FORMULAS

Question 1

Assets = Liabilities + Capital

Answer 1

A = L + C
(balance sheet equations)

Question 2

Gross Profit =

Answer 2

Sales - Costs of Good Sold
(GP = S - COS)

Question 3

Net Profit =

Answer 3

Gross Profit - Expenses
(NP = GP - E)

Question 4

Cost of Sales =

Answer 4

Opening Stock + Purchases - Closing Stock
(COS = OS + P - CS)

Question 5

Double Entry: purchase vehicle with bank loan

Answer 5

increase assets + increase liabilities

Question 6

Double Entry: purchase vehicle by check

Answer 6

increase one asset + decrease another asset
(^FA vBank)

Question 7

Double Entry: owner introduces vehicle to business

Answer 7

increase one asset + increase capital

Question 8

Double Entry: paid 50k to clear loan

Answer 8

decrease assets + decrease liabilities

Question 9

Double Entry: owner takes 50k cash out of business

Answer 9

decrease assets + decrease capital

Question 10

Accrued Expenses: incurred but not yet paid

Answer 10

include in P&L, Balance Sheet as Current Liability

Question 11

Accrued Income: earned but not yet received

Answer 11

include in P&L, Balance Sheet as Current Asset

Question 12

Prepaid Expenses: paid in advance

Answer 12

exclude from P&L, Balance Sheet as Current Asset

Question 13

Prepaid/Deferred Income: received but not yet earned

Answer 13

exclude from P&L, Balance Sheet as Current Liability

Question 14

Depreciation: loss of value over time

Answer 14

annual charge included in P&L
Fixed Asset shown in Balance Sheet as Cost - Depreciation = NBV (Net Book Value)

Question 15

Bad Debts: debts owing to business which are never collected

Answer 15

= expense
include bad debt expense in P&L, reduce debtors in Balance Sheet

Question 16

Bad Debt Provision: estimate to cover bad debts

Answer 16

include as expense in P&L, show as deduction from debtors in Balance Sheet

Question 17

Liquidity
CURRENT RATIO (CR) =

Answer 17

Current Assets (CA) / Current Liabilities (CL)

(CR = CA / CL)

Question 18

Liquidity
ACID TEST (QUICK) =

Answer 18

Current Assets (CA) - Stock / Current Liabilities (CL)

(AT = CA - S / CL)

Question 19

Gearing/Leverage
DEBT/EQUITY =

Answer 19

Longterm Debt (LTD) / Total Equity (TE)

(D/E = LTD/TE)

Question 20

Profitability
GROSS PROFIT % (GP%) =

Answer 20

Gross Profit (GP) / Sales (S)

GP% = GP / S

Question 21

Profitability
NET MARGIN % (NP%) =

Answer 21

Profit Before Interest and Tax (PBIT) / Sales (S)

(NP% = PBIT / S)

Question 22

Profitability
RETURN ON CAPITAL EMPLOYED (ROCE) =

Answer 22

Profit Before Interest and Tax (PBIT) / Capital Employed (CE)

(ROCE = PBIT / CE)

Question 23

Profitability
REUTRN ON EQUITY (ROE) =

Answer 23

Profit Before Tax (PBT) / Total Equity (TE)

(ROE = PBT / TE)

Question 24

Operational
STOCK TURNOVER (DAYS) [STD] =

Answer 24

Average Stock (AS) * 365 (Days) / Cost of Sales (COS)

(STD = AS * Days / COS)

Question 25

Operational STOCK TURNOVER (TIMES) [STT] =

Answer 25

Cost of Sales (COS) / Average Stock (AS) (STT = COS / AS)

Question 26

Operational ASSET TURNOVER (AT) =

Answer 26

Sales (S) / Fixed Assets (FA) (AT = S / FA)

Question 27

Operational DEBTOR DAYS (DD) =

Answer 27

Debtors (D) * 365 (days) / Credit Sales (DD = D * days / CS)

Question 28

Operational CREDITOR DAYS (CD) =

Answer 28

Creditors (C) * 365 (Days) / Credit Purchases (CP) (CD = C * Days / CP)

Question 29

Cost Accumulation

Answer 29

DIRECT COSTS Direct Materials +Direct Labor =Prime Costs INDIRECT COSTS +Factory O/Hs =TOTAL PRODUCT COST +Period Cost =TOTAL COST +Profit =SELLING PRICE

Question 30

Markup

Answer 30

Total Cost (250) + % mark up (20% = 50) = Selling Price (300)

Question 31

Profit Margin

Answer 31

Total Cost (80% Selling Price) [250] + Profit (20% Selling Price) [62.50] = Selling Price (100%) [312.50]

Question 32

Production Budget (Units)

Answer 32

Sales (units) + Budgeted Closing Stock (finished goods) - Opening Stock (finished goods) = Production in units (S + BCS - OS = PU)

Question 33

Materials Budget (Kgs)

Answer 33

Production Requirement/Usage + Budgeted Closing Stock (Raw Materials) - Opening Stock (Raw Materials) = Purchase Requirements (U + BCS - OS = PR)

Question 34

Order of Budget Preparations

Answer 34

1 - Sales 2 - Production 3 - Direct Materials Usage and Direct Materials Purchase 4 - Direct Labor 5 - Manufacturing Overheads 6 - Ending Inventories 7 - Cost of Sales 8 - Non-manufacturing Costs 9 - Budgeted P&L 10 - Capital Expenditure 11 - Cash Budget 12 - Balance Sheet

Question 35

Capital Equity =

Answer 35

Equity + Long Term Debt (CE = E + LTD)

Question 36

PBIT (Profit Before Interest and Tax) =

Answer 36

Gross Profit - Operating Expenses OR Net Profit + Interest + Tax (PBIT = GP - OE) [PBIT = NP + I + T)

Question 37

PBT (Profit Before Tax) =

Answer 37

PBIT - Interest OR Revenue - Cost of Sales - Operating Expenses - Interest OR Net Profit + Tax (PBT = PBIT - I) [PBT = R - COS - OE - I] {PBT = NP + T}