A Level Business: Financial statements and Analysis of published accounts (Cambridge 9609) – 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 sections 10.1 (Financial statements) and 10.2 (Analysis of published accounts) of the Cambridge International AS & A Level Business 9609 syllabus for examination in 2026, 2027 and 2028. Both are A Level content. All businesses are invented and all money is in thousands of dollars unless stated. Use the ratio formulas from the syllabus appendix. Course links: the Cambridge A Level Business hub and the checklist. Use the study guide and revision notes first. Investment appraisal questions are in the finance and accounting practice set.

Questions

1. Define the term statement of profit or loss and explain one purpose of it. [3]

2. Dalverton Cycles Ltd had revenue of 2,640, cost of sales of 1,716 and expenses of 594. Tax is 20% of profit from operations. Dividends were 120. Calculate gross profit, profit from operations, taxation, profit for the year and retained earnings. [5]

3. Harlowick Garden Centres had revenue of 5,000, cost of sales of 3,200 and expenses of 1,250. Its main supplier raises prices so that cost of sales rises by 5%, with revenue and expenses unchanged. Calculate the new gross profit and profit from operations, and state the new gross profit margin. [4]

4. Ormeau Bakery has non-current assets 640, inventory 60, trade receivables 40, cash 100, current liabilities 150 and non-current liabilities 200. It then buys an oven for 120, paying 100 in cash and owing 20 to the supplier, due within 30 days. Calculate the new net current assets and net assets, and comment on the effect on liquidity using the current ratio. [5]

5. Rosthwaite Print holds 500 reams of specialist paper that cost 8 each. It can now be sold for 9 each, but 1.50 per ream must be spent on repackaging. Calculate the net realisable value of the stock, state how it should be valued, and explain one difficulty of valuing inventory. [4]

6. Harlowick Garden Centres buys a delivery vehicle for 54,000 (dollars). Its residual value is 9,000 and its useful life is five years. Use the straight-line method. (a) Calculate the annual depreciation. [2] (b) Calculate the net book value after two years. [1] (c) State the effect of depreciation on the statement of profit or loss and the statement of financial position. [2]

7. Wentwater Foods plc has current assets of 840, of which inventory is 420, and current liabilities of 600. Calculate the current ratio and acid test ratio, comment on the second, and suggest one way to improve liquidity. [6]

8. Ullmere Textiles had in Year 1 a gross profit margin of 34%, an operating profit margin of 10% and ROCE of 15%. In Year 2 revenue was 4,000, gross profit 1,320 and profit from operations 340. Issued shares were 1,000, reserves 1,150 and non-current liabilities 350. Calculate capital employed and the three Year 2 ratios, and comment on the change from Year 1. [6]

9. Rosthwaite Print had credit sales of 3,000, trade receivables of 350, credit purchases of 1,800 and trade payables of 240. Cost of sales was 2,580, with opening inventory 400 and closing inventory 460. Calculate trade receivables days, trade payables days and the rate of inventory turnover, and comment on the first two. [6]

10. Wentwater Foods plc has non-current liabilities of 1,200 and capital employed of 3,000. Profit for the year was 450 and dividends were 180. It has 1,500 thousand shares and the market price is 3.60 (dollars). Calculate gearing, earnings per share, dividend per share, dividend yield, the price/earnings ratio and dividend cover, and comment on one of them. [7]

11. Brynmoor Leisure plc borrowed to open new sites in Year 2. Year 1 figures are in brackets. Revenue 9,200 (8,000). Gross profit 3,496 (3,200). Profit from operations 920 (960). Current assets 1,950 (1,800), of which inventory 450 (300). Current liabilities 1,500 (1,200). Issued shares 2,000 (2,000), reserves 2,800 (2,500), non-current liabilities 2,700 (1,500). Year 1 ratios: gross profit margin 40%, operating profit margin 12%, ROCE 16%, gearing 25%, current ratio 1.5, acid test 1.25. (a) Calculate Year 2 capital employed, ROCE and gearing. [3] (b) Evaluate whether the expansion has improved performance and recommend whether the board should borrow again. [7]

Answers

1. It is a financial statement that shows the profit or loss a business made over a period [1]. One purpose is to show owners and lenders how revenue was turned into profit [1] so that they can judge whether the business is earning enough to survive and pay returns [1]. [3] Examiner insight: a definition and a purpose are separate points, so say what it is and then say who uses it and why.

2. Gross profit = 2,640 − 1,716 = 924 [1]. Profit from operations = 924 − 594 = 330 [1]. Tax = 20% × 330 = 66 [1]. Profit for the year = 330 − 66 = 264 [1]. Retained earnings = 264 − 120 = 144 [1]. [5] Examiner insight: showing each subtraction lets an error early in the chain be separated from later correct working.

3. New cost of sales = 3,200 × 1.05 = 3,360 [1]. Gross profit = 5,000 − 3,360 = 1,640 [1]. Profit from operations = 1,640 − 1,250 = 390 [1]. Gross profit margin = 1,640 ÷ 5,000 × 100 = 32.8% (down from 36%) [1]. [4] Examiner insight: a 5% rise in one cost line has a bigger percentage effect on profit from operations, which falls from 550 to 390, so a good answer notes this.

4. New non-current assets = 640 + 120 = 760 and cash is 0, so current assets = 60 + 40 = 100 [1]. Current liabilities = 150 + 20 = 170, so net current assets = 100 − 170 = −70 [1]. Net assets = 760 − 70 − 200 = 490, unchanged because one asset replaced another and 20 was owed [1]. Current ratio falls from 200 ÷ 150 = 1.33 to 100 ÷ 170 = 0.59 [1]. Liquidity is much weaker, so the bakery may struggle to pay its debts when due [1]. [5] Examiner insight: write out both sides of the change; answers that move only one line are the usual source of errors in amendment questions.

5. NRV per ream = 9 − 1.50 = 7.50, so total NRV = 500 × 7.50 = 3,750 [1]. Cost is 500 × 8 = 4,000 [1]. Stock is valued at the lower figure, 3,750, so profit falls by 250 [1]. One difficulty: the selling price is only an estimate and may change, so the value is a matter of judgement [1]. [4] Examiner insight: compare cost with NRV in the answer, because stating only the NRV leaves the valuation decision unsupported.

6. (a) (54,000 − 9,000) ÷ 5 [1] = 9,000 a year [1]. (b) 54,000 − 2 × 9,000 = 36,000 [1]. (c) The charge is an expense that lowers profit [1]; the asset’s net book value on the statement of financial position falls by the same amount [1]. [5] Examiner insight: a bare answer is harder to reward than one that shows the formula, and units matter.

7. Current ratio = 840 ÷ 600 = 1.4 : 1 [1]. Acid test = (840 − 420) ÷ 600 [1] = 0.7 : 1 [1]. The acid test is well below 1, so without selling inventory the firm has only 70 cents of liquid assets for each 1 owed [1]. One way: speed up collection from customers by tighter credit control [1], which brings cash in sooner and lifts liquid assets [1]. [6] Examiner insight: the comment should say what the figure means for this business, and a method should be explained, not just named.

8. Capital employed = 1,000 + 1,150 + 350 = 2,500 [1]. Gross profit margin = 1,320 ÷ 4,000 × 100 = 33% [1]. Operating profit margin = 340 ÷ 4,000 × 100 = 8.5% [1]. ROCE = 340 ÷ 2,500 × 100 = 13.6% [1]. All three fell from Year 1 (34%, 10%, 15%) [1], and the larger fall in the operating margin suggests expenses rose faster than revenue [1]. [6] Examiner insight: explain the pattern between the ratios, not just that each went down.

9. Receivables days = 350 ÷ 3,000 × 365 = 42.6 days [1]. Payables days = 240 ÷ 1,800 × 365 = 48.7 days [1]. Average inventory = (400 + 460) ÷ 2 = 430 [1]. Turnover = 2,580 ÷ 430 = 6.0 times [1]. The business collects cash in about 43 days but pays suppliers after about 49 [1], which helps cash flow, though stretching supplier terms could harm relationships [1]. [6] Examiner insight: using total revenue instead of credit sales changes the answer, so use the base the data gives.

10. Gearing = 1,200 ÷ 3,000 × 100 = 40% [1]. EPS = 450 ÷ 1,500 = 30c [1]. Dividend per share = 180 ÷ 1,500 = 12c [1]. Dividend yield = 0.12 ÷ 3.60 × 100 = 3.3% [1]. P/E = 3.60 ÷ 0.30 = 12 [1]. Dividend cover = 450 ÷ 180 = 2.5 times [1]. For example, cover of 2.5 means profit is more than twice the dividend, so the payout looks safe and leaves profit for reinvestment [1]. [7] Examiner insight: keep share figures in the same unit (cents or dollars) throughout, as mixing them gives answers that are out by a factor of 100.

11. (a) Capital employed = 2,000 + 2,800 + 2,700 = 7,500 [1]. ROCE = 920 ÷ 7,500 × 100 = 12.3% [1]. Gearing = 2,700 ÷ 7,500 × 100 = 36% [1]. (b) Revenue grew 15% (9,200 against 8,000) [1], but gross margin fell from 40% to 38% and operating margin from 12% to 10% [1], so profit from operations fell in absolute terms. ROCE fell from 16% to 12.3% as capital employed rose faster than profit [1]. Gearing rose from 25% to 36%, which raises interest and risk [1]. Current ratio fell from 1.5 to 1.3 and acid test from 1.25 to 1.0, with more cash tied up in inventory [1]. On the evidence the expansion has not yet improved returns, although new sites often take time to mature and the revenue growth may pay off later. Judgement: performance has weakened on every measure given [1]. Recommendation: do not borrow again until margins and ROCE recover; if the board does, fund it partly with shares to limit gearing [1]. [7] Examiner insight: evaluation answers tend to gain credit when each point uses a figure from the case and the final recommendation refers back to them.

Where marks are usually lost

• Skipping recalculation of tax and lower lines after an amendment.
• Moving only one side of a statement of financial position change.
• Using revenue instead of credit sales or credit purchases in days ratios.
• Using closing inventory where average inventory is needed.
• Missing non-current liabilities from capital employed.
• Mixing cents and dollars in the investment ratios.
• Giving ratios without a comparison, a meaning or a unit.
• Evaluating with no judgement or recommendation.

Next steps

• Review the revision notes and study guide.
• Course hub: Cambridge A Level Business and the checklist.
• Take all free 10-minute diagnostics at /diagnostics/.
• Book a free trial class: /trial/.

Frequently asked questions

Which sections of Cambridge 9609 do these questions cover? Section 10.1 Financial statements and section 10.2 Analysis of published accounts, A Level content in Cambridge AS and A Level Business 9609.

What are the most common mistakes in ratio analysis? Using total revenue instead of credit sales or credit purchases in days ratios, leaving non-current liabilities out of capital employed, and giving ratios without a comparison, meaning or unit.

What happens if a figure in the statement of profit or loss changes? Recalculate every line below it, including tax and profit for the year. A change in one cost line can have a much bigger percentage effect on profit.

How should I comment on a ratio? Say what the figure means for the business, compare it with another year or a rival, and explain the pattern between the ratios rather than just stating that each went up or down.

Official syllabus

Cambridge International AS & A Level Business 9609 syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment (Cambridge International Education): sections 10.1 and 10.2 and the appendix of ratios.