Q: Which formula correctly calculates the margin percentage?

$$ \frac{\text{Gross profit}}{\text{Sales}} \times 100 $$

Question 1

Which of the following best describes the difference between gross profit and net profit?

Accepted Answer

Gross profit is the difference between selling price and cost price, while net profit is the final profit after deducting all expenses from all revenue.

Question 2

A company purchases machinery for $$50,000, expects it to last 10 years, and estimates a residual value of 5$$,000. Using the straight line method, what is the annual depreciation charge?

Accepted Answer

$$ \frac{50,000 - 5,000}{10} = 4,500 $$

Question 3

Which accounting principle requires that expenses incurred in an accounting period should be matched against the revenue of that period?

Accepted Answer

Accruals (Matching)

Question 4

A business has paid out more from its bank account than it has paid in. What is this situation called?

Accepted Answer

Bank overdraft

Question 5

Which of the following is NOT recorded in the sales ledger control account?

Accepted Answer

Cash sales

Question 6

A company values its inventory at the lower of cost and net realisable value. Which accounting principle is being applied?

Accepted Answer

Prudence

Question 7

Which formula correctly calculates the margin percentage?

Accepted Answer

$$ \frac{	ext{Gross profit}}{	ext{Sales}} 	imes 100 $$

Question 8

Which of the following is a reason for preparing a trial balance?

Accepted Answer

To check the arithmetical accuracy of ledger accounts

Question 9

A company issues a credit note to a customer. What does this document represent?

Accepted Answer

An allowance given by the supplier for unsatisfactory goods, reducing the amount due

Question 10

Which of the following is an example of capital expenditure?

Accepted Answer

Purchase of machinery

Question 11

A company has current assets of $$30,000 and current liabilities of 15$$,000. What is the current ratio?

Accepted Answer

$$ \frac{30,000}{15,000} = 2:1 $$

Question 12

Which of the following is NOT a cause of depreciation?

Accepted Answer

Increase in value over time

Question 13

A business records a purchase of a fixed asset as an expense. What is the effect on the income statement?

Accepted Answer

Expenses are overstated and profit is understated

Question 14

Which of the following is a liquidity ratio?

Accepted Answer

Current ratio

Question 15

A company has opening inventory of $$5,000, purchases of 20$$,000, and closing inventory of $7,000. What is the cost of goods sold?

Accepted Answer

$$ 5,000 + 20,000 - 7,000 = 18,000 $$

Question 16

Which of the following is a reason for maintaining a petty cash book?

Accepted Answer

To reduce the number of entries in the main cash book

Question 17

Which of the following is a characteristic of preference shares?

Accepted Answer

Entitle holders to a fixed dividend

Question 18

Which of the following is a reason for preparing a bank reconciliation statement?

Accepted Answer

To check the accuracy of the cash book entries

Question 19

Which formula correctly calculates the mark-up percentage?

Accepted Answer

$$ \frac{	ext{Gross profit}}{	ext{Cost of sales}} 	imes 100 $$

Question 20

Which of the following is a reason for dividing the ledger into three sections (general, sales, purchases)?

Accepted Answer

To make it easier to locate errors in ledger accounts

Comprehensive Study Notes for IGCSE Financial Accounting

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