ExpertEasy1 markMultiple Choice
ACCA · Question 63 · Interpretation of Financial Statements
Section B - Case 2
Scenario: EcoBuild Ltd is preparing financial statements for the year ended 30 September 20X6. Draft profit before tax is $450,000. Adjustments required:
- A machine costing $120,000 bought on 1 April 20X6 was incorrectly expensed in full. Depreciation is 20% straight-line (pro-rata).
- Closing inventory was undervalued by $15,000.
- An allowance for receivables of $8,000 needs to be created.
- Rent of $12,000 paid for the quarter ending 30 November 20X6 was fully expensed.
Draft Revenue is $2,000,000.
Using the revised Capital Employed figure from the previous question ($2,123,000), what is the Asset Turnover ratio?
Section B - Case 2
Scenario: EcoBuild Ltd is preparing financial statements for the year ended 30 September 20X6. Draft profit before tax is $450,000. Adjustments required:
- A machine costing $120,000 bought on 1 April 20X6 was incorrectly expensed in full. Depreciation is 20% straight-line (pro-rata).
- Closing inventory was undervalued by $15,000.
- An allowance for receivables of $8,000 needs to be created.
- Rent of $12,000 paid for the quarter ending 30 November 20X6 was fully expensed.
Draft Revenue is $2,000,000.
Using the revised Capital Employed figure from the previous question ($2,123,000), what is the Asset Turnover ratio?
Answer options:
A.
1.00 times
B.
0.94 times
C.
1.06 times
D.
0.27 times
How to approach this question
Formula for Asset Turnover = Revenue / Capital Employed. $2,000,000 / $2,123,000.
Full Answer
B.0.94 times✓ Correct
Asset Turnover is calculated as Revenue divided by Capital Employed. Using the given Revenue of $2,000,000 and the revised Capital Employed of $2,123,000, the ratio is $2,000,000 / $2,123,000 = 0.94 times.
Common mistakes
Inverting the formula (Capital Employed / Revenue).
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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