Cambridge International AS and A Level Business

Worksheet – Chapter 30
Accounting fundamentals
1 Explain one reason why a company’s income statement is important to:
a The managers of the business. [2]

b The shareholders. [2]

2 Explain the following items on an income statement:

a Cost of sales. [2]

b Gross profit. [2]

c Operating profit. [2]

3 Explain the difference between current assets and current liabilities. [3]

© Cambridge University Press 2014 Cambridge International AS and A Level Business Worksheet – Chapter 30 1
Cambridge International AS and A Level Business

4 An extract from Statement of financial position for RRT company (31 March 2015) is shown below:

Current assets $54,000

Inventories $23,000
Current liabilities $34,000

a Calculate the current ratio. [2]

b Calculate the acid-test ratio. [2]

c If the current ratio for 31 March 2014 was 1.8 and the acid-test ratio was 0.8, comment on RRT’s liquidity. [3]

5 RRT’s finance director has calculated the gross profit margin (over the last year) as being 23% and the
(operating) profit margin as being 5%.
a Explain why the (operating) profit margin is lower than the gross profit margin. [2]

b Discuss the usefulness of these two ratio results. [4]

6 Discuss the limitations of published accounts. [4]

© Cambridge University Press 2014 Cambridge International AS and A Level Business Worksheet – Chapter 30 2