 ### Part 2 Chapter 5 Accounting Ratios

Ques. Cash Balance Rs.5,000; Trade Payables Rs.40,000; Inventory Rs.50,000; Trade Receivables Rs.65,000 and Prepaid Expenses are Rs. 10,000. Liquid Ratio will be

(A) 1.75 : 1

(B) 2 : 1

(C) 3.25 : 1

(D) 3 : 1

Ques. Current Assets Rs.4,00,000; Current Liabilities Rs.2,00,000 and Inventory is Rs.50,000. Liquid Ratio will be :

(A) 2 : 1

(B) 2.25 : 1

(C) 4 : 7

(D) 1.75 : 1

Ques. Which of the following transactions will improve the Current Ratio :

(A) Cash Collected from Trade Receivables

(B) Purchase of goods for cash

(C) Payment to Trade Payables

(D) Credit purchase of Goods

Ques. Current Assets Rs.85,000; Inventory Rs.22,000; Prepaid Expenses Rs.3,000. Then liquid assets will be :

(A) Rs.63,000

(B) 60,000

(C) X 82,000

(D) X 1,10,000

Ques. A Company’s Quick Ratio is 1.5 : 1; Current Liabilities are Rs.2,00,000 and Inventory is X 1,80,000. Current Ratio will be :

(A) 0.9:1

(B) 1.9:1

(C) 1.4:1

(D) 2.4:1

Ques. A Company’s Quick Ratio is 1.8 : 1; Liquid Assets are Rs.5,40,000 and Inventory is Rs. 1,50,000. Its Current Ratio will be :

(A) 2 : 1

(B) 2.3 : 1

(C) 1.8:1

(D) 1.3:1

Ques. What will be the amount of Gross Profit, if revenue from operations are Rs.6,00,000 and Gross Profit Ratio 20% of revenue from operations?

(A) Rs. 1,50,000

(B) Rs. 1,00,000

(C) Rs. 1,20,000

(D) Rs. 5,00,000

Ques. Revenue from operations is Rs. 1,80,000; Rate of Gross Profit is 25% on cost. What will be the Gross Profit?

(A) Rs.45,000

(B) Rs.36,000

(C) Rs.40,000

(D) Rs.60,000

Ques. Operating ratio is :

(A) Cost of revenue from operations + Selling Expenses/Net revenue from operations

(B) Cost of production + Operating Expenses/Net revenue from operations

(C) Cost of revenue from operations + Operating Expenses/Net Revenue from Operations

(D) Cost of Production/Net revenue from operations.

Ques. Two basic measures of liquidity are :

(A) Inventory turnover and Current ratio

(B) Current ratio and Quick ratio

(C) Gross Profit ratio and Operating ratio

(D) Current ratio and Average Collection period

Ques. Current Ratio is :

(A) Solvency Ratio

(B) Liquidity Ratio

(C) Activity Ratio

(D) Profitability Ratio

Ques. Current Ratio is :

(A) Liquid Assets/Current Assets

(B) Fixed Assets/Current Assets

(C) Current Assets/Current Liabilities

(D) Liquid Assets/Current Liabilities

Ques. Debt Equity Ratio is :

(A) Liquidity Ratio

(B) Solvency Ratio

(C) Activity Ratio

(D) Operating Ratio

Ques. Debt Equity Ratio is :

(A) Long Term Debts/Shareholder’s Funds

(B) Short Term Debts/Equity Capital

(C) Total Assets/Long term Debts

(D) Shareholder’s Funds/Total Assets

Ques. Proprietary Ratio is :

(A) Long term Debts/Shareholder’s Funds

(B) Total Assets/Shareholder’s Funds

(C) Shareholder’s Funds/Total Assets

(D) Shareholder’s Funds/Fixed Assets

Ques. lf Current Ratio ofa firm is 2.5 :1 and its Current Liabilities are ,00,000. Its Working Capital will be

1. a) 3,00,000.
2. b) 3,75,000.
3. c) 11,00,000.
4. d) 7,00,000.

Ques. Non-current Assets of a firm are 26,00,000, Current Assets are 9,00,000 and Shareholders’ Funds are 21,50, 000.TotaI debts of the firm will be

1. a) 43,50,000.
2. b) 13,50,000.
3. c) 21,50,000.
4. d) 38,50,000.

Ques. Sincere Ltd. has a Proprietary Ratio of 25%. To maintain this ratio at 30%, management may ~

1. a) increase Equity.
2. b) Reduce Debt.
3. c) Either Increase Equity or Reduce Debt.
4. d) lncrease Current Assets.

Ques. From the following, which ratio is not a part of Profitability Ratio:

1. a) Proprietary Ratio
2. b) Gross Profit Ratio
3. c) Operating Ratio
4. d) Net Profit Ratio

Ques. From the following information, calculate Proprietary Ratio: Share Capital 5,00,000, Non- current Assets 22,00,000, Reserves and Surplus 3,00,000, Current Assets 10,00,000.

1. a) 100%
2. b) 70%
3. c) 40%
4. d) 25%

Ques. The two basic measures of operational efficiency of a company are

1. a) Inventory Turnover Ratio and Working Capital Turnover Ratio
2. b) Liquid Ratio and Operating Ratio.
3. c) Liquid Ratio and Current Ratio.
4. d) Gross Profit Margin and Net Profit Margin.

Ques. A Company’s Current Ratio is 3 : 1 and Liquid Ratio is 1.2 : 1. If its Current Liabilities are Rs.2,00,000, what will be the value of Inventory?

(A) Rs.2,40,000

(B) Rs.3,60,000

(C) Rs.4,00,000

(D) Rs.40,000

Ques. A Company’s Current Ratio is 2.5 : 1 and Liquid Ratio is 1.6 : 1. If its Current Assets are Rs.7,50,000, what will be the value of Inventory?

(A) Rs.4,50,000

(B) Rs.4,80,000

(C) Rs.2,70,000

(D) Rs. 1,80,000

Ques. Current Ratio of a Company is 2.5 : 1. If its working capital is Rs. 60,000, its current liabilities will be :

(A) Rs.40,000

(B) Rs.60,000

(C) Rs. 1,00,000

(D) Rs.24,000

Ques. Quick Assets do not include

(A) Cash in hand

(B) Prepaid Expenses

(C) Marketable Securities

Ques. Current Assets do not include :

(A) Prepaid Expenses

(B) Inventory

(C) Goodwill

(D) Bills Receivable

Ques. Quick Ratio is also known as :

(A) Liquid Ratio

(B) Current Ratio

(C) Working Capital Ratio

(D) None of the Above

Question: In ABC analysis A class consist of items having

• a) Accurate records
• b) Good records
• c) Minimal records
• d) No records

Question: In the Balance sheet of a firm, the debt equity ratio is 2:1.The amount of long term sources is Rs.12 lac. What is the amount of tangible net worth of the firm?

• a) Rs.8 lakh
• b) Rs.6 lakh
• c) Rs.4 lakh
• d) None of the options

Question: Accounting Ratios are mathematical expression of the relationship between

• a) Two Accounting Figures
• b) Two Shareholders
• c) Two Debtors
• d) None of the options

Answer: Two Accounting Figures

Question: Ratio Analysis is a tool to measure the

• a) Financial Status
• b) Profit status
• c) Loss Status
• d) None of the options

Question: When ratios are calculated on the basis of accounting information, they are called

• a) Accounting ratios
• b) Working Capital Ratio
• c) Profit ratio
• d) None of the options

Question: Objectives of Ratio Analysis

• a) All of the options
• b) To know the areas of an enterprise which need more attention
• c) To know about the potential areas which can be improved on
• d) Helpful in comparative analysis of the performance

Answer: All of the options

Question: Ratio Analysis helpful in

• a) Comparative analysis of the performance and Budgeting and forecasting
• b) Comparative analysis of the performance
• c) Budgeting and forecasting
• d) None of the options

Answer: Comparative analysis of the performance and Budgeting and forecasting

Question: Ratio Analysis provide analysis of the

• a) Liquidity
• b) Solvency
• c) Profitability
• d) None of the options

Question: Ratio Analysis provide information useful for

• a) Preparing the plans for future
• b) Share holders
• c) Debentures holder
• d) None of the options

Answer: Preparing the plans for future

Question: Advantages of Ratio Analysis

• a) All of the options
• b) It is useful in analysis of key financial figures
• c) It is useful in analysis of financial statements
• d) Better understand financial numbers

Answer: All of the options

Question: Current ratio is stated as a crude ratio because

• a) It measures only the quantity of current assets
• b) It measures only the quality of current assets
• c) It measures only the quantity of current assets and It measures only the quality of current assets
• d) None of the options

Answer: It measures only the quantity of current assets

Question: Limitations of Ratio Analysis

• a) All of the options
• b) Accounting ratios ignore qualitative factors
• c) Absence of universally accepted terminology
• d) Ratios are affected by window-dressing

Answer: All of the options

Question: Ratio Analysis Price level changes

• a) Ignored
• b) Noticed
• c) Ignored and Noticed
• d) None of the options

Question: Ratio Analysis ignored

• a) Qualitative factors
• b) Quantity Factors
• c) Qualitative factors and Quantity Factors
• d) None of the options

Question: Ratio Analysis affected by

• a) All of the options
• b) Window-dressing
• c) Personal bias
• d) Ability of the analyst

Answer: All of the options

Question: An accounting ratio is a

• a) Mathematical expression
• b) Logical expression
• c) Mathematical expression and Logical expression
• d) None of the options

Question: Accounting ratios classified as under

• a) All of the options
• b) Liquidity Ratios
• c) Current ratio
• d) Solvency Ratios

Answer: All of the options

Question: Current ratio is also known as

• a) Working capital ratio
• b) Profit Sharing Ratio
• c) Working capital ratio and Profit Sharing Ratio
• d) None of the options

Answer: Working capital ratio

Question: Which Ratio establishes relationship between current assets and current liabilities

• a) Current ratio
• b) Liquidity Ratios
• c) Solvency Ratios
• d) None of the options

Question: Current Ratio is

• a) Current Assets/Current Liabilities
• b) Current Assets-Current Liabilities
• c) Current Assets x Current Liabilities
• d) None of the options

Answer: Current Assets/Current Liabilities

Question: Which Items Included in Current Assets for get the current ratio

• a) All of the options
• b) Current investments
• c) Current Stock
• d) Trade receivables (bills receivable and sundry debtors less provision for doubtful debts)

Answer: All of the options

Question: Which Items Included in Current Assets for get the current ratio

• a) All of the options
• b) Short-term borrowings
• c) Cash balance
• d) Short-term provisions

Answer: All of the options

Question: Liquid ratio is also known as

• a) Quick Ratio and Test Ratio
• b) Quick Ratio
• c) Test Ratio
• d) None of the options

Answer: Quick Ratio and Test Ratio

Question: Liquid Ratio is

• a) Liquid Assets or Quick Assets/Current Liabilities
• b) Liquid Assets or Quick Assets+Current Liabilities
• c) Liquid Assets or Quick Assets-Current Liabilities
• d) None of the options

Answer: Liquid Assets or Quick Assets/Current Liabilities

Question: Items Included in Liquid/Quick Assets

• a) All of the options
• b) Items Included in Liquid/Quick Assets
• c) Trade receivables
• d) Cash and cash equivalents

Answer: All of the options

Question: Items excluded in liquid assets are

• a) Inventories and prepaid expenses
• b) Inventories
• c) Prepaid expenses
• d) None of the options

Answer: inventories and prepaid expenses

Question: Which ratios judge the long-term financial position of an enterprise

• a) Solvency Ratios
• b) Quick Ratio
• c) Test Ratio
• d) None of the options

Question: Establishes the relationship between long-term debt (external equities) and the equity (internal equities)

• a) Debt to Equity ratio
• b) Quick Ratio
• c) Test Ratio
• d) None of the options

Answer: Debt to Equity ratio

Question: Debt to Equity ratio establishes the relationship between

• a) long-term debt (external equities) and the equity (internal equities)
• b) long-term debt (external equities) and the current Assets(internal equities)
• c) long-term debt (external equities) and the equity (internal equities) and long-term debt (external equities) and the current Assets(internal equities)
• d) None of the options

Answer: long-term debt (external equities) and the equity (internal equities)

Question: Debt to Equity Ratio is

• a) Debt (Long-term external equities)+Equity (Shareholders funds)
• b) Debt (Long-term external equities)-Equity (Shareholders funds)
• c) Debt (Long-term external equities)+Equity (Shareholders funds) and Debt (Long-term external equities)-Equity (Shareholders funds)
• d) None of the options

Answer: Debt (Long-term external equities)+Equity (Shareholders funds)