Test Bank Chapter 9 Ratio Analysis Liquidity Long Scott - Question Bank | Intro to Accounting 2e P. Scott by Peter Scott. DOCX document preview.
Chapter 9: Ratio Analysis 2: Liquidity, Working Capital, and Long-term Financial Stability
Test Bank
Type: true-false
Title: Chapter 09 Question 01
1) Profitability is the key to survival for every entity.
a. True
Heading reference:
Profit ≠ cash
Introduction (Chapter 9) Liquidity and the cash flow cycle
b. False
Heading reference:
Profit ≠ cash
Introduction (Chapter 9) Liquidity and the cash flow cycle
Type: true-false
Title: Chapter 09 Question 02
2) An entity’s liquidity depends upon its cash flows.
a. True
Heading reference:
Profit ≠ cash
Introduction (Chapter 9) Liquidity and the cash flow cycle
b. False
Heading reference:
Profit ≠ cash
Introduction (Chapter 9) Liquidity and the cash flow cycle
Type: true-false
Title: Chapter 09 Question 03
3) Liquidity refers to the ability of an entity to raise cash to pay off its liabilities as they become due for payment.
a. True
Heading reference: Liquidity and the cash flow cycle
b. False
Heading reference: Liquidity and the cash flow cycle
Type: matching question
Title: Chapter 09 Question 04
4) Different types of businesses have different cash flow cycles. Which of the following statements describe the cash flow cycle of retailers and which describe the cash flow cycle of manufacturers?
Feedback: Manufacturers turn raw materials into finished goods which are then sold on to customers on credit (customers are allowed time in which to pay for the products delivered rather than paying cash immediately for the goods). Retailers sell their products to customers for cash. These goods are purchased from suppliers on credit. While manufacturers purchase raw materials for use in production from their suppliers on credit, retailers purchase goods for resale (= finished goods) from their suppliers.
Page reference: 361-362
Heading reference: Liquidity and the cash flow cycle
a. Sell finished goods on credit to customers = Manufacturers
b. Turn raw materials into finished goods = Manufacturers
c. Sell bought in goods to customers for cash = Retailers
d. Goods for resale purchased on credit from suppliers = Retailers
Type: multiple response question
Title: Chapter 09 Question 05
5) Which of the following are characteristics of the cash flow cycle of manufacturing companies only? Please select all that apply.
Heading reference: Liquidity and the cash flow cycle
a. Sell bought in goods for cash.
b. Turn raw materials into finished goods.
c. Sell finished goods on credit to customers.
d. Use cash received from customers to pay suppliers and other claims upon the entity.
Type: multiple choice question
Title: Chapter 09 Question 06
6) Which one of the following statements most accurately describes the quick (acid test) ratio?
a. An assessment of short-term liquidity that compares inventory, receivables and cash to current liabilities.
Heading reference: Liquidity ratios
b. An assessment of long-term solvency and financial stability which compares total assets to total liabilities.
Heading reference: Liquidity ratios, Debt ratio
c. An assessment of short-term liquidity which compares receivables and cash to current liabilities.
Heading reference: Liquidity ratios
d. An assessment of long-term solvency which compares short and long-term borrowings to total equity.
Heading reference: Liquidity ratios, Debt ratio
Type: multiple choice question
Title: Chapter 09 Question 07
7) Which one of the following would not form part of the calculation of the current ratio of an entity?
a. Borrowings due for repayment within 12 months of the statement of financial position date.
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
b. A bank overdraft
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
c. Inventory
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
d. A trade payable due for payment more than 12 months after the statement of financial position date.
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
Type: true-false
Title: Chapter 09 Question 08
8) The current ratio is calculated to determine whether an organisation has sufficient short-term assets from which to meet short-term liabilities.
a. True
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
b. False
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
Type: multiple choice question
Title: Chapter 09 Question 09
9)
£ | |
Inventory | 6,000 |
Payables | 12,000 |
Receivables | 11,000 |
Non-current liabilities | 16,000 |
Current portion of long-term borrowings | 3,000 |
Cash | 1,000 |
Taxation payable | 5,000 |
Based on the above figures, what is the current ratio?
a. 0.50:1
Heading reference: Liabilities in the statement of financial position, Current ratio
b. 0.60:1
Heading reference: Liabilities in the statement of financial position, Current ratio
c. 0.75:1
Heading reference: Liabilities in the statement of financial position, Current ratio
d. 0.90:1
Heading reference: Liabilities in the statement of financial position, Current ratio
Type: multiple choice question
Title: Chapter 09 Question 10
10)
£ | |
Trade payables | 20,000 |
Trade and other receivables | 25,000 |
Cash | 9,000 |
Taxation payable | 10,000 |
Current portion of long-term borrowings | 6,000 |
Inventory | 18,000 |
Non-current assets | 60,000 |
Based on the above figures, what is the current ratio?
a. 1.15:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Current ratio
b. 1.44:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Current ratio
c. 1.73:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Current ratio
d. 3.11:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Current ratio
Type: multiple choice question
Title: Chapter 09 Question 11
11)
£ | |
Trade payables | 35,000 |
Trade receivables | 28,000 |
Cash and cash equivalents | 15,000 |
Taxation payable | 12,000 |
Prepayments | 4,000 |
Inventory | 14,000 |
Accruals | 6,000 |
Based on the above figures, what is the current ratio?
a. 1.15:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Current ratio
b. 1.21:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Current ratio
c. 1.24:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Current ratio
d. 1.30:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Current ratio
Type: multiple choice question
Title: Chapter 09 Question 12
12) At 31 December 2021, Martha Limited has inventory of £48,000, trade payables of £68,000, cash at the bank of £22,000, trade receivables of £81,000, cash in hand of £1,000 and current tax payable of £15,000. Martha Limited also has a loan of £60,000 which is due for repayment by 5 annual instalments commencing on 30 June 2022. What is Martha Limited’s current ratio?
a. 1.06:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Current ratio
b. 1.59:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Current ratio
c. 1.60:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Current ratio
d. 1.83:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Current ratio
Type: multiple choice question
Title: Chapter 09 Question 13
13)
£ | |
Trade payables | 40,000 |
Trade receivables | 45,000 |
Cash and cash equivalents | 15,000 |
Taxation payable | 20,000 |
The portion of long-term borrowings repayable within 12 months of the year end date | 15,000 |
Inventory | 20,000 |
Based on the above figures, what is the quick ratio?
a. 0.80:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
b. 1:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
c. 1.07:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
d. 1.25:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
Type: multiple choice question
Title: Chapter 09 Question 14
14)
£ | |
Trade payables | 35,000 |
Trade receivables | 28,000 |
Cash and cash equivalents | 15,000 |
Taxation repayable to the company | 12,000 |
Inventory | 14,000 |
Accruals | 6,000 |
Based on the above figures, what is the quick ratio?
a. 0.81:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
b. 1.05:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
c. 1.34:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
d. 1.68:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
Type: multiple choice question
Title: Chapter 09 Question 15
15) At 31 October 2021, Tasha Limited has inventory of £60,000, trade payables of £80,000, cash at the bank of £24,500, trade receivables of £88,000, cash in hand of £2,500 and current tax payable of £20,000. Tasha Limited also has a loan of £125,000 which is due for repayment by 5 equal annual instalments commencing on 30 September 2022. What is Tasha Limited’s quick ratio?
a. 0.51:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
b. 0.90:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
c. 0.92:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
d. 1.40:1
Heading reference:
Current assets
Liabilities in the statement of financial position
Liquidity ratios
Type: multiple choice question
Title: Chapter 09 Question 16
16) Which one of the following is not a criticism of the current and quick ratios?
a. Current and quick ratios assume that all liabilities at the yearend are payable on the day following the year end rather than being payable over the next twelve months.
Heading reference:
Liquidity ratios
Working capital
Current liabilities: the timing of payments
b. Current and quick ratios ignore the future timing of cash inflows and outflows.
Heading reference:
Liquidity ratios
Working capital
Current liabilities: the timing of payments
c. Current and quick ratios present a snapshot of short-term liquidity at one day in the year.
Heading reference:
Liquidity ratios
Working capital
Current liabilities: the timing of payments
d. Current and quick ratios compare current assets with current liabilities to assess the ability of short-term assets to meet the commitments presented by short-term liabilities.
Heading reference:
Liquidity ratios
Working capital
Current liabilities: the timing of payments
Type: true-false
Title: Chapter 09 Question 17
17) Current and quick ratios are largely irrelevant when making an assessment of an entity’s liquidity position.
a. True
Heading reference: from ‘Quick (acid test) ratio’ to ‘Current liabilities: the timing of payments’
b. False
Heading reference: from ‘Quick (acid test) ratio’ to ‘Current liabilities: the timing of payments’
Type: true-false
Title: Chapter 09 Question 18
18) Working capital = current assets + current liabilities.
a. True
Heading reference: Working capital
b. False
Heading reference: Working capital
Type: multiple response question
Title: Chapter 09 Question 19
19) Which of the following are components of working capital? Please select all that apply.
Heading reference: Working capital
a. Inventories of raw materials for use in production.
b. Trade receivables which have been provided with a credit facility by the entity.
c. Trade payables of the business which require settlement on a daily basis.
d. The current portion of long-term borrowings included in current liabilities.
Type: multiple choice question
Title: Chapter 09 Question 20
20) Which one of the following would not form part of the working capital of an organization?
a. Cash due from trade receivables.
Heading reference: Working capital
b. Cash payments for tax due on past profits of the business.
Heading reference: Working capital
c. Cash due to trade payables for goods supplied on credit.
Heading reference: Working capital
d. Inventories of finished goods and goods for resale.
Heading reference: Working capital
Type: multiple choice question
Title: Chapter 09 Question 21
21) Which one of the following statements describes the function of the inventory days ratio?
a. Measures the number of days goods are held in stock before they are sold.
Heading reference: Working capital ratios
b. Evaluates the efficiency of an entity’s credit control and the speed with which credit sales are turned into cash.
Heading reference: Working capital ratios
c. Measures the speed with which trade receivables are turned into cash.
Heading reference: Working capital ratios
d. Measures how quickly an entity is paying for its purchases of inventory.
Heading reference: Working capital ratios
Type: multiple choice question
Title: Chapter 09 Question 22
22)
£ | |
Inventory | 5,400 |
Trade payables | 7,560 |
Trade receivables | 9,000 |
Sales | 65,700 |
Cost of sales | 43,800 |
Based on the above figures, what are the inventory days?
a. 30 days
Heading reference: Working capital ratios
b. 45 days
Heading reference: Working capital ratios
c. 50 days
Heading reference: Working capital ratios
d. 63 days
Heading reference: Working capital ratios
Type: multiple choice question
Title: Chapter 09 Question 23
23)
£ | |
Opening inventory | 5,400 |
Trade payables | 9,000 |
Purchases (all on credit) | 45,000 |
Closing inventory | 7,200 |
Based on the above figures, what are the inventory days?
a. 45.63 days
Heading reference: Statement of profit or loss by nature, Working capital ratios
b. 58.40 days
Heading reference: Statement of profit or loss by nature, Working capital ratios
c. 60.83 days
Heading reference: Statement of profit or loss by nature, Working capital ratios
d. 76.04 days
Heading reference: Statement of profit or loss by nature, Working capital ratios
Type: true-false
Title: Chapter 09 Question 24
24) A high number of inventory days indicate that stock obsolescence is minimised.
a. True
Heading reference: Working capital ratios
b. False
Heading reference: Working capital ratios
Type: true-false
Title: Chapter 09 Question 25
25) The working capital position of a business is improved if inventory is sold quickly.
Correct
a. True
Heading reference: Working capital ratios
b. False
Heading reference: Working capital ratios
Type: multiple choice question
Title: Chapter 09 Question 26
26)
£ | |
Inventory | 63,700 |
Trade payables | 50,960 |
Trade receivables | 114,400 |
Revenue | 949,000 |
Cost of sales | 664,300 |
Based on the above figures, what are the receivables days?
a. 19.60 days
Heading reference: Working capital ratios
b. 28.00 days
Heading reference: Working capital ratios
c. 35.00 days
Heading reference: Working capital ratios
d. 44.00 days
Heading reference: Working capital ratios
Type: multiple choice question
Title: Chapter 09 Question 27
27)
£ | |
Trade receivables | 72,000 |
Prepayments | 30,000 |
Cash sales | 328,500 |
Credit sales | 547,500 |
Based on the above figures, what are the receivables days?
a. 30.00 days
Heading reference: Current assets, Working capital ratios
b. 42.50 days
Heading reference: Current assets, Working capital ratios
c. 48.00 days
Heading reference: Current assets, Working capital ratios
d. 68.00 days
Heading reference: Current assets, Working capital ratios
Type: true-false
Title: Chapter 09 Question 28
28) Paying trade payables before cash has been received from trade receivables has a positive impact upon working capital cash flow.
a. True
Heading reference: Profit ≠ cash, Working capital ratios
b. False
Heading reference: Profit ≠ cash, Working capital ratios
Type: multiple choice question
Title: Chapter 09 Question 29
29)
£000 | |
Inventory | 1,800 |
Trade payables | 3,780 |
Trade receivables | 4,050 |
Sales | 49,275 |
Cost of sales | 32,850 |
Based on the above figures, what are the payables days?
a. 20 days
Heading reference: Working capital ratios
b. 28 days
Heading reference: Working capital ratios
c. 30 days
Heading reference: Working capital ratios
d. 42 days
Heading reference: Working capital ratios
Type: multiple choice question
Title: Chapter 09 Question 30
30)
£ | |
Trade payables | 15,000 |
Taxation payable | 10,000 |
Cash purchases | 28,750 |
Credit purchases | 121,250 |
Based on the above figures, what are the payables days?
a. 36.50 days
Heading reference: Working capital ratios
b. 45.15 days
Heading reference: Working capital ratios
c. 60.83 days
Heading reference: Working capital ratios
d. 75.26 days
Heading reference: Working capital ratios
Type: multiple choice question
Title: Chapter 09 Question 31
31) Which one of the following is the correct way in which to calculate the cash conversion cycle?
a. Inventory days + receivables days + payables days
Heading reference: The cash conversion cycle
b. Receivables days – payables days + inventory days
Heading reference: The cash conversion cycle
c. Inventory days – receivables days + payables days
Heading reference: The cash conversion cycle
d. Receivables days + payables days – inventory days
Heading reference: The cash conversion cycle
Type: multiple choice question
Title: Chapter 09 Question 32
32) Chibble Limited has payables days of 30, inventory days of 28 and receivables days of 42. What is Chibble Limited’s cash conversion cycle?
a. 16 days
Heading reference: The cash conversion cycle
b. 40 days
Heading reference: The cash conversion cycle
c. 44 days
Heading reference: The cash conversion cycle
d. 110 days
Heading reference: The cash conversion cycle
Type: multiple choice question
Title: Chapter 09 Question 33
33) Dibble Limited has inventory days of 20, receivables days of 5 and payables days of 40. What is Dibble Limited’s cash conversion cycle?
a. – 15 days
Heading reference: The cash conversion cycle
b. + 15 days
Heading reference: The cash conversion cycle
c. – 25 days
Heading reference: The cash conversion cycle
d. + 65 days
Heading reference: The cash conversion cycle
Type: multiple choice question
Title: Chapter 09 Question 34
34) Fibble Limited has receivables days of 120, payables days of 60 and inventory days of 90. What is Fibble Limited’s cash conversion cycle?
a. – 30 days
Heading reference: The cash conversion cycle
b. + 90 days
Heading reference: The cash conversion cycle
c. + 150 days
Heading reference: The cash conversion cycle
d. + 270 days
Heading reference: The cash conversion cycle
Type: true-false
Title: Chapter 09 Question 35
35) The gearing ratio is based on the long term borrowings of an entity only.
a. True
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Gearing ratio
b. False
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Gearing ratio
Type: multiple choice question
Title: Chapter 09 Question 36
36)
£000 | |
Current assets | 15,000 |
Non-current assets | 35,000 |
Non-current liability borrowings | 18,000 |
Equity | 20,000 |
Current portion of long-term borrowings | 2,000 |
Other non-current and current liabilities | 10,000 |
Based on the above figures, what is the gearing ratio?
a. 40%
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Gearing ratio
b. 90%
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Gearing ratio
c. 100%
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Gearing ratio
d. 150%
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Gearing ratio
Type: multiple choice question
Title: Chapter 09 Question 37
37) Foggle Plc has the following balances in its statement of financial position at 31 August 2021:
£000 | |
5% Bonds 2027 | 6,000 |
Equity | 8,000 |
Non-current liability bank loan | 2,000 |
Current liability bank loan | 640 |
Bank overdraft | 320 |
Based on the above figures, what is Foggle Plc’s gearing ratio at 31 August 2021?
a. 75%
Heading reference:
Bank finance: all businesses
Debenture loans/bonds/loan notes
Capital structure ratios: long-term solvency and financial stability assessment
Gearing ratio
b. 100%
Heading reference:
Bank finance: all businesses
Debenture loans/bonds/loan notes
Capital structure ratios: long-term solvency and financial stability assessment
Gearing ratio
c. 108%
Heading reference:
Bank finance: all businesses
Debenture loans/bonds/loan notes
Capital structure ratios: long-term solvency and financial stability assessment
Gearing ratio
d. 112%
Heading reference:
Bank finance: all businesses
Debenture loans/bonds/loan notes
Capital structure ratios: long-term solvency and financial stability assessment
Gearing ratio
Type: true-false
Title: Chapter 09 Question 38
38) It is not the gearing % that is important in assessing an organization’s long term solvency and financial stability, but the ability of each organization to generate operating cash inflows with which to pay the interest on borrowed money.
a. True
Heading reference: When are borrowings risky?
b. False
Heading reference: When are borrowings risky?
Type: multiple choice question
Title: Chapter 09 Question 39
39) Which one of the following ratios enables users to make an assessment of the affordability of borrowings?
a. Current ratio
Heading reference:
Current ratio
Capital structure ratios: long-term solvency and financial stability assessment
When are borrowings risky?
b. Gearing ratio
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, When are borrowings risky?
c. Interest cover
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, When are borrowings risky?
d. Quick ratio
Heading reference: Quick (acid test) ratio
Capital structure ratios: long-term solvency and financial stability assessment
When are borrowings risky?
Type: multiple choice question
Title: Chapter 09 Question 40
40)
£000 | |
Sales | 15,000 |
Gross Profit | 5,000 |
Operating Profit | 3,000 |
Finance Expense | 500 |
Profit Before Taxation | 2,500 |
Based on the above figures, what is the interest cover ratio?
a. 3 times
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Interest cover
b. 5 times
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Interest cover
c. 6 times
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Interest cover
d. 10 times
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Interest cover
Type: multiple choice question
Title: Chapter 09 Question 41
41) Interest cover:
a. Measures the £s of liabilities per £1 of total assets
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment
b. Measures how many times the ordinary dividend is covered by profit for the year.
Heading reference: Dividend cover, Capital structure ratios: long-term solvency and financial stability assessment
c. Measures the £s of borrowings for each £1 of equity.
Heading reference:
Capital structure ratios: long-term solvency and financial stability assessment
Gearing ratio
Interest cover
d. Measures how many times finance expense is covered by operating profits.
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Interest cover
Type: multiple choice question
Title: Chapter 09 Question 42
42) Goggle Limited has the following figures in its statement of profit or loss for the year ended 31 October 2021
£ | |
Gross profit | 84,000 |
Administration expenses | 24,000 |
Bank overdraft interest | 600 |
Bank loan interest | 2,400 |
Selling and distribution costs | 21,000 |
Profit before taxation | 36,000 |
Taxation | 9,000 |
Based on the above figures, what is Goggle Limited’s interest cover ratio for the year ended 31 October 2021?
a. 9 times
Heading reference:
Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account
Different categories of profit
Capital structure ratios: long-term solvency and financial stability assessment
Interest cover
b. 12 times
Heading reference:
Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account
Different categories of profit
Capital structure ratios: long-term solvency and financial stability assessment
Interest cover
c. 13 times
Heading reference:
Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account
Different categories of profit
Capital structure ratios: long-term solvency and financial stability assessment
Interest cover
d. 15 times
Heading reference:
Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account
Different categories of profit
Capital structure ratios: long-term solvency and financial stability assessment
Interest cover
Type: multiple response question
Title: Chapter 09 Question 43
43) Which of the following terms are found in the interest cover ratio calculation? Please select all that apply.
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Interest cover
a. Finance income.
b. Finance expense.
c. Profit before taxation.
d. Operating profit.
Type: multiple choice question
Title: Chapter 09 Question 44
44)
£000 | |
Non-current assets | 22,000 |
Current assets | 12,000 |
Equity | 14,000 |
Non-current liabilities | 10,000 |
Current liabilities | 10,000 |
Based on the above figures, what is the debt ratio?
a. 0.45:1
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Debt ratio
b. 0.59:1
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Debt ratio
c. 0.70:1
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Debt ratio
d. 0.83:1
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Debt ratio
Type: multiple response question
Title: Chapter 09 Question 45
45) Which of the following are included in the debt ratio calculation? Please select all that apply.
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Debt ratio
a. Share capital.
b. Property, plant and equipment.
c. Non-current liability borrowings.
d. Inventory.
Type: multiple choice question
Title: Chapter 09 Question 46
46) Bunye Limited has the following balances in the statement of financial position at 31 December 2021.
£ | |
Property, plant and equipment | 423,000 |
Trade payables | 88,000 |
Retained earnings | 186,000 |
Borrowings (all non-current liabilities) | 150,000 |
Inventory | 29,000 |
Bank overdraft | 4,200 |
Trade and other receivables | 57,500 |
Taxation payable | 18,800 |
Non-current asset investments | 22,500 |
Share capital | 35,000 |
Share premium | 50,000 |
Based on the above figures, what is the debt ratio?
a. 0.34:1
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Debt ratio
b. 0.49
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Debt ratio
c. 0.57
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Debt ratio
d. 2.04:1
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Debt ratio
Type: multiple choice question
Title: Chapter 09 Question 47
47) Arthur Limited has the following balances in the statement of financial position at 31 January 2022.
£000 | |
Property, plant and equipment | 525 |
Trade payables | 100 |
Bank loan due for repayment in 5 years’ time | 200 |
Inventory | 56 |
Bank overdraft | 10 |
Trade and other receivables | 75 |
Taxation payable | 20 |
Non-current asset investments | 18 |
Prepayments | 20 |
Based on the above figures, what is the gearing %?
a. 30.26%
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Gearing ratio
b. 54.95%
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Gearing ratio
c. 57.69%
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Gearing ratio
d. 63.64%
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Gearing ratio
Type: multiple choice question
Title: Chapter 09 Question 48
48) Zoe Limited has a cash conversion cycle of 30 days, receivables days of 40 and payables days of 20. What is Zoe Limited’s inventory days figure?
a. 10 days
Heading reference: Working capital ratios
b. 20 days
Heading reference: Working capital ratios
c. 50 days
Heading reference: Working capital ratios
d. 90 days
Heading reference: Working capital ratios
Type: multiple choice question
Title: Chapter 09 Question 49
49) Smyrna Limited has the following liabilities in its statement of financial position:
£000 | |
Bank loan due for repayment in 3 years’ time | 150 |
Bond payment due in 6 months’ time | 50 |
The company has a gearing % of 50%. Based on these figures, what is Smyrna Limited’s equity?
a. £75,000
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Gearing ratio
b. £100,000
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Gearing ratio
c. £300,000
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Gearing ratio
d. £400,000
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Gearing ratio
Type: multiple choice question
Title: Chapter 09 Question 50
50) Odessa Limited has the following profit figures in its statement of profit or loss for its latest year of trading:
£ | |
Gross profit | 500,000 |
Operating profit | 125,000 |
Profit before tax | 105,000 |
Profit for the year | 85,000 |
The company has interest cover of 5 times. Based on these figures, what is Odessa Limited’s finance expense for the year?
a. £100,000
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Interest cover
b. £25,000
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Interest cover
c. £21,000
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Interest cover
d. £17,000
Heading reference: Capital structure ratios: long-term solvency and financial stability assessment, Interest cover