CBSE Class 12 Accountancy Accounting Ratios VBQs Set 01

Accounting Ratios

Question. Current Ratio is calculated by:
(a) Current Liabilities/Current Assets
(b) Current Assets/Current Liabilities
(c) Current Assets/Long-term Liabilities
(d) Long-term Assets/Long-term Liabilities
Answer: (b) Current Assets/Current Liabilities

Question. The ideal Current ratio is:
(a) 1.25 : 1
(b) 2 : 1
(c) 1 : 2
(d) 10%
Answer: (b) 2 : 1

Question. The two basic measures of operational efficiency of a company are:
(a) Inventory Turnover Ratio and Working Capital Turnover Ratio
(b) Liquid Ratio and Operating Ratio
(c) Liquid Ratio and Current Ratio
(d) Gross Profit Margin and Net Profit Margin
Answer: (a) Inventory Turnover Ratio and Working Capital Turnover Ratio

Question. Compute Total Assets Turnover Ratio from the information given below:
Fixed Assets net of depreciation = Rs. 4,00,000;
Current Assets = Rs. 3,00,000;
Revenue from Operations = Rs. 14,00,000.
(a) 3 times
(b) 2 times
(c) 1 time
(d) 4 times
Answer: (b) 2 times
Total Assets Turnonver Ratio = \( \frac{\text{Revenue from Operations}}{\text{Total Assets}} \)
\( = \frac{14,00,000}{(4,00,000 + 3,00,000)} \)
\( = \frac{14,00,000}{7,00,000} = 2 \) Times

Question. If Total Assets are Rs. 13,20,000, Non-Current Assets Rs. 6,00,000 and Capital Employed is Rs. 12,00,000. Which of the following correctly represents the current ratio for the venture?
(a) 2 : 1
(b) 4 : 1
(c) 6 : 1
(d) 7 : 1
Answer: (c) 6 : 1
Current Assets = Total Assets \( - \) Non-Current Assets
Current Liabilities = Total Assets \( - \) Capital Employed
\( = 13,20,000 - 12,00,000 = 1,20,000 \)
Current Assets \( = 13,20,000 - 6,00,000 = 7,20,000 \)
Current Ratio: \( = \frac{\text{Current Assets}}{\text{Current Liabilities}} \)
\( = \frac{7,20,000}{1,20,000} \)
\( = 6 : 1 \)

Question. In case if the current ratio of a business is 0.8:1, state if payment of final dividend already declared the current ratio:
(a) will improve
(b) will decline
(c) will have no impact on
(d) may or may not impact
Answer: (b) will decline
Both total current assets and total current liabilities will decline by the same amount but the incidence of decline would be more on current liabilities. Thus, it will lead to decline in the current ratio.

Question. Debt to Equity Ratio:
(a) \( \frac{\text{Long-term Debts}}{\text{Shareholder's Funds}} \)
(b) \( \frac{\text{Short-term Debts}}{\text{Shareholder's Funds}} \)
(c) \( \frac{\text{Short-term Debts}}{\text{Revenue from Operations}} \)
(d) \( \frac{\text{Gross Profit}}{\text{Revenue from Operations}} \)
Answer: (a) \( \frac{\text{Long-term Debts}}{\text{Shareholder's Funds}} \)

Question. Current Ratio is 2 : 1. On the sale of fixed asset (Book value Rs. 20,000) for Rs. 18,000, state whether the Current Ratio will:
(a) Improve
(b) Decline
(c) Will not change
(d) Can’t say
Answer: (a) Improve.

Question. A transaction involving a decrease in both Current Ratio and Quick Ratio is:
(a) Sale of Non-current Asset for cash.
(b) Sale of Stock-in-Trade at loss.
(c) Cash payment of a Current Liability.
(d) Purchase of Stock-in-Trade on credit.
Answer: (d) Purchase of Stock-in-Trade on credit.

Question. The quick ratio of a company is 1.5 : 1. State with reason whether the following transaction would increase, decrease or not change the ratio: Paid rent Rs. 3,000 in advance.
(a) increase
(b) decrease
(c) not change
Answer: (b) decrease
Answer: Reason: Payment of advance rent of Rs. 3,000, will reduce the value of quick assets. Hence, the quick ratio is decreased.

Question. The quick ratio of a company is 1.5 : 1. State with reason whether the following transaction would increase, decrease or not change the ratio: Trade receivable included a debtor Shri Ashok who paid his entire amount due Rs. 9,700.
(a) increase
(b) decrease
(c) not change
Answer: (c) not change
Reason: As there is a simultaneous increase and decrease in quick asset, i.e. cash and debtor, therefore, it will not affect the value of current asset.

Question. From the following which ratio is not a part of Activity Ratio:
(a) Inventory Turnover Ratio
(b) Trade Receivables Turnover Ratio
(c) Working Capital Turnover Ratio
(d) Debt to Equity Ratio
Answer: (d) Debt to Equity Ratio

Question. The ___________ may indicate that the firm is experiencing stock outs and lost sales:
(a) Average payment period
(b) Inventory turnover ratio
(c) Average collection period
(d) Quick ratio
Answer: (b) Inventory turnover ratio

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 purchase goods on credit
(iii) He can take short term loan
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) Only (i) is correct

Question. Which of the following is not a type of Activity Ratio?
(a) Working Capital Turnover Ratio.
(b) Debt to Equity Ratio.
(c) Inventory Turnover Ratio.
(d) All of the options.
Answer: (b) Debt to Equity Ratio.

Question. Debt equity ratio of a company is 1 : 2. Which of the following transactions will increase it:
(a) Issue of new shares for cash
(b) Redemption of Debentures
(c) Issue of Debentures for cash
(d) Goods purchased on credit
Answer: (c) Issue of Debentures for cash

Question. Assuming that the current ratio is 2 : 1 purchase of goods on credit would:
(a) Increase current ratio
(b) Decrease current ratio
(c) No effect on current ratio
(d) Decrease gross profit ratio
Answer: (a) Increase current ratio

Question. On the basis of following information received from a firm, its Proprietary Ratio will be:
Fixed Assets Rs. 3,30,000; Current Assets Rs. 1,90,000; Preliminary Expenses Rs. 30,000; Equity Share Capital Rs. 2,44,000; Preference Share Capital Rs. 1,70,000; Reserve Fund Rs. 58,000.
(a) 70%
(b) 80%
(c) 85%
(d) 90%
Answer: (c) 85%

Question. Satisfactory Ratio between Long-term Debts and Shareholder’s Funds is:
(a) 1 : 1
(b) 3 : 1
(c) 1 : 2
(d) 2 : 1
Answer: (d) 2 : 1

Question. Opening Inventory of a firm is Rs. 80,000. Cost of revenue from operations is Rs. 6,00,000. Inventory Turnover Ratio is 5 times. Its closing Inventory will be:
(a) Rs. 1,60,000
(b) Rs. 1,20,000
(c) Rs. 80,000
(d) Rs. 2,00,000
Answer: (a) Rs. 1,60,000

Question. The formula for calculating the Trade Receivables Turnover Ratio is:
(a) \( \frac{\text{Total Revenue from Operations}}{\text{Average Debtors}} \)
(b) \( \frac{\text{Credit Revenue from Operations}}{\text{Average Debtors}} \)
(c) \( \frac{\text{Net Credit Revenue from Operations}}{\text{Average Debtors + Average Bills Receivable}} \)
(d) None of the options
Answer: (c) \( \frac{\text{Net Credit Revenue from Operations}}{\text{Average Debtors + Average Bills Receivable}} \)

Question. Inventory Turnover Ratio is:
(a) Average Inventory/Revenue from Operations
(b) Average Inventory/Cost of Revenue from Operations
(c) Cost of Revenue from Operations/Average Inventory
(d) G.P./Average Inventory
Answer: (c) Cost of Revenue from Operations/Average Inventory

Question. Which of the following items is shown under the head ‘Current Assets’ while preparing the Balance Sheet of a company?
(a) Trade Investment
(b) Underwriting Commission
(c) Inventories
(d) Livestock
Answer: (c) Inventories

Question. Current assets of a company were Rs. 1,00,000 and its current ratio was 2 : 1. Company paid Rs. 25,000 to a trade payable. The current ratio after the payment will be:
(a) 5 : 1
(b) 2 : 1
(c) 3 : 1
(d) 4 : 1
Answer: (c) 3 : 1

Question. Which of the following is not a part of Activity Ratios/Turnover Ratios:
(a) Trade Receivable Turnover Ratio
(b) Trade Payable Turnover Ratio
(c) Interest Coverage Ratio
(d) Working Capital Turnover Ratio
Answer: (c) Interest Coverage Ratio

Question. Quick ratio will be_________ from following data:
Equity and Liabilities - Current Liabilities: Rs. 8,00,000
Assets - Current Assets: Rs. 10,00,000
Subsequently it purchased goods for Rs. 1,00,000 on credit.
(a) 1.11 : 1
(b) 1.22 : 1
(c) 1.38 : 1
(d) 1.25 : 1
Answer: (a) 1.11 : 1

Question. If Current Ratio of a company is 3 : 2, identify which combination is correct:
(a) Current Assets Rs. 50,000 and Current Liabilities Rs. 50,000
(b) Current Assets Rs. 60,000 and Current Liabilities Rs. 50,000
(c) Current Assets Rs. 90,000 and Current Liabilities Rs. 70,000
(d) Current Assets Rs. 90,000 and Current Liabilities Rs. 60,000
Answer: (d) Current Assets Rs. 90,000 and Current Liabilities Rs. 60,000.

Question. Which of the following assets are not part of Current Assets while calculating the Current Ratio?
(a) Cash in hand
(b) Cash at bank
(c) Marketable securities
(d) Loose tools
Answer: (d) Loose Tools

Question. Debt equity ratio will be: (Paid-up Share Capital: Rs. 6,00,000; 6% Debenture: Rs. 3,00,000; 9% Loan: Rs. 1,00,000; DRR: Rs. 2,00,000; Closing Inventory: Rs. 1,00,000)
(a) 0.5 : 1
(b) 0.66 : 1
(c) 1.6 : 1
(d) 1.25 : 1
Answer: (a) 0.5 : 1

Question. In which of the following ratio ``Total Assets’’ are used for calculation purpose:
(a) Proprietary Ratio
(b) Inventory Turnover Ratio
(c) Current Ratio
(d) Return on Investment
Answer: (a) Proprietary ratio.

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) helps in locating weak points of the firm
Financial analysis is significant as it helps a firm in locating weak points, with the comparison of two years balance sheet and ratio analysis.

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: (a) 1 : 1
Satisfactory absolute ratio is 0.5 ; 1. Because absolute liquid ratio will give correct idea whether our short-term financial position is good for business or not.

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 options
Answer: (d) All of the options
Ability to pay dividend to equity shareholders shows that the undertaking is able to meet the interest cost and also long-term liabilities as and when they become due.

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

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) liquidity, debt and profitability

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

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) liquidity

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) Activity

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) current ratio and liquid ratio