Questions for chapter-Accounting Ratio 

  • Board
    CBSE
  • Textbook
    NCERT
  • Class
    Class 12
  • Subject
    Accountancy
  • Chapter
    Questions for chapter-Accounting Ratio 
  • Chapter Name
    Accounting Ratio
  • Category
    CUET (Common University Entrance Test) UG

MCQ-Based Questions for CUET Accountancy chapter-Accounting Ratio 

This page is prepared by HT experts and consists of MCQ-Based Questions for CUET Accountancy chapter-Accounting Ratio with a detailed explanation of all the questions asked from the Accounting Ratio. To find the solution to the MCQ asked just click on the answer tab. Check out all chapters of CUET Accountancy

Practice Questions for CUET Accountancy chapter-Accounting Ratio SET-1

Accounts - MCQ on Accounting Ratio

Class XII

Q.1. when the number is calculated by referring to two accounting numbers derived from the financial statement, is termed as

a) percentage

b) Fraction

c) Accounting ratio

d) None of the above

Answer:

Accounting ratio

Explanation:- when the number is calculated by referring to two accounting numbers derived from the financial statement, is termed as accounting ratio.

Q.2. Ratio analysis is a technique based upon:

a) regrouping of data

b) Interpretation of data

c) Neither A nor B

d) Both A and B

Answer:

D) Both A and B

Explanation:- Ratio analysis is a technique which involves regrouping of data by application of arithmetical relationship though its interpretation is complex matter.

Q.3. Objectives of ratio analysis includes:-

a) To know the areas of business which need more attention

b) To provide information derived from financial statement useful for making

c) Either A or B

d) Both A and B

Answer:

D) Both A and B

Explanation:- both are the objectives of ratio analysis

Q.4. Advantages of ratio analysis are:-

a) Help understand efficacy of decisions

b) Simplify complex figures and establish relationship

c) Both A and B

d) None of the above

Answer:

C) Both A and B

Explanation:- Both A and B are the advantages of Ratio analysis

Q.5. Limitation os Ratio analysis:-

a) Limitation of accounting data

b) Forecasting

c) Neither A nor B

d) Both A and B

Answer:

D) Both A and B

Explanation:- Both A and B are limitations of Ratio analysis

Q.6. two way classification of ratio are:-

a) Traditional

b) Functional

c) Only a

d) Both a and b

Answer:

D) Both A and b

Explanation:- the two way of classification of ratio 1) traditional classification, 2) functional classification

Q.7. income Statement ratio comes under:-

a) traditional

b) Functional

c) Both a and b

d) None of the above

Answer:

a) Traditional

Explanation:- Income statement is the part of the classified traditional type ratio.

Q.8.Traditional classification is based on :-

a) fund flow statements

b) Financial statements

c) Both A and B

d) Only B

Answer:

b) Financial statement

Explanation:- the traditional classification has been on the basis of financial statements to which the determinants of ratio belong.

Q.9. If a ratio is computed with one variable from income statement and another variable from balance sheet, it is called:-

a) Balance sheet ratio

b) Income statements ratio

c) Composite Ratio

d) All of the above

Answer:

Composite ratio

Explanation:- If a ratio is computed with one variable from income statement and another variable from balance sheet, it is called composite ratio

Q.10. Ratios that are calculated for measuring the efficiency of business based on effective utilization of resources:-

a) liquidity ratio

b) Solvency ratio

c) Activity ratio

d) Profitability ratio

Answer:

c) Activity ratio

Explanation:- Activity ratio- Ratios that are calculated for measuring the efficiency of business based on effective utilization of resources

Q.11. The analysis of profits in relation to sales or fund employed in the business and the ratios calculated to meet this objective are known as:-

a) liquidity ratio

b) Solvency ratio

c) Activity ratio

d) Profitability ratio

Answer:

Profitability Ratio

Explanation:- The analysis of profits in relation to sales or fund employed in the business and the ratios calculated to meet this objective are known as Profitability ratio

Q.12. The ability of the business to pay the amount due to stakeholders as and when it is due is known as:-

a) liquidity ratio

b) Solvency ratio

c) Activity ratio

d) Profitability ratio

Answer:

a) Liquidity Ratio

Explanation:- The ability of the business to pay the amount due to stakeholders as and when it is due

Q.13. It provides a measure of safety available against uncertainty in realization of current assets and flow of fund:-

a) liquidity ratio

b) Solvency ratio

c) Activity ratio

d) Current ratio

Answer:

d) Current Ratio

Explanation:- Current ratio provides a measure of safety available against uncertainty in realization of current assets and flow of fund

Q.14. Acid-test ratio =

a) Quick assets / current liabilities

b) Long-term debts / share holders fund

c) Total debt / total assets

d) Current assets/ current liabilities

Answer:

a) Quick assets / current liabilities

Easy

Q.15. Quick assets =

a) current assets – closing stock – prepaid expenses

b) Current assets – stock – advance tax

c) Neither A nor B

d) Either A or B

Answer:

B) Current assets – stock – advance tax

Explanation:- Quick assets = Current assets – stock – advance tax

Q.16. the following ratios are related to solvency of the business

a) Debt equity ratio

b) Debt ratio

c) Proprietary ratio

d) All of the above

Answer:

D) all of the above

Explanation:- all of the above are related to solvency of the business.

Q.17. Debt equity ratio=

a) Quick assets / current liabilities

b) Long-term debts / share holders fund

c) Total debt / total assets

d) Current assets/ current liabilities

Answer:

Long term debts / share holders fund

Explanation:- Debt equity ratio = Long-term debts / share holders fund

Q.18. Express relationship of proprietor’s finds to net assets:-

a) Debt equity ratio

b) Debt ratio

c) Proprietary ratio

d) All of the above

Answer:

c) proprietary ratio

Explanation:- . Express relationship of proprietor’s finds to net assets

Q.19. Interest coverage ratio =

a) net profit before interest and tax / interest on long term debt

b) fixed assets + investments + current assets / interest on long term debt

c) Total non-fictitious assets – current liabilities / profit before interest and tax

d) None of the above

Answer:

a) net profit before interest and tax / interest on long term debt

Explanation :- Interest coverage ratio = net profit before interest and tax / interest on long term debt

Q.20. which one is the category of activity ratio:-

a) stock turnover

b) Debtors turnover

c) Creditors turnover

d) All of the above

Answer:

D) All of the above

Explanation:- all are come under activity ratio

Q.21. Stock turnover ratio =

a) cost of goods sold / average stock

b) current assets – closing stock – prepaid expenses

c) Current assets – stock – advance tax

d) All of the above

Answer:

a) cost of goods sold / average stock

Explanation:- cost of goods sold / average stock

Q.22. The following groups of ratios primarily measure risk

a) liquidity, activity, and profitability

b) liquidity, activity and common stock

c) liquidity, activity and debt

d) Activity, debt and profitability

Answer:

A)

Explanation:- Liquidity, activity and profitability are the categories of functional ratio.

Q.23. The _____ ratios are primarily measures to return

a) Liquidity

b) Activity

c) Debt

d) Profitability

Answer:

Liquidity

Explanation:- The ability of the business to pay the amount due to stakeholders as and when it is due

Q.24. The ___ of business firm is measured by its ability to satisfy its short-term obligations as they come due.

a) Liquidity

b) Activity

c) Debt

d) Profitability

Answer:

a) Liquidity

Explanation:- The ability of the business to pay the amount due to stakeholders as and when it is due

Q.25. 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:

a) current ratio and liquid ratio

Explanation :- The two basic measures of liquidity are current ratio and average collection period

Q.26. the various ratios which are commonly used to analyses the profitability of the business are

a) gross profit ratio

b) operating ratio

c) operating profit ratio

d) all of the above

Answer:

d) all of the above

Explanation:- all above mentioned ratios are commonly used under profitability ratio

Q.27. ______ a percentage of sales is computed to have an idea about gross margin

a) gross profit ratio

b) operating ratio

c) operating profit ratio

d) all of the above

Answer:

A) Gross profit ratio

Explanation:- GPR is used to find out gross margin from sales.

Q.28. Operating ratio =

a) (cost of sales + operating expenses) / Net sales * 100

b) net profit before interest and tax / interest on long term debt

c) fixed assets + investments + current assets / interest on long term debt

d) Total non-fictitious assets – current liabilities / profit before interest and tax

Answer:

A) (cost of sales + operating expenses) / Net sales * 100

Explanation :- (cost of sales + operating expenses) / Net sales * 100

Accounts - MCQ on Accounting Ratios

Practice Questions for CUET Accountancy chapter-Accounting Ratio SET-2

Q.1. The ideal current ratio is

a. 1:1.

b. 2:1.

c. 2.5:1.

d. 3:1.

Answer:

(b)

Explanation: Current assets should be twice current liabilities.

Q.2. Liquid ratio is also known as

a. acid test ratio.

b. current ratio.

c. solvency ratio.

d. stock turnover ratio.

Answer:

a

Explanation: Liquid ratio is also called acid test ratio.

Q.3. The example of mixed ratio (both balance sheet and income statement), is

a. net profit ratio.

b. liquid ratio.

c. fixed assets turnover ratio.

d. debt equity ratio.

Answer:

(c)

Explanation: Formula for fixed assets turnover ratio, if net fixed assets upon net sales or cost of sales. Fixed assets are available from balance sheet, while sales figure can be taken from trading account.

Q.4. If, operating ratio is 60%, then operating profit ratio, will be

a. 40%.

b. 60%.

c. 80%.

d. 100%.

Answer:

(a)

Explanation: Operating ratio + operating profit ratio = 100%.

Q.5. Current assets and current liabilities are part of

a. profitability ratios.

b. turnover ratios.

c. solvency ratios.

d. liquidity ratios.

Answer:

(d)

Explanation: Liquidity ratios include current assets and current liabilities.

Q.6. If, current assets are Rs. 2,00,000 and current liabilities are Rs. 4,00,000, then current ratio, will be

a. 2:1.

b. 3:1.

c. 1:4.

d. 1:2.

Answer:

(d)

Explanation: current ratio = current assets/ current liabilities.

= 2,00,000 / 4,00,000.

Q.7. If, current assets are Rs. 5,00,000, stock is Rs. 45,000 and prepaid expenses are Rs. 55,000 , then liquid assets, are

a. Rs. 6,00,000.

b. Rs. 5,55,000.

c. Rs. 4,55,000.

d. Rs. 4,00,000.

Answer:

(d)

Explanation: Liquid assets = Current assets – (stock + prepaid expenses).

Q.8. If, liquid assets are Rs. 5,00,000, stock is Rs. 45,000 and prepaid expenses are Rs. 55,000, then current assets are

a. Rs. 6,00,000.

b. Rs. 5,55,000.

c. Rs. 4,55,000.

d. Rs. 4,00,000.

Answer:

(a)

Explanation: Liquid assets = Current assets – (stock + prepaid expenses).

Q.9. The current asset is

a. machinery.

b. vehicle.

c. preliminary expenses.

d. marketable securities.

Answer:

(d)

Explanation: Marketable securities are current assets.

Q.10. The liquid asset from the following is

a. machinery.

b. stock.

c. preliminary expenses.

d. cash at bank.

Answer:

(d)

Explanation: Liquid assets include all current assets except stock and prepaid expenses.

Q.11. The example of current liabilities is

a. debentures.

b. long-term loans.

c. bank overdraft.

d. advance payments.

Answer:

(c)

Explanation: Bank overdraft is a current liability.

Q.12. The limitation of ratio analysis is that

a. it is difficult to forecast.

b. weak spots are not located.

c. it is incomparable due to different accounting policies.

d. inter firm comparison is not possible.

Answer:

(c)

Explanation: Accounting ratios are not comparable, if different firms follow different accounting policies.

Q.13. Current liabilities are repayable within a period of

a. three months.

b. six months.

c. one year.

d. three years.

Answer:

(c)

Explanation: Current liabilities are repayable within a period of one year.

Q.14. If, the current ratio is 3:1 and current liabilities are Rs. 27,000, then current assets will be

a. Rs. 81,000.

b. Rs. 27,000.

c. Rs. 9,000.

d. Rs. 3,000.

Answer:

(a)

Explanation: current ratio = current assets/ current liabilities.

3 = current assets / 27,000

Q.15. The ability of an enterprise to meet its long-term indebtedness is called

a. window dressing.

b. solvency.

c. liquidity.

d. financial analysis.

Answer:

(b)

Explanation: The term solvency implies ability of an enterprise to meet its long-term indebtedness.

Q.16. Debt includes

a. current assets.

b. current liabilities.

c. preference share capital.

d. debentures.

Answer:

(d)

Explanation: Debt means long-term loans, which includes debentures.

Q.17. Equity (shareholders funds) includes

a. current assets.

b. current liabilities.

c. preference share capital.

d. debentures.

Answer:

(c)

Explanation: Equity means shareholders funds, which includes preference share capital.

Q.18. The acceptable debt-equity ratio is

a. 2:1.

b. 1:1.

c. 3:1.

d. 4:1.

Answer:

(a)

Explanation: Debt equity ratio is acceptable, if it is 2:1, which means debts can be twice equity.

Q.19. In total assets to debt ratio, total assets include

a. preliminary expenses.

b. underwriting commission.

c. current assets.

d. share issue expenses.

Answer:

(c)

Explanation: In total assets to debt ratio, total assets exclude only fictitious assets.

Q.20. A firm would like to compare its performance with that of other firms and of industry in general. The comparison is called

a. intra firm comparison.

b. inter firm comparison.

c. industry comparison.

d. window dressing.

Answer:

(b)

Explanation: Comparison with other firms is called inter-firm comparison.

Q.21. If, total assets are Rs. 40,00,000 (including fictitious assets of Rs. 2,00,000) and long-term debts are Rs. 20,00,000, then total assets to debts ratio will be

a. 2:1.

b. 1:2.

c. 1.9:1.

d. 1:1.9.

Answer:

c

Explanation: Total assets exclude fictitious assets in this case; hence the equation will be 38,00,000/20,00,000.

Q.22. If, long-term loans (excluding debentures of Rs. 10,00,000) are Rs. 15,00,000 and shareholders funds are Rs. 50,00,000, then debt equity ratio, will be

a. 1 : 2.

b. 2 : 1.

c. 3.33 : 1.

d. 0.3 : 1.

Answer:

(a)

Explanation: Debt equity = debt/ equity

Debts include debentures so long term loans will be 15,00,000 + 10,00,000

25,00,000/50,00,000.

Q.23. Earning per share is Rs. 11. Market price per share is Rs. 110. The price-earning ratio will be

a. 11:110.

b. 110:11.

c. 10.

d. 11.

Answer:

(c)

Explanation:

Price Earning Ratio = Market price per share/ Earning per share. 110/11= 10

Q.24. If, shareholders fund is Rs. 51,00,000 and total assets are Rs. 1,02,00,000 (fictitious assets worth Rs. 17,00,000 not included), then proprietary ratio will be

a. 0.43:1

b. 1:0.43

c. 2:1.

d. 1:2.

Answer:

(d)

Explanation: Proprietary ratio = shareholders funds/ total assets

Total assets exclude fictitious assets.

Hence 51,00,000/1,02,00,000.

Q.25. Following information is given to you:

Cost of sales Rs. 4,50,000.

Stock at the beginning Rs.1, 00,000.

Stock at the end Rs.1, 25,000.

The inventory turnover ratio will be

a. 4 times.

b. 4.5 times.

c. 2 times.

d. 0.5 times.

Answer:

(a)

Explanation: Stock turnover ratio= cost of goods sold/ average stock

Cost of goods sold = Rs. 4,50,000.

Average stock = 1,00,000+1,25,000/2 = Rs. 1,12,500.

Q.26. Higher the ratio, the better it is. This rule applies to

a. current ratio.

b. liquid ratio.

c. debt-equity ratio.

d. inventory turnover ratio.

Answer:

(d)

Explanation: Higher inventory turnover indicates efficient utilisation of stock.

Q.27. The following information is given to you:

Total sales for the year Rs. 3,00,000 (including cash sales of Rs. 60,000),

Average debtors = Rs. 60,000. Debtor’s turnover ratio will be

a. 5 times.

b. 4 times.

c. 3 times.

d. 1 time.

Answer:

(b)

Explanation:

Debtor’s turnover ratio = net credit sales/ average accounts receivables.

Net credit sales = 3,00,000 – 60,000 = 2,40,000.

Debtor’s turnover ratio = 2,40,000/60,000.

Q.28. If, debtors turnover ratio is 6 times, then average collection period will be

a. 1/2 month.

b. 6 months.

c. 2 months.

d. 3 months.

Answer:

c

Explanation: Average collection period = Months in a year/ Debtors turnover ratio.

= 12/6 = 2 months.

Q.29. The following information is given to you:

Credit purchases during the year Rs. 5,00,000.

Creditors Rs. 1,00,000 and bills payable Rs. 1,00,000.

Creditors turnover ratio will be

a. 5 times.

b. 4 times.

c. 2.5 times.

d. 2 times.

Answer:

(c)

Explanation: Creditors turnover ratio = net credit purchases/average accounts payable.

Average accounts payable = average creditors + average B/P.

Creditors turnover ratio = 5,00,000/2,00,000.

Q.30. If, creditors turnover ratio is 4 times, then average payment period will be

a. 91.25 days.

b. 91 days.

c. 92.25 days.

d. 92 days.

Answer:

(d)

Explanation: Average payment period = 365 days/ creditors turnover ratio

365/4 = 91.25 days or 92 days.

92 days will be taken.

Practice Questions for CUET Accountancy chapter-Accounting Ratio SET-3

Q.31. If, liquid ratio is 0.5:1 and liquid assets are Rs. 50,000, then current liabilities will be

a. Rs. 25,000.

b. Rs. 50,000.

c. Rs. 50,500.

d. Rs. 1,00,000.

Answer:

(d)

Explanation: Liquid ratio = Liquid assets/ current liabilities.

0.5 = 50,000/ current liabilities.

Q.32. Net working capital is defined as

a. the excess of current assets over current liabilities.

b. total assets less current assets.

c. current liabilities less current assets.

d. marketable securities and cash.

Answer:

(a)

Explanation: Net working capital = current assets – current liabilities.

Q.33. Shyam and Co. extends credit terms for 60 days to its customers. Its credit collection would be considered poor, if its average collection period is

a. 45 days.

b. 50 days.

c. 60 days.

d. 75 days.

Answer:

(d)

Explanation: Shyam & Co. should collect the amount within 60 days, if the collection days goes beyond 60 days, it means collection is poor.

Q.34. If, the average age of inventory is divided by 365, then it becomes a measure of

a. sales efficiency.

b. the average age of the inventory.

c. sales turnover.

d. the average collection period.

Answer:

(b)

Explanation: If, average age of inventory is divided by 365, then we know the average age of the inventory.

Q.35. The two basic measures of liquidity are

a. inventory turnover and current ratio.

b. gross profit margin and operating ratio.

c. current ratio and average collection period.

d. current ratio and liquid ratio.

Answer:

(d)

Explanation: Liquidity ratios consist of current ratio and liquid ratio.

Q.36. Too high debtor’s turnover ratio indicates

a. very fast collections from debtors.

b. very slow collection from debtors.

c. high bad debts.

d. high provision for D/D.

Answer:

(a)

Explanation: Too high debtor’s turnover ratio indicates very fast collections from debtors.

Q.37. If, the current ratio is 3:1 and working capital is Rs. 4,00,000, then current liabilities are

a. Rs. 6,00,000.

b. Rs. 4,00,000.

c. Rs. 2,00,000.

d. Rs. 1,00,000.

Answer:

(c)

Explanation:

Working capital = current assets – current liabilities.

Let current liabilities = x, then current assets = 3x

3x – x = 4,00,000

x = 2,00,000.

Q.38. If, there is a decline in gross profit ratio as compared to previous years, then it may be concluded that

a. prices of raw material has reduced.

b. prices of raw material has increased.

c. operating expenses has increased.

d. fall in operating expenses.

Answer:

(b)

Explanation: If, the gross profit ratio declines, then it means there is increase in direct cost or fall in sales.

Q.39. Sales are Rs. 4,00,000; gross profit 25% on cost. Gross profit ratio will be

a. 25%.

b. 20%.

c. 40%.

d. 50%.

Answer:

(b)

Explanation:

If, gross profit is 25% on cost, then it will be 20% on sales.

1/4 on cost then 1/1+4 on sales.

Q.40. Lower the ratio, better it is. This applies in case of

a. gross profit ratio.

b. inventory turnover ratio.

c. debtors turnover ratio.

d. operating ratio.

Answer:

d

Explanation: Operating ratio or operating cost ratio is an expense ratio, so lower the ratio, better it is.

Q.41. 100% - operating ratio =

a. operating profit ratio.

b. operating cost ratio.

c. net profit ratio.

d. administrative expense ratio.

Answer:

(b)

Explanation: Operating profit ratio + operating cost ratio = 100%.

Q.42. Liquidity ratio measures

a. long-term financial position.

b. profit earning capacity.

c. ability to meet short-term obligations.

d. rate of turnover.

Answer:

(c)

Explanation: Ability to meet short-term obligations is measured by liquidity ratios. It includes current assets and current liabilities.

Q.43. In return on capital employed ratio we use net profit. The net profit is calculated

a. before interest, tax and dividend.

b. after interest, tax and dividend.

c. before interest tax but after dividend.

d. before interest but after tax and dividend.

Answer:

(a)

Explanation: Return on capital employed ratio is computed by dividing the net profit before interest, tax and dividend by capital employed.

Q.44. Capital employed excludes

a. fixed assets.

b. reserves.

c. non-operating assets like investment.

d. debentures.

Answer:

(c)

Explanation: Capital employed excludes non-operating and fictitious assets.

Q.45. While computing earning per share, net profit is calculated

a. before interest, tax and dividend.

b. after interest, tax and dividend.

c. before interest tax but after dividend.

d. before interest but after tax and dividend.

Answer:

(b)

Explanation: Formula for earning per share is

Net profit after tax – preference dividend / number of equity shares.

Q.46. Price earning ratio establishes the relationship between the market price of the share and

a. actual price of the share.

b. earning per share.

c. earnings of the company.

d. earnings of the market.

Answer:

(b)

Explanation: Price earning ratio = market price per share/ earning per share.

Q.47. The current ratio is 3:1. Sundry creditors of Rs. 1,00,000 are paid in cash. As a result of this change, the working capital will

a. increase.

b. remain same.

c. decrease.

d. double.

Answer:

b

Explanation: If one item of current assets and one item of current liabilities increase or decrease, the working capital will not change.

Q.48. The example of balance sheet ratio is

a. net profit ratio.

b. gross profit ratio.

c. operating ratio.

d. liquid ratio.

Answer:

d

Explanation: Both numerator and denominator in the liquid ratio are taken from the balance sheet.

Q.49. The ideal liquid ratio is

a. 1:1.

b. 2:1.

c. 2.5:1.

d. 3:1.

Answer:

(a)

Explanation: Liquid assets should be equal to current liabilities.

Q.50. The relationship among various financial factors in a business is called

a. cash flow analysis.

b. financial statement.

c. ratio analysis.

d. accounting.

Answer:

(c)

Explanation: The relationship among various financial factors in a business is called

ratio analysis.

Q.51. If, the performance of different units belonging to the same firm is to be compared, then it is called

a. intra firm comparison.

b. inter firm comparison.

c. industry comparison.

d. window dressing.

Answer:

(a)

Explanation: If, comparison is done within firm and not outside the firm, then it is called intra-firm comparison.

Q.52. Ratio analysis may give powerful results due to

a. price level changes.

b. qualitative factors.

c. location of weak points.

d. lack of standard ratio.

Answer:

(c)

Explanation: Ratio analysis is useful in locating the weak spots.

Q.53. If, the current ratio is 3:1 and current assets is Rs. 27,000, then current liabilities will be

a. Rs. 81,000.

b. Rs. 27,000.

c. Rs. 9,000.

d. Rs. 3,000.

Answer:

(c)

Explanation: Current ratio = current assets/ current liabilities.

3 = 27,000/ current liabilities.

Q.54. The best ratio to measure the short-term financial solvency of a business is

a. current ratio.

b. liquid ratio.

c. inventory turnover ratio.

d. debt equity ratio.

Answer:

(b)

Explanation: Liquid ratio is better to determine the short-term solvency as compared to current ratio as stock and prepaid expenses are excluded from it because they are not so easily convertible into cash.

Q.55. If, gross profit is 20% on cost, then the gross profit on sales will be

a. 16.67%

b. 20%.

c. 25%.

d. 33.33%.

Answer:

(a)

Explanation: Change the percentage form into fraction form.

Gross profit is 1/5 on cost

The GP on sales will be 1/1+5 = 1/6.

Q.56. Activity ratios are also called

a. profitability ratios.

b. turnover ratios.

c. liquidity ratios.

d. solvency ratios.

Answer:

(b)

Explanation: Activity or performance or turnover ratios include sales or cost of sales.

Q.57. Shareholders funds include

a. investment (long term)

b. debentures.

c. sundry creditors.

d. general reserve.

Answer:

d

Explanation: General reserve is a part of shareholders funds.

Q.58. Stock in the beginning is Rs. 15,000 and 1.5 times more than the stock at the end. The average stock will be

a. Rs. 15,000.

b. Rs. 22,000.

c. Rs. 12,500.

d. Rs. 7,500.

Answer:

(c)

Explanation: Average stock = opening stock + closing stock / 2.

Stock in the beginning = Rs. 15,000

Stock at the end will be = Rs. 15,000/1.5 = Rs. 10,000.

Q.59. Current ratio and quick ratio are same when

a. there is no stock.

b. there are no prepaid expenses.

c. stock and prepaid expenses are nil.

d. there are no fictitious assets.

Answer:

(c)

Explanation:

Quick assets = current assets – (stock + prepaid expenses).

Q.60. The ratio helpful in judging the profitability of a business is

a. operating ratio.

b. current ratio.

c. debt-equity ratio.

d. stock turnover ratio.

Answer:

(a)

Explanation: Operating ratio is helpful in judging the profitability of the business.

Q.61. The Current assets are Rs. 5,00,000 and working capital is

Rs. 2,00,000. Current ratio will be

a. 5: 1.

b. 2.5:1.

c. 3: 1.

d. 1.67:1.

Answer:

(d)

Explanation: Working capital = current assets – current liabilities.

2,00,000 = 5,00,000 - current liabilities.

Current liabilities = 3,00,000.

Current ratio = Current assets/ current liabilities.

Q.62. Following information is given to you

Annual sales Rs. 5,00,000, gross profit rate is 25% on sales.

Cost of goods sold will be

a. Rs. 1,25,000.

b. Rs. 3,75,000.

c. Rs. 2,25,000.

d. Rs. 5,00,000.

Answer:

(b)

Explanation: Cost of goods sold = Sales – Gross profit.

Gross profit = 25% of Rs. 5,00,000

Q.63. If, credit sales are Rs. 5,20,000 and average account receivables are Rs. 40,000, then debtor’s turnover ratio will be

a. 13 times.

b. 12 times.

c. 130 times.

d. 8 times.

Answer:

(a)

Explanation:

Debtors turnover ratio = net credit sales/ average accounts receivables.

5,20,000/40,000

Q.64. If, debtors’ turnover ratio is 5 times, then average collection period (360 days in a year) will be

a. 5 days.

b. 27 days.

c. 72 days.

d. 73 days.

Answer:

(c)

Explanation:

Average collection period = 360/ debtor’s turnover ratio.

Q.65. A firm’s credit sales are twice its cash sales. If, credit sales are Rs. 50,000, then total sales will be

a. Rs. 1,50,000.

b. Rs. 75,000.

c. Rs. 50,000.

d. Rs. 37,500.

Answer:

(b)

Explanation:

If, credit sales are Rs. 50,000, then cash sales are 50,000/2.

Total sales = cash sales + credit sales.

Q.66. Solvency ratios include

a. current ratio.

b. inventory turnover ratio.

c. debtors turnover ratio.

d. debt-equity ratio.

Answer:

(d)

Explanation: Solvency ratios includes long term solvency. It is checked by debt-equity ratio.

Q.67. The best-fixed assets turnover ratio is

a. 20%.

b. 30%.

c. 40%.

d. 50%.

Answer:

(d)

Explanation: The best ratio is 50% as it the highest. It indicates best utilisation of assets.

Q.68. Expenses, which are related to normal business activities, are called

a. non-operating expenses.

b. operating expenses.

c. administrative expenses.

d. prepaid expenses.

Answer:

(b)

Explanation: Expenses, related to normal business activities, are called operating expenses. Examples include office and administrative expenses, selling and distribution expenses and so on.

Q.69. Lenders and suppliers are specially interested in

a. average payment period.

b. average collection period.

c. inventory turnover ratio.

d. fixed assets turnover ratio.

Answer:

(a)

Explanation: Lenders and suppliers are interested in average payment period as it indicates the payment commitment of the firm.

Q.70. A ratio must be calculated using figures, which are

a. in the same statement.

b. approximately same in amount.

c. similar in nature.

d. meaningfully co-related.

Answer:

(d)

Explanation: A ratio must be calculated using figures, which are meaningfully co-related.

Q.71. Debt-equity ratio is also called

a. proprietary ratio.

b. debts to total funds ratio.

c. leverage ratio.

d. short-term solvency ratio.

Answer:

(c)

Explanation: Leverage ratio is another name for debt-equity ratio.

Q.72. A very high ratio is bad in case of

a. net profit ratio.

b. gross profit ratio.

c. current ratio.

d. debtors turnover ratio.

Answer:

(c)

Explanation: The ideal current ratio is 2:1. A very high current ratio indicates too much investment in current assets. It is a blockage of funds since return on current assets is very low and company should use these funds for long-term purposes, which are more productive.