Edexcel IGCSEAccountingGeneral Applications19 Marks

Kai owns a sports shop. He provided the following information for the year ended 31 December 2021. Revenue = $150 000 Cost of sales = $90 000 Expenses = $30 000 Non-current assets = $70 000 Current assets = $50 000 Current liabilities = $20 000 Non-current liabilities = $15 000

(a)(i)Gross profit[1]
(a)(ii)Profit for the year[1]
(a)(iii)Current ratio (to 2 decimal places)[2]
(a)(iv)Quick ratio (to 2 decimal places) (all inventory is current assets)[3]
(b)State two limitations of using accounting ratios.[4]
(c)Advise Kai whether he should expand his business. Justify your advice using your answer from (a) and any other relevant information.[8]

Mark scheme

Marking points from the official mark scheme. The mark or mark type is shown in brackets.

B1 for (a)(i) 60 000
B1 for (a)(ii) 30 000
M1 for (a)(iii) (50 000 / 20 000) or equivalent
A1 for (a)(iii) 2.5:1 (accept 2.5)
M1 for (a)(iv) (Current assets – Inventory) / Current liabilities or equivalent
A1 for (a)(iv) (50 000 – 10 000) / 20 000 or equivalent
A1 for (a)(iv) 2:1 (accept 2)
B1 for (b) each correct limitation up to 2. (Examples: Historical information, Differences in accounting policies, Non-financial factors ignored, Based on past data, not predictive, Different definitions of ratios, Inflation/deflation affects comparability, Creative accounting, Different business sizes, Window dressing)
B1 for (b) development/explanation of each limitation up to 2.
B1 for (c) correct advice (Yes/No)
M1 for (c) calculation of a relevant ratio not calculated in (a) (e.g., Gross profit margin or Profit for the year margin)
A1 for (c) correct value of calculated ratio (e.g., GPM 40% or PFOYM 20%)
B1 for (c) explanation of Gross Profit Margin/Profit for the Year Margin
B1 for (c) explanation of Current Ratio
B1 for (c) explanation of Quick Ratio
B1 for (c) other relevant point 1 with explanation
B1 for (c) other relevant point 2 with explanation

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