IGCSE Accounting: Inter-business comparison, interested parties, limits (Cambridge 0452) – Revision Notes

Syllabus edition note. This resource follows the Cambridge IGCSE Accounting 0452 syllabus (and Cambridge O Level Accounting 7707, which has the same subject content for the same series) 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.

Condensed recall for sections 6.3 Inter-business comparison, 6.4 Interested parties and 6.5 Limitations of accounting statements of Cambridge IGCSE Accounting 0452 (syllabus for exams in 2027, 2028 and 2029, version 1). For full explanations and worked cases, use the study guide; to test yourself use the practice questions. The ratios themselves are in the Analysis and Interpretation notes. Course hub: IGCSE Accounting; checklist; free diagnostics. There are no tiers: every candidate covers all of this.

6.3 Inter-business comparison

Which factor moves which ratio

Factor	Ratio it is most likely to move	Typical direction
Fast-selling, low-price goods	inventory turnover	more times, fewer days
Mostly cash sales	trade receivables turnover (days)	very few days
Longer credit from suppliers	trade payables turnover (days)	more days
Loans or debentures	ROCE	capital employed larger, ROCE lower
Premises owned, not rented	expenses and capital employed	rent falls, assets and depreciation rise
Bulk buying power	gross profit margin	higher
Low price, high volume policy	gross profit margin	lower
Different location	expenses and sales	rent, wages and customers differ
Different accounting policies	profit, assets, nearly every ratio	not caused by performance

Problems of inter-business comparison

• Missing detail (credit figures, opening inventory).
• Policies that differ between the two.
• Year ends that fall on other dates.
• Businesses that are not really similar.
• A single unusual year.
• Non-financial aspects left out.

Method for a comparison answer

1. Quote the ratio for each business.
2. Say which looks stronger on that measure.
3. Give a factor that could explain the gap that is not management.
4. State one problem that limits the conclusion.

6.4 Interested parties

Cue cards

Party	Question it asks	Figures it reaches for
Owners	Is my money earning enough?	profit for the year, ROCE
Managers	Where do I act?	margins, expenses, inventory and receivables days
Employees	Is my job safe, can I be paid more?	profit trend, liquidity
Banks	Will the loan be repaid with interest?	current ratio, acid test, profit, assets
Investors	Will it grow, will it pay dividends?	profit trend, ROCE
Lenders	Will interest be paid and capital returned?	liquidity, existing loans
Suppliers	Will I be paid on time?	liquidity, payables days
Customers	Will it still be trading next year?	profit, liquidity
Governments / tax authorities	How much tax? Grants? Statistics?	profit for the year
Club members	Did subscriptions cover costs?	surplus or deficit
Public and environmental bodies	Effect on community and environment, jobs	overall performance

Answer pattern: party, decision, figure. Investors take a share of risk, lenders ask to be repaid, so keep them apart.

6.5 Limitations of accounting statements

Cause	What goes wrong	Short example
Historic cost	Assets shown at purchase price, not current value; money of different years not comparable	Land bought long ago, now worth three times its cost
Application of accounting policies	Estimates and choices change profit and asset values	Straight line versus reducing balance depreciation
Non-financial aspects	Things not measured in money do not appear	Workforce skill, business location, economic climate

Effects of a policy choice, other things equal:

Choice	Effect on profit	Effect on asset
Higher depreciation charge	lower	non-current asset lower
Closing inventory valued lower	lower	inventory lower
Larger allowance for irrecoverable debts	lower	net trade receivables lower

Worked reminder: one policy, two margins

Fernside Cycles Limited has revenue of 200,000, opening inventory of 15,000 and purchases of 130,000 (figures in $). Its closing inventory is 20,000 at cost.

Cost of sales = 15,000 + 130,000 - 20,000 = 125,000
Gross profit  = 200,000 - 125,000          =  75,000
Gross profit margin = 75,000 / 200,000 x 100 = 37.50%

A rival values the same closing inventory at 17,000. Its cost of sales is 128,000, gross profit 72,000 and gross profit margin 36.00%. A gap of 1.50 percentage points appears from the valuation alone.

Must-know distinctions

• A problem of inter-business comparison (6.3) concerns setting two businesses side by side. A limitation of statements (6.5) concerns what a single set of statements can show. Several points belong to both, so label which one the question asks for.
• Historic cost is about what an asset is shown at. Depreciation is the spreading of that cost. Do not use one word for the other.
• Owners put money in and take the profit. Managers run the business and may not own it. Both read the statements, for different decisions.
• A non-financial aspect is real and can matter a great deal. It is missing from the statements because it is not measured in money.

Method in steps

For a 6.4 question:

1. Name the party.
2. State the decision it faces.
3. Name the figure or ratio that helps.
4. Say what the figure tells it.

For a 6.5 question:

1. Name the cause (historic cost, policy or non-financial aspect).
2. Give a specific example.
3. Say how it makes the statements less reliable or less comparable.

Ratios used in these answers

Use only the syllabus’s formulas.

Ratio	Formula
ROCE	(Profit for the year before interest ÷ capital employed) × 100
Current ratio	Current assets ÷ current liabilities (as a ratio)
Acid test	(Current assets - inventory) ÷ current liabilities (as a ratio)
Trade receivables turnover	Trade receivables ÷ credit sales × 365 days
Trade payables turnover	Trade payables ÷ credit purchases × 365 days

Capital employed = issued shares + reserves + non-current liabilities.

Quick self-test

All figures in $.

1. Current assets are 27,000, including inventory of 9,000. Current liabilities are 12,000. Calculate the acid test ratio.
2. Profit before interest is 24,000. Shares are 70,000, reserves 30,000 and non-current liabilities 20,000. Calculate ROCE.
3. Trade receivables are 9,000 and credit sales 73,000. Calculate trade receivables turnover in days.
4. Average inventory is 18,000 and cost of sales 219,000. Calculate inventory turnover in days.
5. Name the three causes of limitation listed in the syllabus.
6. State two problems of inter-business comparison.
7. A machine costs 30,000 with no residual value. Business A depreciates it straight line over five years. Business B uses 30% reducing balance. State the first-year difference in profit.
8. A club of 80 members made a deficit of 1,200. Calculate the deficit per member.
9. State one difference between how investors and lenders use accounting information.
10. Why might a business with excellent statements still fail?

Answers

1. (27,000 - 9,000) ÷ 12,000 = 1.50 : 1.
2. Capital employed = 120,000; 24,000 ÷ 120,000 × 100 = 20.00%.
3. 9,000 ÷ 73,000 × 365 = 45.00 days.
4. 18,000 ÷ 219,000 × 365 = 30.00 days.
5. Historic cost; application of accounting policies; non-financial aspects.
6. Any two: missing detail; different policies; different year ends; businesses not alike; unusual year; non-financial aspects ignored.
7. A: 6,000. B: 9,000. Business B’s profit is 3,000 lower.
8. 1,200 ÷ 80 = 15.00 per member.
9. An investor looks for growth and dividends; a lender looks for interest paid and the loan repaid.
10. Statements leave out items such as workforce skill, location and the economic climate, any of which can cause failure.

Where marks are usually lost

• Giving the reason for a gap without naming the ratio it affects.
• Treating inter-business comparison as a test of management only.
• Writing “different accounting policies” without a policy (depreciation method, inventory valuation, allowance for irrecoverable debts).
• Listing parties but not saying what each decides.
• Merging investors and lenders into one answer.
• Quoting a non-financial aspect as a number.
• Calling historic cost “wrong” instead of explaining that it shows past price, not current value.
• Stating a conclusion without one limit on the comparison.

Frequently asked questions

What are the three limitations of accounting statements in the 0452 syllabus? The syllabus names historic cost, the application of accounting policies and non-financial aspects. A question asking for the syllabus limitations expects all three.

How do club members use accounting information? Club members use the income and expenditure figures to decide whether to raise subscriptions, cut costs or run a fund-raising event, for example when running costs exceed subscription income.

Can different interested parties want opposite things? Yes. Owners may want to withdraw large amounts while lenders prefer cash to stay in the business. A good answer names the party, the decision and the figure used.

Why should a non-financial aspect not be given as a figure? A non-financial aspect, such as staff skill or location, is something the statements cannot show in money. Quoting it as a number misses the point of the limitation.

Official syllabus

Cambridge International Education, Cambridge IGCSE Accounting 0452 syllabus for 2027, 2028 and 2029 (version 1), sections 6.3 to 6.5.