Chapter 9: Accounting Ratios — Online MCQ Test
ACCOUNTANCY · CLASS 12 SECOND PUC · Karnataka State Board
Practice Chapter 9: Accounting Ratios with a free chapter-wise online MCQ test.
This chapter covers: Accounting Ratios Current Ratio Quick Ratio Debt Equity Ratio Inventory Turnover Ratio Gross Profit Ratio Net Profit Ratio Return on Investment Liquidity Solvency Activity Ratio Pr....
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Chapter 9: Accounting Ratios — Important Questions & Answers
Current Ratio is used to measure which aspect of a business?
- A. Short-term liquidity
- B. Long-term solvency
- C. Overall profitability
- D. Market value of shares
Answer: A. Short-term liquidity
Current Ratio compares current assets with current liabilities. It indicates the firm’s ability to meet short-term obligations.
Current Ratio compares current assets with current liabilities. It indicates the firm’s ability to meet short-term obligations.
Quick Assets are calculated by deducting which items from Current Assets?
- A. Cash and bank balance
- B. Inventory and prepaid expenses
- C. Trade receivables and cash
- D. Short-term investments and bank balance
Answer: B. Inventory and prepaid expenses
Quick assets exclude inventory and prepaid expenses because they are not considered readily convertible into cash. Quick Assets = Current Assets - Inventory - Prepaid Expenses.
Quick assets exclude inventory and prepaid expenses because they are not considered readily convertible into cash. Quick Assets = Current Assets - Inventory - Prepaid Expenses.
Debt Equity Ratio is calculated as:
- A. Current Assets / Current Liabilities
- B. Long-term Debts / Shareholders' Funds
- C. Revenue from Operations / Capital Employed
- D. Gross Profit / Revenue from Operations
Answer: B. Long-term Debts / Shareholders' Funds
Debt Equity Ratio shows the relationship between long-term debt and shareholders’ funds. It is a solvency ratio.
Debt Equity Ratio shows the relationship between long-term debt and shareholders’ funds. It is a solvency ratio.
Inventory Turnover Ratio is calculated as:
- A. Average Inventory / Cost of Revenue from Operations
- B. Revenue from Operations / Trade Receivables
- C. Cost of Revenue from Operations / Average Inventory
- D. Gross Profit / Average Inventory
Answer: C. Cost of Revenue from Operations / Average Inventory
Inventory Turnover Ratio measures how many times inventory is sold and replaced during a period. It is calculated as Cost of Revenue from Operations divided by Average Inventory.
Inventory Turnover Ratio measures how many times inventory is sold and replaced during a period. It is calculated as Cost of Revenue from Operations divided by Average Inventory.
If Current Assets are Rs. 2,40,000 and Current Liabilities are Rs. 1,20,000, the Current Ratio will be:
- A. 1:2
- B. 2:1
- C. 3:1
- D. 1.5:1
Answer: B. 2:1
Current Ratio = Current Assets / Current Liabilities = 2,40,000 / 1,20,000 = 2:1.
Current Ratio = Current Assets / Current Liabilities = 2,40,000 / 1,20,000 = 2:1.
Current Assets are Rs. 1,50,000, Inventory is Rs. 40,000, Prepaid Expenses are Rs. 10,000 and Current Liabilities are Rs. 50,000. What is the Quick Ratio?
- A. 1:1
- B. 1.5:1
- C. 2:1
- D. 3:1
Answer: C. 2:1
Quick Assets = 1,50,000 - 40,000 - 10,000 = Rs. 1,00,000. Quick Ratio = 1,00,000 / 50,000 = 2:1.
Quick Assets = 1,50,000 - 40,000 - 10,000 = Rs. 1,00,000. Quick Ratio = 1,00,000 / 50,000 = 2:1.
A firm's Current Ratio is 2.5:1 and its Working Capital is Rs. 1,50,000. What are the Current Assets and Current Liabilities?
- A. Current Assets Rs. 2,50,000; Current Liabilities Rs. 1,00,000
- B. Current Assets Rs. 1,50,000; Current Liabilities Rs. 2,50,000
- C. Current Assets Rs. 3,00,000; Current Liabilities Rs. 1,50,000
- D. Current Assets Rs. 4,00,000; Current Liabilities Rs. 2,50,000
Answer: A. Current Assets Rs. 2,50,000; Current Liabilities Rs. 1,00,000
Let Current Liabilities be x, then Current Assets = 2.5x. Working Capital = 2.5x - x = 1.5x = 1,50,000, so x = Rs. 1,00,000 and Current Assets = Rs. 2,50,000.
Let Current Liabilities be x, then Current Assets = 2.5x. Working Capital = 2.5x - x = 1.5x = 1,50,000, so x = Rs. 1,00,000 and Current Assets = Rs. 2,50,000.
Current Ratio is 2.4:1, Quick Ratio is 1.6:1 and Current Liabilities are Rs. 2,00,000. What is the value of Inventory and Prepaid Expenses together?
- A. Rs. 80,000
- B. Rs. 1,20,000
- C. Rs. 1,60,000
- D. Rs. 2,00,000
Answer: C. Rs. 1,60,000
Current Assets = 2.4 × 2,00,000 = Rs. 4,80,000 and Quick Assets = 1.6 × 2,00,000 = Rs. 3,20,000. Inventory and prepaid expenses = 4,80,000 - 3,20,000 = Rs. 1,60,000.
Current Assets = 2.4 × 2,00,000 = Rs. 4,80,000 and Quick Assets = 1.6 × 2,00,000 = Rs. 3,20,000. Inventory and prepaid expenses = 4,80,000 - 3,20,000 = Rs. 1,60,000.
Average Inventory is Rs. 1,60,000, Inventory Turnover Ratio is 5 times and Gross Profit Ratio is 20% on sales. Revenue from Operations will be:
- A. Rs. 6,40,000
- B. Rs. 8,00,000
- C. Rs. 10,00,000
- D. Rs. 12,00,000
Answer: C. Rs. 10,00,000
Cost of Revenue from Operations = 1,60,000 × 5 = Rs. 8,00,000. Since Gross Profit Ratio is 20%, cost is 80% of sales, so Sales = 8,00,000 / 80% = Rs. 10,00,000.
Cost of Revenue from Operations = 1,60,000 × 5 = Rs. 8,00,000. Since Gross Profit Ratio is 20%, cost is 80% of sales, so Sales = 8,00,000 / 80% = Rs. 10,00,000.
A firm has Current Assets of Rs. 3,00,000 and Current Liabilities of Rs. 2,00,000. Which transaction will increase its Current Ratio immediately?
- A. Purchased goods on credit Rs. 50,000
- B. Paid trade payable Rs. 50,000 by cheque
- C. Collected Rs. 50,000 from debtors in cash
- D. Purchased machinery for cash Rs. 50,000
Answer: B. Paid trade payable Rs. 50,000 by cheque
Initial Current Ratio is 1.5:1. Paying a current liability reduces both current assets and current liabilities equally, and when the existing ratio is above 1:1, the ratio increases.
Initial Current Ratio is 1.5:1. Paying a current liability reduces both current assets and current liabilities equally, and when the existing ratio is above 1:1, the ratio increases.