Chapter Exam

Chapter 9: Accounting Ratios — Online MCQ Test

Q: Current Ratio is used to measure which aspect of a business?

Answer: A. Short-term liquidity — Current Ratio compares current assets with current liabilities. It indicates the firm’s ability to meet short-term obligations.

Q: Quick Assets are calculated by deducting which items from Current Assets?

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.

Q: Debt Equity Ratio is calculated as:

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.

Q: If Current Assets are Rs. 2,40,000 and Current Liabilities are Rs. 1,20,000, the Current Ratio will be:

Answer: B. 2:1 — Current Ratio = Current Assets / Current Liabilities = 2,40,000 / 1,20,000 = 2:1.

Q: 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?

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.

Q: 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?

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.

Q: 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:

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.

Q: 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?

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.

ACCOUNTANCY · CLASS 12 SECOND PUC · Karnataka State Board

Practice Chapter 9: Accounting Ratios with a free chapter-wise online MCQ test for Karnataka State Board CLASS 12 SECOND PUC ACCOUNTANCY. 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.... AI-generated questions from basic to board-exam level, with instant results and explanations.

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Chapter 9: Accounting Ratios — Important Questions & Answers (FAQ)

Frequently asked questions from Karnataka State Board CLASS 12 SECOND PUC ACCOUNTANCY — Chapter 9: Accounting Ratios, with answers and explanations. These are sample questions; the exam has its own separate question set.

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.

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.

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.

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.

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 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.

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.

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.

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.

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.

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