HKCEE-11-accounting ratios P.

1/8

1991 Q.2 Required:

The following statements refer to the Long Island Company for the year ended 30
June 1990: (a) Calculate the quick ratio and credit period allowed to trade debtors of the
company and comment on the company’s liquidity position.
Balance sheet as at 30 June 1990
Accumulated (b) Calculate the stock turnover rate and explain the importance of this rate.
Cost Depreciation Net (All calculations should be corrected to one decimal place) (10 marks)
Fixed Assets $ $ $
Furniture & fixtures 380,000 114,000 266,000
Machines & equipment 450,300 180,120 270,180 1995 Q.2
830,300 294,120 536,180 The draft balance sheets of Rita Limited as at 31 March 1994 and 1995 are shown
Current Assets below:
Stock 26,300
Debtors 260,000 Balance Sheets as at 31 March
Cash 12,000 298,300 1994 1995
Current liabilities $ $ $ $
Creditors 135, 000 Fixed assets (at net book value)
Accrued expenses 31,600 166,600 Plant and equipment 57,500 98,000
Working capital 131,700 Vehicles 21,000 40,500
Total net assets 667,880 Fixtures and fittings 25,000 24,000
103,500 162,500
Financed by: Current assets
Capital 649,680 Stock 43,000 88,500
Net profit for the year 18,200 Debtors 24,500 31,000
667,880 Prepayments 6,500 5,000
Bank 20,000 94,000 10,000 134,500
Trading and profit & loss account for the year ended 30 June 1990 197,500 297,000
$ $ $
Sales 460,000 Ordinary share capital 125,000 125,000
Stock, 1 July 1989 34,600 Reserves 26,500 41,000
Add: purchases 338,200 372,800 151,500 166,000
Less: Stock, 30 June 1990 26,300 346,500 Long term liabilities
Gross profit 113,500 Loan - 50,000
Selling expenses 37,000
General expenses 58,300 95,300 Current liabilities
Net profit 18,200 Creditors 36,000 66,000
Accruals 10,000 46,000 15,000 81,000
197,500 297,000
HKCEE-11-accounting ratios P.2/8

Sales were $270,500 and $337,500 for the years ended 31 March 1994 and 1995 Balance sheet as at 31 December 1996
respectively. Corresponding figures for cost of sales were $184,500 and $240,500 $ $
respectively. Purchases for 1994 amounted to $194,500. Fixed assets (at net book value)
Plant and equipment 610,400
Required: Furniture and fittings 173,600
784,000
Calculate the following ratios for 1994 and 1995: Current assets
(a) gross profit ratio; Stock 154,000
(b) stock turnover rate; Debtors 105,000
(c) current ratio; Bank 7,000 266,000
(d) quick ratio; and 1,050,000
(e) credit period received from trade creditors (in months). Shareholders’ fund
(Calculations to one decimal place) (10 marks) Share capital ($1 ordinary shares) 770,000
Retained earnings 64,400
834,400
1997 Q.2 Current liabilities
The financial information of Games Limited for the year ended 31 December 1996 Creditors 168,000
is presented below: Accruals 47,600 215,600
$ $ 1,050,000
Credit sales 504,000
Opening stock 84,000 Required:
Add: Purchases 382,200
466,200 (a) Calculate the following for 1996:
Less: Closing stock 154,000 (i) Working capital;
Cost of sales 312,200 (ii) Return capital employed;
Gross profit 191,800 (iii) Quick ratio;
(iv) Stock turnover rate;
Net profit 47,600 (v) Debtors’ collection period (in months); and
(vi) creditors’ repayment period (in months).
(Calculations to one decimal place.) (6 marks)

(b) Give two possible dangers of having too little working capital. (4 marks)
HKCEE-11-accounting ratios P.3/8

1999 Q.3 Required:

The financial statements of Global Limited are presented below:
Profit and Loss Accounts (a) Compute the following ratios for 1999 and 1998:
For the years ended 31 March (i) Net profit ratio;
1999 1998 (ii) Return on shareholders’ fund;
$ $ (iii) Quick ratio; and
Credit sales 800,400 718,800 (iv) Debtors’ collection period (in months).
Less: Cost of goods sold 453,600 339,600 Note: Calculations to two decimal places. (7 marks)
Gross profit 346,800 379,200
Less: Operating expenses 264,000 289,200 (b) Comment briefly on the profitability and liquidity of Global Limited for 1999.
Net profit 82,800 90,000 (3 marks)

Balance Sheets 2002 Q.3

As at 3l March The financial information of Grand View Limited for the year ended 31 December
1999 1998 1997 2001 is presented below:
$ $ $ Profit and loss account for the year ended 31 December 2001
Fixed assets (at net book value) 344,400 331,200 350,500 $ $
Current assets Cash sales 252,000
Stock 422,400 383,200 220,800 Credit sales 1,008,000
Debtors (net) 249,600 181,200 165,600 1,260,000
Bank 50,400 32,000 64,300 Less: Cost of sales
722,400 596,400 450,700 Opening stock 210,000
1,066,800 927,600 801,200 Purchases 955,500
1,165,500
Capital and reserves Less: Closing stock 385,000 780,500
$1 Ordinary shares 190,000 170,000 170,000 Gross profit 479,500
Retained earnings 238,000 155,200 65,200 Less: Operating expenses 360,500
428,000 325,200 235,200 Net profit 119,000

Long-term liabilities 295,600 282,000 256,000 Balance sheet as at 31 December 2001

Assets $
Current liabilities Office equipment 1,145,000
Creditors 321,800 303,500 301,400 Furniture and fittings 381,000
Accruals 21,400 16,900 8,600 Stock 385,000
343,200 320,400 310,000 Debtors 262,500
1,066,800 927,600 801,200 Bank 451,500
2,625,000
HKCEE-11-accounting ratios P.4/8

Liabilities and shareholders’ fund $ Current ratio 3:1

Creditors 420,000
Accruals 119,000 As at 31 December 2001 $
Ordinary share capital 1,925,000 Fixed assets 153,000
Retained profits 161,000 Total assets 213,000
2,625,000
During the year ended 31 December 2001 $
Grand View Limited had also produced the following ratios for the year 2000. Increase in working capital 9,000
Current ratio 1.93 : 1 Net profit for the current year 40,000
Quick ratio 1.01 : 1 Transfer to general reserve 7,000
Stock turnover rate 3.02 times Retained profit for the current year 20,000
Debtors’ collection period 3.26 months
Net profit ratio 10.07% You are required to:
Return on capital employed 6.11%
(a) Calculate the following figures for Hamilton Limited:
Required: (i) Fixed assets, 1 January 2001
(ii) Current liabilities, 1 January 2001
(a) Compute the following ratios for the year 2001: (iii) Shareholders’ fund, 1 January 2001
(i) Current ratio (iv) Current assets, 31 December 2001
(ii) Quick ratio (v) Current liabilities, 31 December 2001
(iii) Stock turnover rate (vi) Dividends declared for the year 2001 (8 marks)
(iv) Debtors’ collection period (in months)
(v) Net profit ratio On 1 January 2002, Hamilton Limited made an additional issue of 200,000 ordinary
(vi) Return on capital employed shares at $1.80 per share, payable in full on application.
(Calculations to two decimal places) (9 marks)
Applications were received for 220,000 shares and the cash was returned to the
(b) Based on the ratios for the year 2000, comment briefly on the liquidity and unsuccessful applicants on 15 January 2002. The shares were duly allotted to the
profitability of the company for the year 2001. (5 marks) other applicants on the same date.

On 1 July, Hamilton Limited raised additional finance by issuing $600,000 5%

2003 Q.4 debentures at 98. Debenture interest was to be paid half-yearly on 30 June and
Hamilton Limited has an issued capital consisting of 100,000 ordinary shares of $1 31 December.
each. The information below relates to the year 2001:
You are required to:
As at 1 January 2001 $
Current assets 45,000 (b) Prepare journal entries for Hamilton Limited to record the above transactions
Total assets 180,000 in 2002. (Narrations are not required.) (6 marks)
Long−term liabilities 57,000
HKCEE-11-accounting ratios P.5/8

1993 Q.10 Bank Reconciliation + Ratios Mr. Lee tried to draw up a balance sheet to reveal the financial situation of the
Mr. Lee commenced his business with $50,000,000, of which $40,000,000 was used business but he was hesitant on most of the figures:
in buying an office. He was engaged in retail trading and all sales were made on a
credit basis. $000 $000 $000 $000
Fixed assets Capital 50,000
After a year’s trading, he was surprised to have a bank overdraft of $8,255,000 as Premises, net ? Net profit ?
indicated by the bank statement at 30 April 1993 whereas the cash book showed a Delivery van, net ? ? ?
credit balance of $7,865,300. Drawings ?
Current assets ?
Upon investigation, he found that: Stock ? Current liabilities
Debtors ? Creditors ?
(i) Six cheques (which amounted to $750,000 in total) were deposited on 30 April Cash ? Bank O/D ?
1993 but were not yet credited by the bank. ? ?
? ?
(ii) An electricity bill settled by the bank’s autopay system in April 1993
amounted to $6,290. It is the practice of the company to record this expense The following data have been complied for your information:
upon receipt of the bank statement of the month.
Sales for the year $60,000,000
(iii) The March balance of $65,870 in the cash book was carried forward as Gross profit margin 40%
$56,780. Net profit to sales 11%
Return on total assets employed 12.5%
(iv) A debtor settled his account of $87,500 by credit transfer. Depreciation of fixed assets 25%
Stock turnover (stock level
(v) Interest of $58,000 was charged by the bank on the overdraft. No record of constant throughout the year) 6 times
this had yet been made. Credit period allowed to debtors 2 months
Current ratio 1.4 : 1
(vi) A cheque for $89,000 received from a debtor was returned by the bank marked Working capital $5,000,000
“UNPAID”. This amount was deducted from the balance in the bank statement
but had not been entered in the books. Required:
(vii) Two cheques drawn by Mr. Lee were not yet presented to the bank for (a) Update the bank balance in the hooks of Mr. Lee as at 30 April 1993.
payment. They were (#80967) $420,000 and (#80973) $75,000. (7 marks)
(viii) A debt of $78,000 previously written off as bad was now recovered and a (b) Prepare a bank reconciliation statement as at 30 April 1993. (3 marks)
cheque dated 2 May 1993 was received from the customer concerned. This
had been recorded in the cash book but the cheque still remained in the cash (c) Draw up the balance sheet for Mr. Lee as at 30 April 1993, filling in all the
till. missing figures. (10 marks)
HKCEE-11-accounting ratios P.6/8

2000 Q.7 (viii) Cash at bank amounted to 40% of working capital.

The profit and loss account of Sunny Fashion for the year ended 31 December 1999
is shown below: (ix) The fixed assets had a cost of $339 800 and a provision for depreciation of
$ $ $ $191 500 at 1 January 1999. There were no additions and disposals of fixed
Sales 1,125,000 assets during the year.
Less: Sales returns 45,000
1,080,000 (x) The return based on the owner’s capital at 31 December 1999 was 30%.
Cost of goods sold
Opening stock ? (xi) Drawings during the year amounted to $36 000.
Purchases ?
Less: Purchases returns 28,000 ? Required:
?
(a) Calculate the amounts for closing stock and gross purchases. (4 marks)
Less: Closing stock ? 648,000
Gross profit 432,000
(b) Prepare the balance sheet of Sunny Fashion as at 31 December 1999.
Less: Rent and rates 185,500
(12 marks)
Salaries 120,000
Selling expenses 18,000
(c) Briefly comment on the liquidity and profitability of Sunny Fashion for 1999
Depreciation of fixed assets 6,500
if the company had the following figures in 1998:
Sundry expenses 6,000 336,000
Net profit 96,000
Current ratio 1.6 : 1
Stock turnover rate 9 times
Additional information: Debtors’ collection period 2½ months
Return on owner’s capital 45%
(i) The closing stock and the opening stock amounted to the same figure. (4 marks)
(ii) The stock turnover rate was 8 times.

(iii) Debtors’ collection period for the year was two months and creditors’
repayment period was three months.

(iv) Sales and purchases accrued evenly throughout the year.

(v) All purchases and 90% of the net sales were on credit.

(vi) The current ratio was 2.1 : 1.

(vii) Current assets consisted of cash at bank, debtors, stock and prepayments.
HKCEE-11-accounting ratios P.7/8

1992S Q.10 2004 Q.2

Mr. Chan provided you with the following information relating to his company for (A) What do the following two types of ratio measures?
the 1990/91 financial year ended on 31 August: (a) Liquidity ratios
(b) Profitability ratios (4 marks)
(i) The current assets of his company consisted of stock, debtors and cash at bank.
(B) Selected financial data for Vera Limited is presented below:
(ii) Creditors was his only liability.
Profit and loss account data for the year ended 31 March 2004
(iii) He maintained the value of his closing stock at the same level as his opening $
stock. Sales 248,600
Returns inwards 15,200
(iv) The value of the fixed assets at the beginning of the year was $50,000. Cost of goods sold 155,750
Operating expenses 43,390
(v) He withdrew $40,000 for his own use. Net profit 34,260

(vi) He achieved the following accounting ratios in his operation through the year: Balance sheet data as at 31 March 2003 2004
$ $
Current ratio 2:1 Furniture and fixtures (net) 18,420
Office equipment (net) 32,480
Liquid ratio 1:1
Stock 28,750 26,400
Sales to fixed assets (valued at the beginning
Trade debtors 29,260 30,340
of the year) ratio 8:1
Bank 660
Debtors (at the end of the year) to sales ratio 1:20
108,300
Gross profit margin 25%
Ordinary share capital 50,000
Stock turnover per year 6 times
Share premium 12,890
General expenses (excluding depreciation)
Retained profits 15,500
to sales ratio 1:10 Trade creditors 26,900
Depreciation on fixed assets Accruals 3,010
(reducing balance method was adopted) 10% p.a. 108,300

You are required to:

Required:
Calculate (to two decimal places) for Vera Limited the following ratios for the year
ended 31 March 2004:
Prepare for Mr. Chan
(a) Quick ratio
(a) a trading and profit and loss account for the year ended 31 August 1991; and
(b) Stock turnover rate
(c) Debtors’ collection period (in months)
(b) a balance sheet as at that date. (20 marks)
(d) Gross profit ratio
(e) Returns on capital employed (10 marks)
Accounting Ratios
2008 – Q4c out of DSE syllabus. 1992 - Q.7
The Macho Club is a non-profit making organisation which aims at promoting long distance The following are the balance sheets of Stonemoss Ltd.:
running. Members are required to pay an annual membership fee of $500. The Club also sells Balance sheets as at 30 June
T-shirts to members for cash. 1991 1990
$ $
The account balances relating to membership fees and T-shirt trading are as follows: Fixed assets 739 000 650 000
As at 1 January 2007 As at 31 December 2007 Premises (net) 84 000 71 000
$ $ Plant and machinery (net) 8 000 20 000
Prepaid membership fee 3 000 1 500 Motor vehicles (net)
Accrued membership fee 5 500 7 500
Amount owing to suppliers 8 970 13 980 Current assets
Stock of T-shirts 6 320 5 730 Stock 32 000 43 000
Sundry debtors 37 500 52 000
The following are the related cash receipts and payments during the year ended 31 December Cash in hand 56 320 61 200
2007: 956 820 897 200
$
Membership fee received 84 000 Authorised capital 1 000 000
Payment to suppliers 22 890 Ordinary shares of $1 each 1 000 000 1 000 000
Commission on T-shirt sales 4 200
T-shirt sales 48 200 Issued capital 500 000 ordinary shares of $1 each 500 000 500 000
General reserves 47 900 84 600
Accrued membership fee of $2500 brought down from 2006 was confirmed to be uncollectible Profit and loss account 82 390 12 330
and written off in 2007. Profit for the year 37 670 70 060

REQUIRED: Current liabilities

(a) Draw up the membership fee account for Macho Club, showing the amount of income Bills payable 50 000 80 210
derived from membership fee for the year ended 31 December 2007. Trade creditors 177 060 150 000
(4 marks) Bank overdraft 61 800 -
(b) Prepare the trading account for Macho Club for the year ended 31 December 2007,
showing the profit or loss on the sales of T-shirts. (6 marks) 956 820 897 200
(c) Calculate (to two decimal places) the following ratios of Macho Club for the year ended 31 On 2 July 1991, the company decided to increase its liquid capital by issuing 300 000 ordinary
December 2007: shares of $1.00 each at $3.50 per share, $1.50 payable on application and $2.00 on allotment.
(i) Stock turnover rate (in months) Investors subscribed for 800 000 shares and the directors rejected small applicants for 50 000
(ii) Average credit period received from trade creditors (in days) (4 marks) shares. The remaining shares were allotted on the basis of 2 shares for every 5 shares applied for.
The balance of application monies was applied to the allotment.

Required:
(a) Calculate the returns on the total assets employed and quick ratios for the accounting years
1990 and 1991. Basing on your calculations, comment on me profitability and liquidity
position of Stonemoss Lid.
(b) Prepare journal entries to record the issue of shares
(c) Prepare an extract of the balance sheet (capital section only) after the
issue of shares.
(20 marks)
Accounting Ratios
2008 – Q4c 1992 - Q.7
The Macho Club is a non-profit making organisation which aims at promoting long distance The following are the balance sheets of Stonemoss Ltd.:
running. Members are required to pay an annual membership fee of $500. The Club also sells Balance sheets as at 30 June
T-shirts to members for cash. 1991 1990
$ $
The account balances relating to membership fees and T-shirt trading are as follows: Fixed assets 739 000 650 000
As at 1 January 2007 As at 31 December 2007 Premises (net) 84 000 71 000
$ $ Plant and machinery (net) 8 000 20 000
Prepaid membership fee 3 000 1 500 Motor vehicles (net)
Accrued membership fee 5 500 7 500
Amount owing to suppliers 8 970 13 980 Current assets
Stock of T-shirts 6 320 5 730 Stock 32 000 43 000
Sundry debtors 37 500 52 000
The following are the related cash receipts and payments during the year ended 31 December Cash in hand 56 320 61 200
2007: 956 820 897 200
$
Membership fee received 84 000 Authorised capital 1 000 000
Payment to suppliers 22 890 Ordinary shares of $1 each 1 000 000 1 000 000
Commission on T-shirt sales 4 200
T-shirt sales 48 200 Issued capital 500 000 ordinary shares of $1 each 500 000 500 000
General reserves 47 900 84 600
Accrued membership fee of $2500 brought down from 2006 was confirmed to be uncollectible Profit and loss account 82 390 12 330
and written off in 2007. Profit for the year 37 670 70 060

REQUIRED: Current liabilities

(a) Draw up the membership fee account for Macho Club, showing the amount of income Bills payable 50 000 80 210
derived from membership fee for the year ended 31 December 2007. Trade creditors 177 060 150 000
(4 marks) Bank overdraft 61 800 -
(b) Prepare the trading account for Macho Club for the year ended 31 December 2007,
showing the profit or loss on the sales of T-shirts. (6 marks) 956 820 897 200
(c) Calculate (to two decimal places) the following ratios of Macho Club for the year ended 31 On 2 July 1991, the company decided to increase its liquid capital by issuing 300 000 ordinary
December 2007: shares of $1.00 each at $3.50 per share, $1.50 payable on application and $2.00 on allotment.
(i) Stock turnover rate (in months) Investors subscribed for 800 000 shares and the directors rejected small applicants for 50 000
(ii) Average credit period received from trade creditors (in days) (4 marks) shares. The remaining shares were allotted on the basis of 2 shares for every 5 shares applied for.
The balance of application monies was applied to the allotment.

Required:
(a) Calculate the returns on the total assets employed and quick ratios for the accounting years
1990 and 1991. Basing on your calculations, comment on me profitability and liquidity
position of Stonemoss Lid.
(b) Prepare journal entries to record the issue of shares
(c) Prepare an extract of the balance sheet (capital section only) after the
issue of shares.
(20 marks)
Accounting Ratios
2006-Q.4b (Issue of Shares + Ratio)
Ball Limited had an issued share capital consisting of 650 000 ordinary shares of $l each as at
1 January 2005. On 1 July 2005, the company made an additional issue of 250 000 ordinary
shares at $1.50 per share, payable in full on application. Applications were received for 260 000
shares on 8 July 2005. The shares were allotted to the successful applicants on 15 July 2005.
Cash was returned to the unsuccessful applicants on the same day.

You are required to

(a) Prepare journal entries for Ball Limited to record the share issue in July 2005.
(Narrations are not required) (6 marks)

The company’s information below relates to the year ended 31 December 2005:
$
As at 1 January 2005:
Stock 62 430
Debtors 60 080
Share premium 75 000
Retained profits 213 000

During year 2005:

Sales 800 000
Purchases 500 000
Operating expenses 320 000

As at 31 December 2005:
Stock 156 230
Debtors 102 400
Cash in bank 168 370
Creditors 184 200
Accruals 4 000

You are required to:

(b) Calculate (to one decimal place) the following for year 2005:
(i) Quick ratio
(ii) Credit period allowed to debtors (in days)
(iii) Stock turnover rate
(4 marks)

(c) Calculate the amount of shareholders’ fund as at 31 December 2005

(4 marks)