AQA A-Level Accounting: Interpretation, analysis and communication of accounting 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 3.17, Interpretation, analysis and communication of accounting information, of the AQA A-level Accounting (7127) specification (version 1.1, October 2026, for A-level exams from June 2019 onwards). Section 17 is assessed on both Paper 1 and Paper 2. Give ratios to two decimal places.

Learn the content in the study guide and the revision notes. Questions on the twelve 3.8 ratios are in the 3.8 practice set. See also the AQA A-level Accounting hub and the 7127 checklist.

Questions

1. State the formula for interest cover and explain what a fall in it shows a lender. [2]

2. Wren Hotels plc: profit after tax £1,440,000; 8,000,000 issued ordinary shares; market price 270p. Calculate earnings per share and the price earnings ratio. [3]

3. Cobb Outdoor plc: profit after tax £1,330,000; ordinary dividends paid £560,000; 7,000,000 issued ordinary shares; market price 160p. Calculate the dividend per share, the dividend yield and the dividend cover. [4]

4. Identify two external stakeholders of a limited company and explain what each would look for in its published accounts. [4]

5. Brook Interiors keeps manual records. Its sales have doubled in two years, mostly on credit. Explain two advantages to Brook of changing to a computerised accounting system. [4]

6. Sana runs a market stall, sells only for cash and keeps only a cash book. Evaluate whether she should change to a full double entry system. [5]

7. Fenwick Tools plc has a profit after tax of £600,000 and 4,000,000 issued ordinary shares, giving earnings per share of 15.00p. Treating each separately, state the effect on profit for the year and on cash, and calculate the new EPS, assuming profit is unchanged. [6]

• (i) Issued 1,000,000 ordinary shares for cash at £1.50 each.
• (ii) Made a bonus issue of 1 share for every 4 held.
• (iii) Paid an ordinary dividend of £240,000.

8. Garth Bakeries Ltd has two branches. Management accounts for the year show:

£	North budget	North actual	South budget	South actual
Revenue	300,000	330,000	250,000	240,000
Total costs	255,000	291,000	215,000	196,800

(a) For each branch, calculate budgeted and actual profit, the profit variance, and profit as a percentage of revenue for budget and actual. [4] (b) Comment on the performance of the two branches. [2]

9. Lumen Lighting plc, year ended 30 June 2026: profit before interest and tax £2,400,000; interest payable £480,000; tax £480,000; ordinary dividends paid £720,000; 12,000,000 issued ordinary shares; market price 180p.

Ratios for 2025: earnings per share 10.50p; dividend per share 4.20p; dividend cover 2.50 times; dividend yield 2.50%; price earnings 16.00; interest cover 7.50 times.

(a) Calculate the same six measures for 2026. [6] (b) Evaluate the change in Lumen’s performance from the point of view of its shareholders. [6]

10. A retired investor wants a steady income and is choosing between two housebuilders.

	Alder Homes plc	Birch Homes plc
Earnings per share	30.00p	12.00p
Dividend per share	9.00p	7.50p
Market price	450p	150p
Dividend yield	2.00%	?
Dividend cover	3.33 times	?
Price earnings	15.00	?
Interest cover	9.00 times	2.50 times
Capital gearing	15%	45%

(a) Calculate the three missing ratios for Birch Homes plc. [3] (b) Evaluate which company better suits the investor. [5]

11. The finance director of Moor Engineering Ltd will present the year’s results to employee representatives, none of whom are accountants. Explain two ways she can make the information effective for this audience. [4]

12. Tarn Textiles plc dyes its fabric at its own works in the small town of Ellerby, which employs 45 people. The directors recommend closing the works and using an overseas contractor.

Item	£
Annual cost of dyeing in-house	1,150,000
Annual contractor charge	780,000
Extra annual shipping cost	90,000
One-off closure costs, including redundancy	350,000

(a) Calculate the annual saving and how long it will take to recover the closure costs. [3] (b) Assess the recommendation, considering its impact on stakeholders, the local and national economy and the environment. [9]

Answers

1. Profit before interest and tax / interest payable [1]. Profit covers interest fewer times, so there is more risk interest cannot be paid [1]. [2] Examiner insight: The top line is profit before interest; using profit after interest understates cover and loses the formula mark.

2. EPS = 144,000,000p / 8,000,000 [1] = 18.00p [1]. P/E = 270 / 18.00 = 15.00 times [1]. [3] Examiner insight: Convert profit to pence first; dividing 270p by an EPS of £0.18 gives a nonsense P/E.

3. Dividend per share = 56,000,000p / 7,000,000 = 8.00p [1]. Dividend yield = 8.00 / 160 × 100 = 5.00% [1]. Dividend cover = 1,330,000 / 560,000 [1] = 2.38 times [1]. [4] Examiner insight: Dividend cover uses profit after interest and tax; profit before tax gives a higher, wrong figure.

4. Lender [1]: looks at interest cover and capital gearing to judge whether interest can be paid and the loan repaid [1]. Supplier [1]: looks at the liquidity ratios and trade payable days to judge whether it will be paid on time [1]. Accept other external stakeholders with a matching need. [4] Examiner insight: Naming a stakeholder is not enough; say what it looks for and why.

5. Speed [1]: one entry updates every ledger, so more credit sales are processed without extra staff [1]. Up-to-date information [1]: an aged list of receivables is instant, so slow payers are chased sooner [1]. [4] Examiner insight: Apply each advantage to Brook’s growth or credit customers; a generic list is weaker.

6. A cash book is simple and cheap, and with no credit sales she has no receivables to track [1]. But there is no trial balance, so arithmetic errors may go unnoticed [1]. Statements must be reconstructed, which may raise accountant’s fees [1]. Double entry needs time and skill, or software and training [1]. Judgement: keep single entry while the business is small and cash-only; change if she sells on credit or needs a loan [1]. [5] Examiner insight: “Evaluate” needs both sides and a conclusion tied to Sana’s situation.

7. (i) No effect on profit; cash rises by £1,500,000 [1]. EPS = 60,000,000p / 5,000,000 = 12.00p [1]. (ii) No effect on profit or cash [1]. 1,000,000 new shares; EPS = 60,000,000p / 5,000,000 = 12.00p [1]. (iii) No effect on profit (statement of changes in equity); cash falls by £240,000 [1]. EPS stays at 15.00p [1]. [6] Examiner insight: Dividends are not an expense; saying the dividend reduces profit for the year loses the mark in (iii).

8. (a) North: budget profit £45,000, actual £39,000 [1]; variance £6,000 adverse; profit 15.00% of revenue budgeted, 11.82% actual [1]. South: budget profit £35,000, actual £43,200 [1]; variance £8,200 favourable; profit 14.00% budgeted, 18.00% actual [1]. (b) North sold £30,000 more than budget but costs rose £36,000: weak cost control or low-margin sales [1]. South earned more on lower sales by cutting costs £18,200, though its budget may have been easy [1]. [6] Examiner insight: Label each variance favourable or adverse; a figure with no direction may not be credited.

9. (a) Profit after tax = 2,400,000 - 480,000 - 480,000 = £1,440,000. EPS = 144,000,000p / 12,000,000 = 12.00p [1]. Dividend per share = 72,000,000p / 12,000,000 = 6.00p [1]. Dividend cover = 1,440,000 / 720,000 = 2.00 times [1]. Dividend yield = 6.00 / 180 × 100 = 3.33% [1]. P/E = 180 / 12.00 = 15.00 [1]. Interest cover = 2,400,000 / 480,000 = 5.00 times [1]. (b) EPS rose 14.3%, showing growth [1]. Dividend per share rose 42.9% and yield to 3.33%, good for income [1]. But cover fell from 2.50 to 2.00 times, so less profit is retained and the dividend is less safe [1]. Interest cover fell from 7.50 to 5.00 times, suggesting more borrowing and more risk [1]. The price rose only 7.1%, so P/E fell to 15.00: the market is slightly less confident [1]. Judgement: better for income-seeking shareholders, but watch borrowing; the price is taken on one date only [1]. [12] Examiner insight: A consistent comment on your own (a) figures may still be credited, so always finish (b).

10. (a) Dividend yield = 7.50 / 150 × 100 = 5.00% [1]. Dividend cover = 12.00 / 7.50 = 1.60 times [1]. P/E = 150 / 12.00 = 12.50 [1]. (b) Birch’s 5.00% yield is two and a half times Alder’s [1]. But Birch’s cover of 1.60 times against 3.33 puts its dividend at risk if profit falls [1]. Birch’s 45% gearing and 2.50 interest cover mean lenders come first in a downturn [1]. Birch’s lower P/E suggests the market sees more risk [1]. Judgement: Alder suits a steady income better; different year ends and policies may weaken the comparison [1]. [8] Examiner insight: Use the investor’s stated aim; picking the higher yield alone ignores “steady”.

11. Use charts [1]: a bar chart of profit over several years shows the trend faster than a table [1]. Use plain words and only relevant figures [1]: for example, explain liquidity as the ability to pay bills, which links to job security [1]. [4] Examiner insight: “Explain” needs a reason tied to non-accountant employees, not just a method.

12. (a) Annual saving = 1,150,000 - (780,000 + 90,000) [1] = £280,000 [1]. Time to recover = 350,000 / 280,000 = 1.25 years [1]. (b) Shareholders gain higher profit after 1.25 years [1]. The 45 employees lose their jobs [1]. Customers may face longer lead times or weaker quality control [1]. Local suppliers lose orders [1]. Ellerby loses 45 wages, so local shops suffer [1]. Nationally, income tax falls, benefits rise and imports of services rise [1]. Shipping fabric abroad and back raises transport emissions [1]. The contractor’s environmental standards may be weaker, risking Tarn’s reputation [1]. Judgement: financially strong, but proceed only if quality and standards are guaranteed [1]. [12] Examiner insight: Use the (a) figures in the judgement and cover every area the question names.

Where marks are usually lost

• Mixing pounds and pence in EPS, P/E and dividend yield.
• Using profit before tax for dividend cover, or profit after interest for interest cover.
• Treating dividends paid as an expense that reduces profit.
• Comparing EPS between companies with different numbers of shares.
• Recommending the highest dividend yield without checking dividend cover and gearing.
• Assessing a recommendation without a final, conditional 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 3.17, Interpretation, analysis and communication of accounting information.