Edexcel A-Level Accounting: Analysis of accounting statements (YAC11) – 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 topic 1.5, Analysis of accounting statements (outcomes 1.5.1 to 1.5.3), in Unit 1 of the Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting (XAC11/YAC11) specification, Issue 2, September 2018. This is Unit 1 (International AS) content, so it counts towards both the International AS and the full International A Level. All businesses and figures are invented; amounts are in dollars. Give percentages and ratios to two decimal places unless told otherwise.

Learn the content first with the study guide and the revision notes. Course links: Edexcel A-Level Accounting hub, printable checklist and the free 10-minute diagnostics.

Questions

1. State the formula for the liquid (acid test) ratio and explain why inventory is left out of it. [2]

2. Imran Talbot owns Corvana Bikes. For the year, revenue was 315,000 and cost of sales was 210,000. Calculate the gross profit as a percentage of revenue and the percentage mark-up. [3]

3. A retailer sets selling prices so that gross profit is 28% of revenue.

(a) Calculate the percentage mark-up. [2] (b) Calculate the selling price of an item that costs 54. [1]

4. Corvana Bikes had opening inventory of 27,500 and closing inventory of 32,500. Cost of sales was 255,000. Calculate the rate of inventory turnover. [3]

5. At the year end Corvana Bikes had trade receivables of 21,900 and trade payables of 17,520. Credit sales for the year were 219,000 and credit purchases were 146,000.

(a) Calculate the trade receivables collection period. [2] (b) Calculate the trade payables payment period. [2] (c) Comment on the relationship between the two periods. [2]

6. Corvana Bikes’ profit for the year was 42,300 after charging loan interest of 4,200. At the year end Imran’s capital was 196,000 and there was a bank loan of 70,000 repayable in eight years. Calculate the return on capital employed. [4]

7. Rashida Seck and Ollie Pemberly trade as Halvard Stationers. Profit for the year was 58,800, after charging interest of 2,800 on a bank loan of 40,000 (non-current). The appropriation account gave Seck a salary of 12,000 and both partners interest on capital totalling 6,000. Capital accounts: Seck 90,000, Pemberly 70,000. Current accounts: Seck 8,000 credit, Pemberly 3,000 debit.

(a) Calculate the return on capital employed. [3] (b) Explain why the salary and interest on capital are not deducted in your calculation. [2]

8. Halvard Stationers had a current ratio of 2.00 : 1 and a liquid ratio of 0.97 : 1 last year. This year’s balances are: inventory 52,000; trade receivables 30,000; trade payables 38,000; accrued expenses 3,000; bank overdraft 3,000.

(a) Calculate this year’s current ratio and liquid ratio. [4] (b) Comment on the change in liquidity. [2]

9. A business has a current ratio of 2.40 : 1 and a liquid ratio of 1.50 : 1. Its current liabilities are 25,000. Calculate the value of its inventory. [3]

10. Dalia Mbeki runs Larchmere Optics as a sole trader. During the year ended 30 June 2026 she bought new testing equipment, partly financed by a bank loan, and cut the prices of her frames. Figures for 2026: revenue 390,000; cost of sales 234,000; expenses 105,300 including loan interest of 3,900; non-current assets 300,000; capital at 30 June 2026 230,000; bank loan (non-current) 65,000. Her ratios for 2025 were: gross profit as a % of revenue 42.00%, profit for the year as a % of revenue 15.50%, ROCE 19.80%, non-current assets to revenue 1.60 times.

(a) Calculate the four ratios for 2026. [8] (b) Evaluate whether the business’s profitability and use of assets improved in 2026. [4]

11. Halvard Stationers’ revenue this year is 400,000. For next year the partners forecast:

• revenue up 10%, with credit sales of 365,000
• gross profit at 30% of revenue
• inventory turnover of 7 times; opening inventory will be 41,000
• trade receivables collection period of 40 days
• trade payables payment period of 36.5 days; all purchases are on credit
• expenses of 98,000

(a) Calculate the forecast gross profit. [1] (b) Calculate the forecast closing inventory. [3] (c) Calculate the forecast credit purchases. [2] (d) Calculate the forecast trade receivables and trade payables. [2] (e) Calculate the forecast profit for the year as a percentage of revenue. [2]

Answers

1. (Current assets − Inventory) / Current liabilities, expressed as x : 1 [1]. Inventory must first be sold, and then often collected from credit customers, before it becomes cash, so it cannot be relied on to pay debts due soon [1]. [2] Examiner insight: An explanation that just says “inventory is not liquid” restates the question; link it to the time taken to turn inventory into cash.

2. Gross profit = 315,000 − 210,000 = 105,000 [1]. Gross profit % = 105,000 / 315,000 × 100 = 33.33% [1]. Mark-up = 105,000 / 210,000 × 100 = 50.00% [1]. [3] Examiner insight: Show each formula with the figures substituted; a bare percentage shows no method if it turns out to be wrong.

3. (a) Mark-up = 28 / (100 − 28) × 100 [1] = 38.89% [1]. (b) Selling price = 54 × 1.3889, or 54 / 0.72 = 75 [1]. Check: gross profit 21 is 28% of 75. [3] Examiner insight: Adding 28% to cost (giving 69.12) is the classic error; the margin is a percentage of the selling price, not of cost.

4. Average inventory = (27,500 + 32,500) / 2 = 30,000 [1]. Inventory turnover = cost of sales / average inventory = 255,000 / 30,000 [1] = 8.5 times [1]. [3] Examiner insight: Give the unit “times”; using closing inventory alone gives 7.85 times, a common error.

5. (a) 21,900 / 219,000 × 365 [1] = 36.5 days [1]. (b) 17,520 / 146,000 × 365 [1] = 43.8 days [1]. (c) Corvana collects from customers about 7 days before it pays suppliers [1]. This helps cash flow because cash comes in before it must go out, but if the payment period is beyond agreed terms, suppliers may withdraw credit or cash discounts [1]. [6] Examiner insight: A “Comment” needs a statement from the figures and why it matters to this business; quoting the two numbers again earns nothing.

6. NPBI = 42,300 + 4,200 = 46,500 [1]. Capital employed = 196,000 + 70,000 = 266,000 [1]. ROCE = 46,500 / 266,000 × 100 [1] = 17.48% [1]. [4] Examiner insight: Both adjustments matter: leaving out the loan or the interest add-back gives a different percentage, so set out NPBI and capital employed as separate labelled workings.

7. (a) NPBI = 58,800 + 2,800 = 61,600 [1]. Capital employed = 90,000 + 70,000 + 8,000 − 3,000 + 40,000 = 205,000 [1]. ROCE = 61,600 / 205,000 × 100 = 30.05% [1]. (b) The salary and interest on capital are appropriations of profit: they share out the profit between the partners after it has been earned [1]. ROCE measures the return the business makes on all the funds in it, so profit is taken before any division between partners [1]. [5] Examiner insight: Pemberly’s debit current account must be subtracted; adding it is a common slip that changes capital employed.

8. (a) Current assets = 52,000 + 30,000 = 82,000 [1]. Current liabilities = 38,000 + 3,000 + 3,000 = 44,000 [1]. Current ratio = 82,000 / 44,000 = 1.86 : 1 [1]. Liquid ratio = 30,000 / 44,000 = 0.68 : 1 [1]. (b) Both ratios fell, and the liquid ratio is now well below 1 : 1, so the business cannot meet its current liabilities from liquid assets [1]. Inventory is now a larger share of current assets (the gap between the two ratios widened) and the bank is overdrawn, so cash is tied up in stock; the partners should reduce purchases or speed up collection from customers [1]. [6] Examiner insight: The overdraft is a current liability, not a negative current asset; treating it as a deduction from current assets changes both ratios.

9. Current assets = 2.40 × 25,000 = 60,000 [1]. Liquid assets = 1.50 × 25,000 = 37,500 [1]. Inventory = 60,000 − 37,500 = 22,500 [1]. [3] Examiner insight: Label each intermediate figure (current assets, liquid assets) so your method is clear before the final subtraction.

10. (a) Gross profit = 390,000 − 234,000 = 156,000 [1]; GP % = 156,000 / 390,000 × 100 = 40.00% [1]. Profit for the year = 156,000 − 105,300 = 50,700 [1]; profit % = 50,700 / 390,000 × 100 = 13.00% [1]. NPBI = 50,700 + 3,900 = 54,600 and capital employed = 230,000 + 65,000 = 295,000 [1]; ROCE = 54,600 / 295,000 × 100 = 18.51% [1]. Non-current assets to revenue = 390,000 / 300,000 [1] = 1.30 times [1]. (b) The gross margin fell from 42.00% to 40.00%, which is consistent with the price cuts on frames [1]. Profit for the year % fell by 2.5 points, more than the gross margin, so expenses also rose as a share of revenue, possibly depreciation on the new equipment [1]. ROCE fell to 18.51% and non-current assets to revenue fell to 1.30 times, so the new equipment and loan have not yet produced matching revenue [1]. Judgement: profitability and use of assets both worsened in 2026, but the equipment may raise revenue in later years, so Dalia should review the next year’s figures before judging the investment [1]. [12] Examiner insight: “Evaluate” asks for a supported judgement, so end with a conclusion; a list of changes with no conclusion stops short.

11. (a) Revenue = 400,000 × 1.10 = 440,000; gross profit = 440,000 × 30% = 132,000 [1]. (b) Cost of sales = 440,000 − 132,000 = 308,000 [1]. Average inventory = 308,000 / 7 = 44,000 [1]. Closing inventory = 2 × 44,000 − 41,000 = 47,000 [1]. (c) Purchases = cost of sales + closing inventory − opening inventory [1] = 308,000 + 47,000 − 41,000 = 314,000 [1]. (d) Trade receivables = 365,000 × 40 / 365 = 40,000 [1]. Trade payables = 314,000 × 36.5 / 365 = 31,400 [1]. (e) Profit for the year = 132,000 − 98,000 = 34,000 [1]; 34,000 / 440,000 × 100 = 7.73% [1]. [10] Examiner insight: Projections build on each other, so set out each figure on its own labelled line; visible working makes an early slip, such as a wrong closing inventory, easy to trace.

Where marks are usually lost

• Dividing gross profit by revenue when the question asks for mark-up.
• Treating a margin as a mark-up when pricing an item.
• Using closing inventory instead of average inventory for turnover.
• Forgetting the loan interest add-back for NPBI, or the loan itself in capital employed.
• Adding a debit current account balance to partnership capital.
• Deducting partners’ salaries or interest on capital before calculating ROCE.
• Putting a bank overdraft on the wrong side of the liquidity ratios.
• Comments that describe a change without a cause from the scenario and an effect.
• In projections, using next year’s closing inventory as its opening inventory.

Next steps

• Revision notes
• Study guide
• Edexcel IAL Accounting exam preparation
• Edexcel A-Level Accounting hub
• Printable checklist
• All free 10-minute diagnostics
• Book a free trial class

Official syllabus

Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting (XAC11/YAC11) specification, Issue 2, September 2018, first teaching September 2015, published by Pearson Education Limited. Unit 1, topic 1.5 Analysis of accounting statements, and Appendix 7: Formulae.