A Level Accounting: Analysis and communication of accounting info (Cambridge 9706) – 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 follow section 3.5 Analysis and communication of accounting information (A Level) in the Cambridge International AS & A Level Accounting 9706 syllabus for 2026, 2027 and 2028. All businesses and figures are invented, amounts are in $000 unless stated, and share numbers are in thousands. Use the appendix formulae, year-end balances and one decimal place unless told otherwise. Start with the study guide or the revision notes. See the course hub, the printable checklist and the diagnostics.

Questions

1. Petrelby Marine plc has revenue 8,000 (credit sales 7,300), cost of sales 4,380 and credit purchases 3,285. Trade receivables are 720, inventories 720 and trade payables 450. Calculate the working capital cycle in days. [4]

2. Orchardleigh Bakers plc has revenue 4,000, inventories 96, trade receivables 240 and trade payables 180.

(a) Calculate net working assets to revenue. [3] (b) Suggest why a bakery’s figure is low. [2]

3. Fenmarsh Lighting plc: year 1 profit from operations 480, interest payable 120, non-current liabilities 800, share capital 1,000, reserves 1,200. Year 2: 390, 195, 1,300, 1,000 and 1,250.

(a) Calculate interest cover and gearing for each year. [4] (b) Comment on the change for a lender. [2]

4. Kestrelwick Paper plc has only ordinary shares: profit for the year 1,260, 4,200 thousand shares, interim dividend paid 126, final dividend proposed 294. Calculate earnings per share, dividend per share (both in cents) and dividend cover. [6]

5. Ismerwick Cables plc has earnings per share 16 cents, dividend per share 6 cents and market price 2.40 dollars.

(a) Calculate price/earnings. [2] (b) Calculate dividend yield as a decimal. [2] (c) State what the price/earnings figure tells an investor. [1]

6. Gorsedene Furniture plc: receivables days 38 then 47, inventory days 55 then 68, payables days 53 then 46.

(a) Calculate the working capital cycle for both years. [2] (b) Explain two possible reasons for the change and one effect on finance. [3] (c) Suggest two measures to improve the position. [2]

7. Cressbrook Dairy plc has 2,000 thousand ordinary shares, share capital and reserves of 4,000, and tax at 25% of profit before tax. Before expansion: profit from operations 1,000, non-current liabilities 1,000 at 10%. After a new loan of 1,200 at 10%: profit from operations 1,200.

(a) Calculate interest cover, gearing and earnings per share (cents) before and after. [6] (b) Evaluate what the changes show. [4]

8. A student’s figures for Hawkesley Glass plc: interest cover 450 ÷ 90 = 5.0; gearing 500 ÷ (1,000 + 1,500) = 20.0%; dividend per share 100 ÷ 2,000 = 5.0 cents. Profit from operations is 720, profit for the year 450, interim dividend 40, final dividend 100, 2,000 thousand shares. Identify each error and give the correct figure. [6]

9. Tolvaddon Foods plc: profit for the year 1,200, 4,000 thousand shares, price 4.50 dollars, interim dividend 120, final 480. Hollowcombe Foods plc: 900, 3,000 thousand shares, price 6.00 dollars, interim 60, final 120. Both have only ordinary shares.

(a) Calculate price/earnings, dividend yield (decimal) and dividend cover for each. [6] (b) Recommend which a retired investor seeking regular income should buy. [4]

10. Rushmere Pottery plc, years 1 and 2: working capital cycle 48 then 55 days; interest cover 9.0 then 6.5; gearing 12.0% then 18.0%; earnings per share 21.0 then 24.5 cents; dividend cover 3.5 then 3.2. Year 2: profit from operations 585, interest payable 90 on loan notes of 900, share capital and reserves 4,100. The bank is asked for a further 800 at 10%; assume profit from operations is unchanged. Advise the bank. [10]

11. Kilvington Bikes plc’s dividend cover fell from 4.0 to 1.5 as earnings per share fell from 24.0 to 12.0 cents while dividend per share rose from 6.0 to 8.0 cents.

(a) Explain why this concerns shareholders. [2] (b) Suggest three measures to restore cover. [3]

Answers

1. Receivables 720 ÷ 7,300 × 365 = 36.0 days. [1] Inventory 720 ÷ 4,380 × 365 = 60.0. [1] Payables 450 ÷ 3,285 × 365 = 50.0. [1] Cycle 36.0 + 60.0 − 50.0 = 46.0 days. [1] [4] Examiner insight: Using revenue instead of credit sales or cost of sales gives different figures, and the syllabus allows only the appendix formulae.

2. (a) 96 + 240 − 180 = 156. [1] 156 ÷ 4,000 × 100 [1] = 3.9%. [1] (b) Most bread is sold for cash, so receivables are small. [1] Perishable stock is kept low. [1] [5] Examiner insight: Explaining a low figure needs a reason tied to this business, not a general statement.

3. (a) Year 1: 480 ÷ 120 = 4.0; 800 ÷ 3,000 × 100 = 26.7%. [1] [1] Year 2: 390 ÷ 195 = 2.0; 1,300 ÷ 3,550 × 100 = 36.6%. [1] [1] (b) Gearing is up and cover has halved, [1] so profit could pay the interest only twice and the lender’s risk has risen. [1] [6] Examiner insight: Quote both years’ figures, because a comment with no figures cannot show the movement.

4. EPS 1,260 ÷ 4,200 = 0.30 dollars = 30.0 cents. [1] [1] Annual dividend 126 + 294 = 420. [1] DPS 420 ÷ 4,200 = 10.0 cents. [1] Cover 1,260 ÷ 420 [1] = 3.0 times. [1] [6] Examiner insight: Dividend per share uses interim plus final dividend, so the final alone gives a smaller figure.

5. (a) 2.40 ÷ 0.16 [1] = 15.0. [1] (b) 0.06 ÷ 2.40 [1] = 0.025. [1] (c) The price is 15 times the latest earnings per share. [1] [5] Examiner insight: Convert cents to dollars, or dollars to cents, before dividing.

6. (a) Year 1: 38 + 55 − 53 = 40 days. [1] Year 2: 47 + 68 − 46 = 69 days. [1] (b) Customers paying slower (38 to 47 days) or more inventory held (55 to 68). [1] [1] Longer cycle needs more finance, such as an overdraft with interest. [1] (c) Any two: chase receivables or offer discounts; reduce slow-moving inventory; negotiate longer supplier credit. [1] [1] [7] Examiner insight: Link each cause to a ratio in the data rather than listing causes in general.

7. (a) Before: 1,000 ÷ 100 = 10.0; 1,000 ÷ 5,000 × 100 = 20.0%; (1,000 − 100) × 0.75 = 675, ÷ 2,000 = 33.8 cents. [1] [1] [1] After: interest 220: 1,200 ÷ 220 = 5.5; 2,200 ÷ 6,200 × 100 = 35.5%; (1,200 − 220) × 0.75 = 735, ÷ 2,000 = 36.8 cents. [1] [1] [1] (b) Gearing is up from 20.0% to 35.5% and cover is down from 10.0 to 5.5 because interest more than doubled. [1] [1] Earnings per share still rose because profit from operations grew faster than interest. [1] The gain lasts only while the new money earns more than 10%; with higher gearing earnings fall faster if profit drops. [1] [10] Examiner insight: A one-sided judgement is incomplete, so state a gain and a risk.

8. Interest cover should use profit from operations: [1] 720 ÷ 90 = 8.0 times. [1] Gearing must add non-current liabilities to the denominator: [1] 500 ÷ 3,000 × 100 = 16.7%. [1] Dividend per share must use interim plus final: [1] 140 ÷ 2,000 = 7.0 cents. [1] [6] Examiner insight: The syllabus credits a figure from a wrong formula only as your own figure in later work, not for the ratio itself.

9. (a) Tolvaddon: EPS 1,200 ÷ 4,000 = 30.0 cents; P/E 4.50 ÷ 0.30 = 15.0 [1]; DPS 600 ÷ 4,000 = 15.0 cents, yield 0.15 ÷ 4.50 = 0.0333 [1]; cover 1,200 ÷ 600 = 2.0 [1]. Hollowcombe: EPS 30.0 cents; P/E 6.00 ÷ 0.30 = 20.0 [1]; DPS 180 ÷ 3,000 = 6.0 cents, yield 0.06 ÷ 6.00 = 0.0100 [1]; cover 900 ÷ 180 = 5.0 [1]. (b) Tolvaddon pays a yield of 0.0333 against 0.0100. [1] Its cover of 2.0 is lower than 5.0, so the dividend is less safe. [1] Hollowcombe’s P/E of 20.0 suggests the market expects growth rather than income. [1] Recommend Tolvaddon for income, monitoring earnings because half of profit is paid out. [1] [10] Examiner insight: A recommendation needs a reason against it, because the answer is judged for balance.

10. After the loan: non-current liabilities 1,700, gearing 1,700 ÷ 5,800 × 100 = 29.3%. [1] Interest 90 + 80 = 170, cover 585 ÷ 170 = 3.4. [1] For: earnings per share rose 21.0 to 24.5. [1] Gearing of 18.0% is currently low. [1] Cover of 6.5 is comfortable now. [1] Against: cover fell from 9.0 to 6.5 and would fall to 3.4. [1] Gearing would rise to 29.3%. [1] The cycle lengthened from 48 to 55 days, which may need more finance. [1] Dividend cover is slipping. [1] Decision: lend only with conditions, such as a limit on dividends or evidence the new funds will raise profit. [1] [10] Examiner insight: Quote the calculated effect of the new loan, as the syllabus asks for a justified decision backed by a balance of reasons.

11. (a) Cover of 1.5 means profit pays the dividend only 1.5 times, [1] so little profit is retained and the dividend is at risk if profit falls again. [1] (b) Any three: raise profit from operations by cutting costs or lifting margins; reduce interest by repaying debt; hold or cut the dividend; shorten the working capital cycle to cut borrowing. [1] [1] [1] [5] Examiner insight: Name the ratio each measure improves, not only the action.

Where marks are usually lost

• Using revenue for receivables days instead of credit sales.
• Leaving non-current liabilities out of the gearing denominator.
• Using profit for the year in interest cover.
• Using the final dividend alone for dividend per share.
• Mixing cents and dollars in price/earnings and yield.
• Giving figures with no judgement, or judgement with no figures.
• Recommending without a reason against.

Frequently asked questions

Are these Cambridge 9706 ratio questions from past papers? No. They are eleven original questions with worked answers on section 3.5 of Cambridge 9706 A Level Accounting, written for revision. Use them alongside the official past papers.

Why should I quote both years’ figures when commenting on a ratio? A comment with no figures cannot show the movement, so quote both years and say whether the change is good or bad for the stated user.

How do I avoid unit errors with investor ratios? Convert cents to dollars, or dollars to cents, before dividing, and do not mix thousands of shares with whole-dollar profit.

What are the most common mistakes in A Level ratio questions? Common errors include using revenue instead of credit sales for receivables days, leaving non-current liabilities out of gearing, using profit for the year in interest cover, and using the final dividend alone for dividend per share.

Next steps

• Revise with the revision notes and the study guide.
• Course hub: Cambridge A Level Accounting; printable checklist.
• Take the free diagnostics to find gaps.
• Book a free trial class.

Official syllabus

Cambridge International AS & A Level Accounting 9706 syllabus for 2026, 2027 and 2028, published by Cambridge University Press & Assessment (Cambridge International Education): section 3.5 Analysis and communication of accounting information, and the appendix to section 3.