A Level Accounting: Analysis and communication (AS) (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 cover section 1.6, Analysis and communication of accounting information, of the Cambridge International AS & A Level Accounting 9706 syllabus for exams in 2026, 2027 and 2028 (AS Level). Learn the content first in the study guide or the revision notes. The course pages are the Cambridge A Level Accounting hub and the checklist. The businesses are invented and amounts are in dollars. Round percentages and days to 1 decimal place.

Questions

1. Dunmore Print Ltd is a printing company. State one item of information that (a) its employees and (b) a bank that has lent to it would want, and give a reason in each case. [2] [2]

2. Dunmore Print Ltd had revenue of 540,000 and cost of sales of 351,000. Calculate gross profit, gross profit margin and mark-up. [4]

3. Salter Fabrics Ltd had revenue of 700,000 and profit for the year of 41,000, after income tax of 9,000 and finance costs of 6,000. Issued shares were 200,000, reserves 60,000 and non-current liabilities 140,000.

(a) Calculate profit from operations, capital employed and return on capital employed. [3] (b) Calculate profit margin. [2]

4. At its year end Oakhurst Cycles Ltd holds 110,000 of current assets, including 74,000 of inventory, and owes 60,000 in current liabilities. Work out its two liquidity ratios. [4]

5. Mossgate Dairy Ltd had credit sales of 584,000, trade receivables of 80,000, credit purchases of 365,000 and trade payables of 40,000. Cost of sales was 420,000, opening inventory 22,000 and closing inventory 18,000. Calculate

(a) trade receivables turnover in days [2] (b) trade payables turnover in days [2] (c) inventory turnover in days. [2]

6. Mossgate Dairy Ltd (question 5) had revenue of 780,000 and non-current assets with a net book value of 260,000. Calculate the rate of inventory turnover and non-current asset turnover. [4]

7. Oakhurst Cycles Ltd had a current ratio of 1.9 : 1 and an acid test ratio of 0.9 : 1 last year. Using your answer to question 4 for this year, assess the change in liquidity for a supplier deciding whether to keep offering 60 days’ credit. [6]

8. Harlow Brook Bakery Ltd has a falling gross profit margin, a growing overdraft and slow-moving stock. Suggest one measure to improve each of profitability, liquidity and efficiency, and state one drawback of each. [6]

9. The finance director of Harlow Brook Bakery Ltd compares its ratios with those of a rival bakery. Explain two reasons why this comparison may mislead. [4]

10. The finance manager of Mossgate Dairy Ltd must report to (a) employees and (b) a lender considering a new loan. For each group choose two pieces of information, give a reason, and explain how the report should be presented. [6]

11. Bramwell Signs Ltd, year ended 30 June 2026 (dollars):

Revenue (credit sales 480,000)	600,000
Cost of sales	360,000
Operating expenses	150,000
Inventory	50,000
Trade receivables	60,000
Bank	10,000
Current liabilities	60,000
Non-current assets (net book value)	300,000
Issued shares	150,000
Reserves	130,000
Non-current liabilities	80,000

Trade body averages: gross profit margin 38.0%, operating expenses to revenue 27.0%, return on capital employed 18.0%, current ratio 1.8 : 1, acid test ratio 1.0 : 1, trade receivables 40.0 days.

(a) Calculate these six ratios for Bramwell Signs Ltd. [6] (b) Evaluate its performance against the averages. [4] (c) Recommend one measure to improve its weakest result and justify it. [2]

Answers

1. (a) Employees: profit trend or liquidity [1] because job security and pay depend on the business doing well [1]. (b) Bank: liquidity or profit from operations [1] to judge whether interest and capital can be paid [1]. Other sensible items and reasons are acceptable. [4] Examiner insight: A named item with no reason leaves the answer incomplete, so add “because” and link it to the group.

2. Gross profit = 540,000 - 351,000 = 189,000 [1]. Gross profit margin = 189,000 ÷ 540,000 × 100 = 35.0% [1]. Mark-up = 189,000 ÷ 351,000 × 100 [1] = 53.8% [1] [4] Examiner insight: Mark-up and margin share a numerator but not a divisor; write the divisor in words so you can see you have used cost of sales.

3. (a) Profit from operations = 41,000 + 9,000 + 6,000 = 56,000 [1]. Capital employed = 200,000 + 60,000 + 140,000 = 400,000 [1]. Return on capital employed = 56,000 ÷ 400,000 × 100 = 14.0% [1]. (b) Profit margin = 41,000 ÷ 700,000 × 100 [1] = 5.9% [1] [5] Examiner insight: Return on capital employed uses profit from operations, which is before finance costs and tax, so work back from profit for the year first.

4. Current ratio = 110,000 : 60,000 [1] = 1.8 : 1 [1]. Acid test = (110,000 - 74,000) : 60,000 [1] = 36,000 : 60,000 = 0.6 : 1 [1] [4] Examiner insight: Liquidity ratios are presented as ratios, so give “x : 1” rather than a percentage.

5. (a) 80,000 ÷ 584,000 × 365 [1] = 50.0 days [1]. (b) 40,000 ÷ 365,000 × 365 [1] = 40.0 days [1]. (c) Average inventory = (22,000 + 18,000) ÷ 2 = 20,000 [1]; 20,000 ÷ 420,000 × 365 = 17.4 days [1] [6] Examiner insight: Take care that each days ratio uses its own base: credit sales, credit purchases and cost of sales are three different divisors.

6. Rate of inventory turnover = 420,000 ÷ 20,000 [1] = 21.0 times [1]. Non-current asset turnover = 780,000 ÷ 260,000 [1] = 3.0 times [1] [4] Examiner insight: Inventory turnover in times is cost of sales over average inventory; quote the unit “times” with the answer.

7. The current ratio barely moved (1.9 : 1 to 1.8 : 1) [1], but the acid test ratio fell from 0.9 : 1 to 0.6 : 1 [1]. Inventory is 74,000 of 110,000 current assets (67.3%) [1], so liquid assets of 36,000 cover only 60% of current liabilities [1]. The business relies on selling inventory to pay suppliers, which is slower and uncertain [1]. The supplier should be cautious: keep credit but shorten terms or set a limit, and watch payments [1] [6] Examiner insight: A strong answer says which figure changed, what drives it, and what the named stakeholder should do about it.

8. Any three valid measures with drawbacks, for example: Profitability: negotiate cheaper ingredients [1], but quality may fall [1]. Liquidity: persuade customers to pay sooner or reduce stock [1], but customers may leave or stock may run out [1]. Efficiency: ordering stock just in time, or selling idle equipment [1], but supply failures disrupt baking or capacity is lost [1] [6] Examiner insight: Match each measure to the area named in the question; a liquidity measure offered for profitability does not answer the question.

9. Any two of, each explained: different accounting policies, such as depreciation or inventory valuation, change reported profit [1], so ratios are not like for like [1]. A different size, product range or location changes costs and margins [1], so a gap may not show poor performance [1]. Different year ends, finance structure or one-off items also distort comparison [4] Examiner insight: Name the limitation, then explain how it affects this comparison; a list of terms alone is rarely enough.

10. Employees: profit trend [1], because pay and job security depend on it; liquidity, because wages must be paid [1]. Lender: profit from operations and current ratio [1] because they show ability to pay interest and repay [1]. Presentation: tailor the length, give formulae and comparisons with last year or a benchmark [1], and end with a short plain judgement for each group [1] [6] Examiner insight: Show you have separated the two audiences; identical advice for both groups misses the point of the question.

11. (a) Gross profit margin = 240,000 ÷ 600,000 × 100 = 40.0% [1]. Operating expenses to revenue = 150,000 ÷ 600,000 × 100 = 25.0% [1]. Profit from operations = 240,000 - 150,000 = 90,000 and capital employed = 150,000 + 130,000 + 80,000 = 360,000, so return on capital employed = 25.0% [1]. Current assets total 120,000, so the current ratio is 120,000 to 60,000, which is 2.0 : 1 [1]. Acid test = (120,000 - 50,000) : 60,000 = 1.2 : 1 [1]. Trade receivables turnover = 60,000 ÷ 480,000 × 365 = 45.6 days [1] (b) Gross profit margin (40.0% against 38.0%) and operating expenses to revenue (25.0% against 27.0%) are both better than average [1]. Return on capital employed of 25.0% is well above 18.0% [1]. Liquidity is stronger than average on both ratios (2.0 : 1 and 1.2 : 1) [1]. The weakness is collection: 45.6 days against 40.0 days [1] (c) Tighter credit control on trade receivables, for example a reminder system or early settlement discount [1]. At 40 days receivables would be 480,000 × 40 ÷ 365 = 52,603, releasing about 7,397 of cash. This is a modest gain because liquidity is already good, so a discount must cost less than the benefit [1] [12] Examiner insight: For evaluate questions, compare every ratio with its benchmark in the same sentence as your judgement, then tie the recommendation to the weakest result.

Where marks are usually lost

• Giving a ratio without the formula, or with a formula that is not the appendix one; the syllabus says only those formulae are accepted.
• Using total sales or purchases in the days ratios when credit figures are given.
• Using closing inventory where the formula says average inventory.
• Forgetting non-current liabilities in capital employed, or using profit for the year in return on capital employed.
• Writing the answer with no unit: %, : 1, days or times.
• Saying a ratio “went up” or “is good” without a comparison, a cause or a consequence.
• Offering a recommendation with no drawback, or one that does not fit the ratio in the question.
• Giving the same points to every stakeholder.

Frequently asked questions

Are these Cambridge 9706 AS ratio questions from past papers? No. They are original practice questions with worked answers on section 1.6 of Cambridge 9706 AS Accounting, written for revision. Use them alongside the official past papers.

Why should I write the formula before calculating a ratio? The syllabus accepts only the appendix formulae, and giving a ratio without the formula is a common way to lose marks. Writing the divisor in words also helps you check you have used the right base.

How do I answer questions about different stakeholders? Give each stakeholder the information it actually needs and explain why. Giving the same points to every stakeholder misses the point of the question.

What makes a strong ratio evaluation? Say which figure changed, what drives it and what the named stakeholder should do about it, comparing each ratio with its benchmark as you make your judgement.

Next steps

• Review with the revision notes and the study guide.
• Open the Cambridge A Level Accounting hub and tick off the checklist.
• Find gaps with the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge International AS & A Level Accounting 9706 syllabus for exams in 2026, 2027 and 2028, published by Cambridge University Press & Assessment (Cambridge International): section 1.6 Analysis and communication of accounting information, and the appendix of commonly used ratios.