Exam notes for understanding and answering questions in the IEB Accounting Paper 2. It provides detailed descriptions on how to answer questions and how to do the math involved to achieve an A. I achieved 96% for this exam by using these notes.
1.gross profit margin -higher is better
Gross profit x 100 -low reasons:
Sales 1.low sales price due to competition
2.higher cost price of stock
3.higher discounts allowed
4.inventory lost
2.gross profit on cost of sales -shows mark-up
Gross profit x 100 -higher is better
Cost of sales -low reasons:
1.low sales price due to competition
2.higher cost price of stock
3.higher discounts allowed
4.inventory lost
3.operating expenses on sales -lower is better as it shows better
Operating expenses x 100 management of costs
Sales -look at individual expenses and comment on
any increases/ decreases in specific costs
4.net profit on sales -higher is better as it shows that a larger
Net profit x 100 percentage of sales is profit
Sales -compare with operating profit on sales to
comment on the effect of interest
EFFICIENCY (working capital cycle)
1.stock turnover rate -number of times stock is replaced in a year
Cost of sales -higher is good as stock is sold more
Average stock regularly
Average stock= (opening stock + closing -higher when stock is perishable
stock) ÷2
2.stock holding period -average time taken to sell stock
Average stock x 365 -lower is better as stock is sold faster and the
Cost of sales holding of stock is often costly
3.debtors’ collection period -average time taken for a debtor to pay their
Average debtors’ x 100 account
Credit sales -lower is better
Average debtors= (opening balance + closing -norm is 30-60 days
balance) ÷2 -suggestions:
1.offer discounts to those who pay quickly
2.increase interest on account
4.creditors’ payment period -average time taken to pay short-term debts
Average creditors’ x 100 -higher is better as this allows more time to
Credit purchases invest
Average creditors= (opening balance + -norm is 30-60 days
closing balance) ÷2
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