CBSE Class 12 Accountancy Accounting Ratios Assignment

Question. Ratio analysis under financial analysis is significant as it
a) ignores qualitative factors
b) helps in window-dressing
c) does not requires any standards
d) helps in locating weak points of the firm

Answer : D

Question. Consider the following information. Long-term borrowings Rs 2,00,000; Long-term provision Rs 1,00,000; Current liabilities Rs 50,000 ; Non-current assets Rs 3,60,000; Current assets Rs 90,000 Proprietary ratio will be
a) 22.2%
b) 21.8%
c) 36%
d) None of these

Answer : A

Question. Test of solvency of a business undertaking means
a) its ability to meet the interest costs
b) its ability to meet the long-term liabilities as and when they become due
c) its ability to pay dividends to equity shareholders
d) All of the above

Answer : D

Question. The ...... is a measure of liquidity which excludes ......, generally the least liquid asset
a) current ratio, trade receivable
b) liquid ratio, trade receivable
c) current ratio, inventory
d) liquid ratio, inventory

Answer : D

Question. Normally absolute ratio is further refinement of liquid or quick ratio. Which of the following is considered fairly satisfactory?
a) 1: 1
b) 0.5 : 1
c) 1.5 : 1
d) 1: 1.5

Answer : B

Question. The immediate solvency ratio is
a) quick ratio
b) current ratio
c) debtors turnover ratio
d) stock turnover ratio

Answer : A

Question. The ...... ratios are primarily measures of return.
a) liquidity
b) activity
c) debt
d) profitability

Answer : D

Question. Total purchase Rs 1,70,000, cash purchases Rs 16,000, purchase return Rs 8,000, creditors at the end of the year Rs 32,000, creditors in the beginning Rs 24,000. What will be the creditors turnover ratio?
a) 5.12 times
b) 5.16 times
c) 5.21 times
d) 5.25 times

Answer : C

Question. ABC Co. extends credit terms of 45 days to its customers. Its credit collection would be considered poor if its average collection period was
a) 30 days
b) 36 days
c) 47 days
d) 37 days

Answer : C

Question. ...... ratios are a measure of the speed with which various accounts are converted into revenue from operations or cash.
a) Activity
b) Liquidity
c) Debt
d) Profitability

Answer : A

Question. The two basic measures of liquidity are
a) inventory turnover and current ratio
b) current ratio and liquid ratio
c) gross profit margin and operating ratio
d) current ratio and average collection period

Answer : B

Question. The credit sale of M/s Dinesh & Sons is Rs 21,00,000, It’s debtors and bills receivables at the end of the accounting period amounted to Rs Rs 2,00,000 and Rs 1,50,000 respectively. What will be the debtor’s turnover ratio?
a) 4 times
b) 5 times
c) 6 times
d) 7 times

Answer : C

Question. ...... are especially interested in the average payment period, since it provides them with a sense of the bill-paying patterns of the firm.
a) Customers
b) Stockholders
c) Lenders and suppliers
d) Borrowers and buyers

Answer : C

Question. The following groups of ratios are primarily measure risk
a) liquidity, activity and profitability
b) liquidity, activity and inventory
c) liquidity, activity and debt
d) liquidity, debt and profitability

Answer : D

Question. Calculate operating ratio, if cost of revenue from operations Rs 50,000, revenue from operations Rs 1,50,000 and operating expenses Rs 20,000.
a) 45%
b) 46.7%
c) 48.1%
d) 42.2%

Answer : B

Question. The ...... of business firm is measured by its ability to satisfy its short-term obligations as they become due
a) activity
b) liquidity
c) debt
d) profitability

Answer : B

Question. The ...... is useful in evaluating credit and collection policies.
a) average payment period
b) current ratio
c) average collection period
d) current asset turnover

Answer : C

Question. The ...... may indicate that the firm is experiencing stock outs and lost sales.
a) average payment period
b) inventroy turnover ratio
c) average collection period
d) quick ratio

Answer : A

Question. The ...... measures the activity of a firm’s inventory.
a) average collection period
b) invenotry turnover
c) liquid ratio
d) current ratio

Answer : B

Question. Which of the following points out the significance of ratio analysis?
a) It helps the business in identifying the problem areas.
b) It ignores price level changes.
c) It ignores qualitative aspects.
d) All of the above

Answer : A

Question. The ...... ratios provide the information critical to the long-run operation of the firm
a) liquidity
b) activity
c) solvency
d) profitability

Answer : C

Question. Which of the following is/are objective(s) of ratio analysis?
a) To know the areas of the business which need more attention.
b) To provide a deeper analysis of the profitability, liquidity, solvency and efficiency levels in the business.
c) To provide information by making cross sectional analysis by comparing the performance with the best industry standards.
d) All of the above

Answer : D

Question. A very high working capital turnover ratio may be a sign of ……… .
a) undertrading
b) overtrading
c) optimal trading
d) None of these

Answer : B

Question. The Current Assets of APE Ltd. are Rs 6,00,000 ; Current Liabilities are Rs 2,00,000; Inventories are Rs 1,50,000; Prepaid Expenses are Rs 50,000 and Cash and Cash Equivalents are Rs 1,00,000. What is its quick ratio?
a) 1
b) 2
c) 1.5
d) 3

Answer : B

Question. What is the inventory turnover ratio, when the following is given?
COGS = Rs 1,50,000; Closing Inventory = Rs 60,000;
Excess of Closing Inventory over Opening Inventory Rs 20,000.
a) 3 times
b) 2.14 times
c) 1.5 times
d) 4 times

Answer : A

Question. Current ratio of Vidur Pvt. Ltd. is 3:2. Accountant wants to maintain it at 2:1. Following options are available
(i) He can repay bills payable.
(ii) He can take short-term loan.
(iii) He can purchase goods on credit.
Choose the correct option.
a) Only (i) is correct
b) Only (ii) is correct
c) Only (i) and (iii) are correct
d) Only (ii) and (iii) are correct

Answer : A

Question. A debt-equity ratio of ………… is considered satisfactory.
a) 1:1
b) 4:1
c) 2:1
d) There is no such value

Answer : C

Question. Debt-equity ratio of a company is 1:2. Purchase of a fixed asset for Rs 5,00,000 on long-term deferred payment basis will
a) increase the ratio
b) decrease the ratio
c) the ratio will not change
d) either (a) or (b)

Answer : A

Question. What is the debt to equity ratio when the following information is available?
Total Assets Rs 35,00,000; Total Debts Rs 25,00,000; Current Liabilities Rs 8,00,000.
a) 1.7:1
b) 2:1
c) 3:1
d) 3:2

Answer : A

Question. A company’s current ratio is 4 : 2 and current liabilities are Rs 6,20,000. What will be the amount of current assets?
a) Rs 12,40,000
b) Rs 3,10,000
c) Rs 6,00,000
d) Rs 24,80,000

Answer : A

Important Notes for Class 12 Accountancy Accounting Ratios

It ascertains the soundness of the long term policies of the firm.

This ratio indicates how much of total assets have been financed by long-term debts. A higher ratio indicates that assets have been mainly financed by owners funds and less of long-term debts.

 

Shareholder's Fund is also known as Proprietor's Fund

Total Assets= Non Current Assets + Current Assets

 

This ratio shows the proportion of total assets funded by owners or shareholders.

Higher the ratio, the better it is. It is usually expressed in percentage.

 

It is expressed in 'TIMES'. It is also known as Debt Service Ratio.

The higher the ratio, the better it is. a high ratio provides a sense of security to the lender with respect to interest payments.

Net profit after tax means Net Profit after Interest and tax because tax is deducted only after deduction of Interest.

Hence, profit after tax means that the interest is already subtracted.

 

Cost of revenue from operations is also known as Cost of Goods Sold.

It is calculated in 'TIMES'. The Inventory Turnover Ratio provides insight on how long cash is tied up in the cycle of being used to purchase raw materials or a finished product for sale through to

selling the product. The higher the ratio, the better it is.

Cost of revenue from operations=

Revenue from operations- Gross Profit

OR

Revenue from Operations + Gross Loss

OR

Opening Inventory + Purchases + Carriage + Wages + Other Direct Expenses - Closing Inventory

 

 

It is calculated in 'TIMES'. It measures how many times a business can turn its accounts receivable into cash during a period. In other words, the accounts receivable turnover ratio measures how many times a business can collect its average accounts receivable during the year. The higher the ratio, the better it is. If the amount of credit Revenue from operations isn't given in the question and it can't be found out using the values in the question, then the ratio may be calculated on the basis of

Total Revenue from operations.

Average Trade

It is calculated in 'TIMES'. If the amount if credit purchases isn't given in the question and it can't be found out using the values in the question, then the ratio may be calculated on the basis of Total Purchases. It shows a company’s ability to pay off its accounts payable by comparing net credit purchases to the average accounts payable during a period. In other words, the accounts payable turnover ratio is how many times a company can pay off its average accounts payable balance during the course of a year.

 

 

 

 

It is calculated in 'Times'. Working capital is current assets minus current liabilities. A high turnover ratio indicates that management is being extremely efficient in using a firm's shortterm assets and liabilities to support sales. Conversely, a low ratio indicates that a business is investing in too many accounts receivable and inventory assets to support its sales, which could eventually lead to an excessive amount of bad debts and obsolete inventory write-offs.

 

A higher ratio is considered better. The ratio can be used to test the business condition by comparing it with past years’ ratio and with the ratio of other companies in the industry. A consistent improvement in gross profit ratio over the past years is the indication of continuous improvement .

 

 

Operating Profit = Gross profit - operating expenses + Operating Incomes

OR

Operating Profit = Net profit (before tax) + Non Operating

expenses (like Loss on sale of fixed assets, loss from fire, income tax, finance charges relating to interest on long term debts, interest on debentures,etc.) - Non Operating Incomes (like Profit on sale of fixed assets, Interest and dividend received on investments, etc.)

A company with higher operating margin ratio is financially sound. It can easily pay its fixed costs and interest on the debt. 

A company with good operating ratio can successfully survive during an economic crisis. Only a company with higher operating margin ratio can successfully compete with the competitors by lowering the price of products to such level that competitors will not be able to survive.

Note: Operating Ratio + Operating Profit Ratio = 100%

 

 

Net Profit = Gross Profit - Indirect Expenses and losses + Other Incomes - Tax

Indirect Expenses and losses = Office expenses + Selling expenses+ Interest on Long term Borrowings + Accidental Losses + Other indirect expenses

 

Non Current Assets = Tangible Assets + Intangible Assets + Non Current Investments + Long term Loans and Advances

ACCOUNTING RATIOS

1. Calculate the liquidity ratios and comment on the short term financial position of the company from the following information: Rs. Closing Inventory 2,00,000

Trade Receivables

Less: Provision for Doubtful Debts      1,00,000

Cash                                                  30,000

Marketable Securities                          20,000

Income Tax Paid in Advance                 10,000

Share Issue Expenses                          15,000

Liability for current taxation                  20,000

Liability for Future Taxation                   30,000

Trade Payables                                     34,000

Outstanding Salaries                              5,000

Bank Overdraft                                    25,000

Dividends Payable                                36,000

2. Assuming that the current ratio is 2:1, state giving reasons, which of the following transactions would (i) improve, (ii) reduce, or (iii) not alter, the current ratio:

(a) Cash collected from trade receivables

(b) B/R received from trade receivables

(c) B/R endorsed to trade payables

(d) B/R dishonoured

(e) Sale of inventories at par for cash

(f) Sale of inventories at profit for cash

(g) Sale of inventories at profit on credit

(h) Sale of a fixed asset on a credit of 2 months.

(i) Sale of a fixed asset on long term deferred payment basis

(j) Issue of new shares against purchase of fixed asset

3. A firm had current assets of Rs.2,00,000. Ot then paid a current liability of Rs.40,000. After this payment the current ratio was 2:1. Determine:

(a) The size of current liabilities and working capital after the payment

(b) Also determine the size of these two items before the payment was made.

4. The current assets pf Monarch Company are Rs. 29,745 and the current ratio is 1.5. The inventories stood at Rs.8,827. Calculate the liquid ratio and comment on the liquidity position of the company.

5. From the given information, calculate the inventory turnover ratio:

Revenue from operations Rs.2,00,000; GP : 25% on cost; Opening inventory was 1/3rd of the value of Closing Inventory. Closing Inventory was 30% of Revenue from Operations.

6. Calculate the amount of Opening and Closing Trade receivables from the following:

Trade Receivables Turnover Ratio   : 6 Times
Cost Of Revenue from Operations  : Rs.6,00,000
Gross Profit Ratio                         : 20% on cost
Cash Revenue from Operations being 25% of Total Revenue from Operations

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