff morale and skill are not shown [1], yet they affect future productivity and service [1]. [6] Examiner insight: “Explain” needs a consequence after each limitation; a list of six limitations without development is likely to earn less than three developed ones.

11. (a) Gross profit = 105,000, so GP margin = 35.00% [1]. Profit = 105,000 - 75,000 = 30,000, so profit to revenue = 10.00% [1]. ROCE = (30,000 + 3,000) / 200,000 × 100 = 16.50% [1]. Current assets = 58,000; current ratio = 58,000 / 29,000 = 2.00:1 [1]. Liquid ratio = 32,000 / 29,000 = 1.10:1 [1]. Receivable days = 30,000 / 240,000 × 365 = 45.6 days [1]. (b) Profitability has fallen: gross margin is down 3 points and profit to revenue 2.5 points [1], possibly from discounting or higher supplier prices [1]. ROCE has fallen from 19.00% to 16.50%, a weaker return on the owner’s and lender’s funds [1]. The current ratio has risen but the liquid ratio has fallen, so the improvement rests on inventory, and bank is only £2,000 [1]. Receivable days rose from 32.0 to 45.6, suggesting weaker credit control and explaining much of the cash shortage [1]. Judgement: performance has worsened; Linton should chase receivables and review pricing, though one year-end may be untypical [1]. [12] Examiner insight: Evaluation credit usually goes to linked points (receivable days explaining low cash) and a clear judgement, not to restating each ratio.

12. (a) Halden: capital employed 400,000; gearing = 30.00% [1]; ROCE = 15.00% [1]. Marsh: capital employed 400,000; gearing = 50.00% [1]; ROCE = 12.00% [1]. (b) Halden is less geared, so a new loan adds less risk and its interest burden is lower [1]. Halden earns a higher ROCE, so it generates more profit to cover extra interest [1]. Marsh’s current ratio below 1:1 suggests it may struggle to pay short-term debts, a warning for any lender [1]. A further £100,000 would push Marsh’s gearing to 60.00% [1]. The bank should still check security and management quality, which ratios do not show [1]. Recommendation: lend to Halden [1]. [10] Examiner insight: A recommendation should follow from the figures; sitting on the fence without a decision limits the credit for “evaluate”.

Where marks are usually lost

• Using total revenue instead of credit sales for receivable days.
• Using closing inventory instead of average inventory.
• Confusing margin (on revenue) with markup (on cost of sales).
• Forgetting to add back loan interest in sole-trader ROCE.
• Writing liquidity ratios as percentages instead of x:1.
• Treating depreciation as a cash outflow in a cash versus profit question.
• Describing changes without causes, consequences or a judgement.

Next steps

• Revision notes for this topic
• Study guide for this topic
• Exam preparation guide
• AQA A-level Accounting hub
• 7127 checklist
• All free 10-minute diagnostics
• Book a free trial class

Official syllabus

AQA A-level Accounting (7127) specification, version 1.1, October 2026, for A-level exams June 2019 onwards, published by AQA – section 3.8, Analysis and evaluation of financial information.