IGCSE Accounting: Analysis and Interpretation — Practice Questions

Syllabus edition note. This resource follows the Cambridge IGCSE Accounting 0452 syllabus for exams in 2027, 2028 and 2029 (version 1), first examined in the March 2027 series in India and the June 2027 series elsewhere. If you sit 0452 in November 2026, you sit the 2026 syllabus (version 2), which differs: Paper 1 has 35 multiple-choice marks in 1 hour 15 minutes, not 40 marks in 1 hour 30 minutes; Topic 7 is “Accounting principles and policies”, without 7.2 Ethical considerations or 7.3 Technology and sustainability; 4.4 is “Irrecoverable debts and provision for doubtful debts”; income statements are named instead of statements of profit or loss; three-column running balance accounts are not required; Clubs and societies is 5.4 and Manufacturing accounts 5.5; and 6.3 is “Inter-firm comparison”. For this topic, the 2026 syllabus lists eight ratios without inventory turnover in days (mark-up appears only in its ratio appendix), names ROCE’s numerator “net profit before interest”, lists interested parties as owners, managers, trade payables, banks, investors, club members and others such as governments and tax authorities, and gives the limitations of accounting statements as historic cost, difficulties of definition and non-financial aspects. If you sit in November 2026, work from the 2026 syllabus on the Cambridge International website.

These are original practice questions written in the style of Cambridge IGCSE Accounting (0452) assessment objectives. They are not taken from any past paper and are not endorsed by Cambridge International.

Use these questions alongside the Analysis and Interpretation study guide and revision notes. Accounting 0452 is not tiered, so every question below applies to all candidates. Use only the syllabus ratio formulas, and give every percentage, ratio, number of times and number of days to 2 decimal places.

Short-answer questions

Cambridge IGCSE Accounting 0452 question papers are not divided into lettered sections, so the questions below are grouped only by length.

1. State the formula for return on capital employed (ROCE) given in the syllabus, including what capital employed consists of. [3]

2. A business has revenue of $72,000 and cost of sales of $54,000. Calculate its gross profit, its gross profit margin and its mark-up. [3]

3. Explain why the acid test (liquid) ratio leaves out inventory, and state how the answer to a current ratio or acid test calculation should be presented. [2]

4. State one way each of the following interested parties may use a business’s or club’s accounting information for decision-making: (i) employees; (ii) suppliers; (iii) club members; (iv) governments / tax authorities. [4]

5. Explain briefly how each of the following limits the usefulness of accounting statements: (i) historic cost; (ii) application of accounting policies; (iii) non-financial aspects. [3]

6. Explain how a business can have a high gross profit margin but a low profit margin. [2]

Longer questions

7. A shop’s opening inventory was $18,000 and its closing inventory was $22,000. Cost of sales for the year was $180,000.

(a) Calculate the rate of inventory turnover (times). [2] (b) Calculate the inventory turnover (days). [1] (c) Last year the rate of inventory turnover was 11.00 times. Explain two possible consequences for the shop of the change. [2]

8. Mira Stores sells and buys on credit. For the year: credit sales $146,000; credit purchases $109,500. At the year end: trade receivables $20,000; trade payables $12,000. Mira allows customers 30 days’ credit, and her suppliers allow her 60 days.

(a) Calculate the trade receivables turnover (days). [1] (b) Calculate the trade payables turnover (days). [1] (c) Comment on each result, comparing it with the credit terms. [2] (d) Recommend two ways Mira could improve her working capital position. [2]

9. A trader values her closing inventory at cost, $14,000. It includes goods that cost $4,000 but, because they are damaged, can now be sold for only $2,500.

(a) State the effect of this valuation on gross profit and on profit for the year. [2] (b) The trader’s purchasing prices rise, but she does not change her selling prices. Explain the effect on her gross profit margin. [2] (c) In a later year she sells 20% more units, with selling prices and purchasing prices unchanged. Explain the effect on gross profit and on the gross profit margin. [2]

10. Priya, a sole trader, made a profit for the year of $30,000, but her bank balance fell by $4,000 during the year. Her records show that during the year she bought a delivery van for $25,000 by bank transfer; depreciation of $6,000 was charged; inventory increased by $8,000; she took drawings of $12,000 in cash from the bank; and trade receivables fell by $5,000.

(a) Explain why buying the van and charging depreciation affect profit and cash differently. [2] (b) Using the information, explain two other reasons why the bank balance fell although a profit was made. [2]

11. Two businesses publish the following ratios for the same year.

                                   Corner Fresh      Oakwood Furniture
Type of business                   Grocery shop      Furniture retailer
Location                           City centre,      Out of town,
                                   rented shop       owns its premises
Gross profit margin                    22.00%              45.00%
Rate of inventory turnover         26.00 times          4.00 times
Trade receivables turnover            3.00 days          42.00 days

(a) Explain two factors, other than how well each business is managed, that may cause the differences in these ratios. [4] (b) State two problems of making this inter-business comparison. [2]

12. Dev, a sole trader, provides these figures. Commission received is his only other income.

                                  2025        2026
                                     $           $
Gross profit                    84,000      90,000
Commission received              5,000       1,000
Expenses                        60,000      68,000

(a) Prepare a statement comparing the results for the two years, showing profit for the year for each year and the change in each figure. [2] (b) Explain why profit for the year fell although gross profit rose. [2] (c) Suggest two ways Dev could improve his profit for the year. [2]

13. Structured question in the style of Paper 2. [20]

Linden Supplies Limited is a trading company. In 2026 the directors cut selling prices on several product lines and employed two extra sales staff. The company allows credit customers 45 days to pay. Extracts from its financial statements for 2026 are shown below.

Statement of profit or loss (extract) for the year ended 31 December 2026
                                                     $
Revenue                                        250,000
Cost of sales                                  175,000
Gross profit                                    75,000
Other income                                     1,000
Expenses                                       (51,000)
Debenture interest                              (3,000)
Profit for the year                             22,000

Statement of financial position (extract) at 31 December 2026
                                                     $
Non-current assets                             195,000
Inventory                                       36,000
Trade receivables                               30,000
Other receivables                                1,000
Bank                                             3,000
Current assets                                  70,000
Trade payables                                  32,000
Other payables                                   3,000
Current liabilities                             35,000
10% debentures                                  30,000
Ordinary shares                                150,000
General reserve                                 10,000
Retained earnings                               40,000

Credit sales for 2026 were $200,000. The company’s ratios for 2025 were:

Gross profit margin                   34.00%
Mark-up                               51.52%
Profit margin                         11.00%
ROCE                                  13.50%
Current ratio                       2.40 : 1
Acid test                           1.30 : 1
Trade receivables turnover         40.00 days

(a) Calculate the following ratios for 2026: (i) gross profit margin [1]; (ii) mark-up [1]; (iii) profit margin [1]; (iv) return on capital employed, showing the profit before interest and the capital employed [3]; (v) current ratio [1]; (vi) acid test ratio [1]; (vii) trade receivables turnover (days) [1]. (b) Compare the profitability of the company in 2026 with 2025, giving a reason for each change you identify. [3] (c) Comment on the company’s liquidity in 2026 compared with 2025, and recommend two ways it could improve its working capital. [4] (d) The directors plan to ask the bank for a loan. Explain two things the bank would look for in the financial statements. [2] (e) Explain two limitations of using these financial statements to judge the company’s performance. [2]

---

Answers

1. Profit for the year before interest ÷ capital employed [1] × 100 (given as a percentage) [1], where capital employed = issued shares + reserves + non-current liabilities [1].

2. Gross profit = $72,000 − $54,000 = $18,000 [1]. Gross profit margin = $18,000 ÷ $72,000 × 100 = 25.00% [1]. Mark-up = $18,000 ÷ $54,000 × 100 = 33.33% [1].

3. Inventory is the current asset least easily turned into cash (it must be sold first, and often on credit), so the acid test shows whether current liabilities could be paid without relying on selling it [1]. Both answers are presented as a ratio, for example 1.50 : 1 [1].

4. One mark for each, any reasonable use: (i) employees — to judge whether their jobs are secure or whether the business can afford a pay rise [1]; (ii) suppliers — to decide whether to supply goods on credit and how much credit to allow, by checking liquidity and how quickly trade payables are paid [1]; (iii) club members — to see how subscriptions have been used and whether the club made a surplus or deficit, and so whether subscriptions need to change [1]; (iv) governments / tax authorities — to assess the tax payable (or to decide on grants, or collect statistics) [1].

5. (i) Historic cost: assets are shown at their original cost, not their current value, so figures can be out of date and figures from different years are not comparable [1]. (ii) Application of accounting policies: choices and estimates such as the depreciation method or inventory valuation change profit and asset values, so businesses using different policies (or one business after a change of policy) are hard to compare [1]. (iii) Non-financial aspects: factors such as the skill of the workforce, the location of the business or the economic climate cannot be measured in money, so they do not appear in the statements [1].

6. The gross profit margin is measured before expenses, so goods can be sold at a good gross profit per $100 of revenue [1] while high expenses (or low other income) leave little profit for the year per $100 of revenue, giving a low profit margin [1].

7. (a) Average inventory = ($18,000 + $22,000) ÷ 2 = $20,000 [1]. Rate of inventory turnover = $180,000 ÷ $20,000 = 9.00 times [1]. (b) Inventory turnover = $20,000 ÷ $180,000 × 365 = 40.56 days [1]. (c) The rate has fallen from 11.00 to 9.00 times, so inventory is being sold more slowly. [2, allow 1 mark each for any two of: more cash is tied up in inventory, reducing liquidity; a greater risk of goods becoming damaged, out of date or unsaleable; higher storage or insurance costs.]

8. (a) $20,000 ÷ $146,000 × 365 = 50.00 days [1]. (b) $12,000 ÷ $109,500 × 365 = 40.00 days [1]. (c) Customers take 50.00 days on average, 20 days longer than the 30 days allowed, so cash is received late [1]. Mira pays suppliers in 40.00 days although 60 days are allowed, so she pays earlier than she needs to, reducing her cash [1]. (d) [2, allow 1 mark each for any two of: chase overdue customers or send statements of account promptly; offer a cash discount for payment within 30 days; take the full 60 days’ credit from suppliers; hold less inventory.]

9. (a) Inventory should be valued at the lower of cost and net realisable value, so it is overvalued by $4,000 − $2,500 = $1,500. Gross profit is overstated by $1,500 [1] and profit for the year is overstated by $1,500 [1]. (b) Cost of sales rises while revenue does not [1], so gross profit on each $100 of revenue is lower and the gross profit margin falls [1]. (c) Revenue and cost of sales both rise by 20%, so gross profit rises (by 20%) [1], but the gross profit margin is unchanged because gross profit and revenue rise in the same proportion [1].

10. (a) The van is capital expenditure: the $25,000 left the bank but is recorded as a non-current asset, not an expense, so it reduced cash but not profit [1]. Depreciation of $6,000 is an expense that reduced profit, but no cash was paid for it [1]. (b) Drawings of $12,000 were paid from the bank, reducing cash, but drawings are not an expense, so they do not reduce profit [1]. The $8,000 increase in inventory used cash to buy goods that are still unsold, so their cost has not yet been charged against profit [1]. (Depreciation and the $5,000 fall in trade receivables work the other way — they make cash higher relative to profit — so they are not reasons for the fall. As a check: $30,000 + $6,000 − $25,000 − $12,000 − $8,000 + $5,000 = −$4,000, the fall in the bank balance.)

11. (a) Two factors, each worth 2 marks: 1 for the factor and 1 for linking it to the ratios. For example: the type of goods — groceries are cheap, perishable and bought often, so Corner Fresh turns over inventory far faster (26.00 times) at a lower margin (22.00%), while furniture is expensive and slow-selling [1][1]; cash or credit sales — a grocery shop sells mainly for cash, so its trade receivables turnover is only 3.00 days, while a furniture retailer allows customers credit (42.00 days) [1][1]. Also accept pricing policy, location or size, linked to a ratio, in place of either example. (b) [2, allow 1 mark each for any two of: the businesses are not alike, so there is no fair basis for comparison; they may use different accounting policies; their financial years may end on different dates; detailed statements (e.g. credit sales) may not be available; non-financial aspects are ignored.]

12. (a)

                                  2025        2026      Change
                                     $           $           $
Gross profit                    84,000      90,000     + 6,000
Commission received              5,000       1,000     - 4,000
Expenses                       (60,000)    (68,000)    + 8,000
Profit for the year             29,000      23,000     - 6,000

Profit for the year $29,000 and $23,000 [1]; changes correctly shown [1]. (b) Gross profit rose by $6,000, but other income (commission received) fell by $4,000 [1] and expenses rose by $8,000, so together they outweighed the rise in gross profit and profit fell by $6,000 [1]. (c) [2, allow 1 mark each for any two of: review and reduce expenses that do not bring in sales; find new sources of commission or other income; increase gross profit by raising selling prices or finding cheaper suppliers; increase sales quantity through advertising or promotion.]

13. (a) (i) Gross profit margin = $75,000 ÷ $250,000 × 100 = 30.00% [1] (ii) Mark-up = $75,000 ÷ $175,000 × 100 = 42.86% [1] (iii) Profit margin = $22,000 ÷ $250,000 × 100 = 8.80% [1] (iv) Profit for the year before interest = $22,000 + $3,000 = $25,000 [1]; capital employed = $150,000 + ($10,000 + $40,000) + $30,000 = $230,000 [1]; ROCE = $25,000 ÷ $230,000 × 100 = 10.87% [1] (v) Current ratio = $70,000 : $35,000 = 2.00 : 1 [1] (vi) Acid test = ($70,000 − $36,000) : $35,000 = $34,000 : $35,000 = 0.97 : 1 [1] (vii) Trade receivables turnover = $30,000 ÷ $200,000 × 365 = 54.75 days [1]

(b) The gross profit margin fell from 34.00% to 30.00% because selling prices were cut on several product lines, so each $100 of revenue earned less gross profit [1]. The profit margin fell from 11.00% to 8.80% because of the lower gross profit margin: it fell by only 2.20 percentage points against 4.00 points for the gross profit margin, so expenses and debenture interest less other income took a smaller share of revenue (34.00% − 11.00% = 23.00% in 2025; 30.00% − 8.80% = 21.20% in 2026), even with the two extra sales staff [1]. ROCE fell from 13.50% to 10.87%: the price cuts that lowered both margins left less profit before interest for each $100 of capital employed [1].

(c) The current ratio fell from 2.40 : 1 to 2.00 : 1, so there are fewer current assets for each $1 of current liabilities, although they still cover them twice [1]. The acid test fell from 1.30 : 1 to 0.97 : 1: without selling inventory the company could not pay all its current liabilities, and customers now take 54.75 days against 45 allowed (40.00 days in 2025) [1]. Recommendations: [2, allow 1 mark each for any two of: collect trade receivables within the 45 days allowed, for example by chasing overdue accounts or offering a cash discount; reduce inventory levels; take longer credit from suppliers within the terms allowed; issue more shares or raise long-term finance.]

(d) [2, allow 1 mark each for any two of: whether profit is enough to pay the loan interest (profit before interest, profit margin); whether liquidity is sufficient to make repayments (current ratio, acid test, bank balance); the value of non-current assets available as security; the existing borrowing, such as the $30,000 debentures.]

(e) [2, allow 1 mark each for any two explained limitations: historic cost — the non-current assets are shown at cost less depreciation, not current value, so ROCE may be misleading; application of accounting policies — the depreciation method or inventory valuation chosen affects profit and asset values; non-financial aspects such as the skill of the new sales staff, the location of the business or the economic climate are not shown.]

Total for question 13: (a) 9 + (b) 3 + (c) 4 + (d) 2 + (e) 2 = 20.

A note on exam technique for this topic

Every ratio answer should show the formula or the figures substituted into it, the answer to 2 decimal places, and the correct unit: %, times, days, or a ratio such as 0.97 : 1. The syllabus Note says only its own formulas are accepted, so learn the exact names and formulas — for example ROCE uses profit for the year before interest, and capital employed includes non-current liabilities. Paper 2 questions are based on stimulus material, and when a question asks you to compare, comment, suggest or advise, make points tied to that material: name the ratio, give both figures, say whether it improved or worsened, and give a reason from the scenario (price cuts, extra staff, slower customers). A recommendation should fix the weakness a ratio has revealed. Finally, remember that ratios are only as reliable as the statements behind them: historic cost, accounting policies and non-financial aspects are the syllabus’s three limitations, and they are often the best way to finish an evaluation.