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CBSE Questions for Class 12 Commerce Accountancy Accounting Ratios Quiz 2 - MCQExams.com
CBSE
Class 12 Commerce Accountancy
Accounting Ratios
Quiz 2
Overall profitability ratio is also called as __________.
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0%
Productivity of the total assets
0%
Return on investments
0%
Return on capital employed
0%
Either (B) or (C)
Explanation
Overall profitability ratio is also called as return on investment. It indicates the percentage of return on the total capital employed in the business. It is also called as return on investments, return on capital employed.
If the holding of C. Ltd. in D. Ltd. is
90
% calculate the Holding - Minority ratio.
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0%
1
:
9
0%
1
:
1
0%
9
:
1
0%
2
:
1
Explanation
If the holding of C.Ltd. in D.Ltd. is
90
% then the Holding Minority ratio would be calculated as follows:
Percentage of shares held by holding company(major shareholder)
Percentage of shares held by minority shareholders
=
90
% /
10
%
=
9
:
1
.
Interpretation is usually done through ________.
Report Question
0%
Ratio and flow statements
0%
Ratio statements
0%
Flow statements
0%
None of the above
Explanation
Accounting cycle consists of various steps such as recording,summarising,analysing and interpretation. After carrying out all the steps of recording and summmarising interpretation of financial statements takes place. It is carried out so that managers can make important decisions regarding company welfare. Ratio and flow statements makes it effective to carry out interpretation easily. Hence, interpretation is usually done through ratio and flow statements.
Operating ratio is a complementary of ____________.
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0%
Net profit ratio
0%
Price earning ratio
0%
Gross profit ratio
0%
Pay out ratio
Explanation
Operating ratio shows the efficiency of a company's management by comparing company's operating expense to net sales. The smaller the ratio the greater the organisation generate profit. Thus, we can say that it is complementary to net profit ratio as they both are similar.
The term 'Operating profit' means ____________.
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0%
Interest on long-term borrowings
0%
Profit before Interest and Tax
0%
Profit after Interest and Tax
0%
Net operating profit before interest and tax
Explanation
Operating profit is the profit earned by a business during its normal business operations. It is calculated by using the following formula:
Operating profit is equal to operating revenue - COGS - demortization expenses. It does not include tax. Hence, it means profit before interest and tax.
If the average balance of debtors has increased, which of the following might not show a change in general?
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0%
Total Sales
0%
Average Payables
0%
Current Ratio
0%
Bad Debt loss
Explanation
Change in average balance of debtors does not have any relation with average payable.
80% of sales of
10,00,000 of a firm are on credit. It has a receivable turnover ofWhat is the average collection period (360 days a year) and average debtors of the firm?
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0%
45 days and 1,00,000
0%
360 days and 1,00,000
0%
45 days and 8,00,000
0%
360 days and 1,25,000
Explanation
Debtors turnover ratios is an activity ratio measuring how efficiently a firm uses it assets. This can be calculated as:
Debtors Turnover Ratio=Credit sales/Average accounts receivables
In the given information:
Total Sales Rs.1000000
Credit Sales Rs.800000 (80% of sales)
Debtors T/O ratio- 8
Therefore
8=800000/Average receivables
Average Receivables are Rs.100000
Average Collection period=No of days in a year/debtors turnover ratio
=360/8
Average collection period is 45 days.
If the sales of the firm are Rs. 60,00,000 and the average debtors are
Rs.
15,00,000 then the receivables turnover is:
Report Question
0%
4 times
0%
25%
0%
400%
0%
0.25 times
Explanation
Receivable turnover ratio
=
Credit sales/Average debtors
4
=
6000000
/
1500000
Capital denotes _____________________.
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0%
the funds provided by the owners of the business
0%
the funds provided by the outsiders
0%
increase the stock of real physical asset
0%
All of the above.
Explanation
Capital is the amount invested by businessman to start his business. Hence, capital denotes the funds provided by the owners of the business.
The turnover ratio indicates ________.
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0%
the number of times the capital has been rotated in the process of doing business
0%
the efficiency with which the capital employed is rotated in the business
0%
Both (A) and (B)
0%
Financial position of the company
Explanation
Turnover ratio is a measurement of the number of times a company's inventory is replaced during a given period of time. It is calculated by dividing cost of goods sold by average inventory during a given period of time. It indicates the number of times the capital has been rotated in the process of doing business as well as the efficiency with which the capital employed is totated in the business.
Proprietary Ratio may be expressed as ___________________.
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0%
Total Tangible assets
Shareholders funds
0%
Shareholders funds
Total tangible assets
0%
External Equities
Internal equities
0%
Internal equities
External equities
Explanation
Debt-Equity ratio is also known as _____________.
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0%
Acid test ratio
0%
Quick ratio
0%
External-internal equity ratio
0%
Proprietory ratio
Explanation
Debt-equity ratio indicates that how much debt a company is using to finance its assets relative to the value of shareholder's equity.
The formula for calculating debt-equity Ratio is :-
Total liabilities / share holder's equity. It is also referred to as external-internal equity ratio or gearing ratio.
State the formula for turnover ratio.
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0%
Current assets
Current liabilities
0%
S
a
l
e
s
Capital employed
0%
Fixed assets
Long-term funds
0%
Current assets
S
a
l
e
s
Explanation
Turnover ratio is a measurement of the number of times a company's inventory is replaced during a given period of time. It is calculated by dividing cost of goods sold by capital employed during a given period of time.
The debt-equity ratio is determined to ____________.
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0%
Ascertain the soundness of the long-term financial policies of the company
0%
Ascertain the soundness of the medium term financial policies of the company
0%
Ascertain the soundness of the short term financial policies of the company
0%
None of the above
Explanation
Debt equity ratio basically indicates how much debt a company is using to finance its assets relative to the value of shareholder's equity. It is a financial liquidity ratio that compares a company's debt to its equity. Hence, it ascertains the soundness of the long-term financial policies of the company.
Which of the following ratios is termed as 'acid test ratio' or 'quick ratio'?
Report Question
0%
Fixed assets Ratio
0%
Current Ratio
0%
Liquidity ratio
0%
Debt-Equity ratio
Explanation
Liquidity ratio measures the company's ability to pay debt obligations and its margin of safety through the calculation of metrics including the current ratio and quick ratio. It also indicates cash flow positioning. It is also called as acid test ratio and quick ratio.
Proprietory ratio is a variant of ______.
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0%
Acid test ratio
0%
Debt-equity ratio
0%
Quick ratio
0%
External-internal equity ratio
Explanation
Proprietary ratio also called as net worth ratio or equity ratio is used to evaluate the soundness of the capital structure of the company. It is computed by dividing the stockholder's equity by total assets. We can say that, it is a variant of debt-equity ratio.
Debt - Equity ratio may be calculated as _______.
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0%
External equities
Internal equities
0%
Shareholders funds
Total tangible assets
0%
Internal equities
External equities
0%
Total intangible assets
Internal equities
Explanation
Debt-equity ratio indicates that how much debt a company is using to finance its assets relative to the value of shareholder's equity. The formula for calculating it is: External equities / internal equities. It is also referred to as external-internal equity ratio or gearing ratio.
Pay out ratio can be calculated by ___________.
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0%
Dividend per preference share
Earning per preference share
0%
Dividend per equity share
Earning per equity share
0%
Dividend per preference share
Earning per equity share
0%
Dividend per equity share
Earning per preference share
Explanation
Pay out ratio is the proportion of earnings paid out as dividends to shareholders which is expressed as percentage. It is calculated by dividing dividend per equity share by the earning per equity share.
Financial ratios indicate ___________.
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0%
The financial position of the company
0%
The insolvency condition of the company
0%
The sales position of the company
0%
The value of fixed assets of the company
Explanation
Financial ratio is a relative magnitude of two selected numerical values from the financial statements of the company. Financial analysts use financial ratio to compare the strengths and weaknesses of the financial position of the company. Hence, financial ratios indicate the financial position of the company.
Ratio of 'Net sales' to 'Net Working Capital' _________________.
Report Question
0%
Liquidity ratio
0%
Profitability ratio
0%
Working capital turnover ratio
0%
Capital gearing ratio
Explanation
The working capital turnover ratio determines the utility of the working-capital for the level of sales and the working capital ratio can be determined by dividing the net sales by net working capital. And Working Capital is equal to current assets minus current liabilities. A high turnover ratio is better because a low ratio indicates an inefficient utilization of working capital during the period.
Thus the correct answer is C.
The various factors affecting the ROI can be put through a chart, it is known as __________.
Report Question
0%
Du Pont Control Chart
0%
Muster Roll
0%
Dial Time Recorder
0%
None of the above
Explanation
The
Du Pont chart
is a
chart
of financial ratios, which. analyses the Net Profit Margin in terms of asset turnover. The
Du Pont
Analysis is. used as a tool in measuring the managerial performance by linking the net profit.
Choosing a price based upon its short-term effect on current profit, cash flow, or return on investment reflects which of the following pricing objectives?
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0%
Current profit maximization
0%
Product quality leadership
0%
Market share leadership
0%
Survival
Debt Equity ratio is a __________ .
Report Question
0%
Solvency ratio
0%
Payout ratio
0%
Liquidity ratio
0%
Accounting ratio
Explanation
Solvency means the position of a company to meets its long term obligations. Solvency ratio is ratio that shows whether the company will be able to meet its long term obligations as when they become due. Debt to equity ratio is calculated to measure the long term soundness of the company. It expresses the relationship between external debts and internal equities.
Accounting information given by a company:
Total assets turnover
3
times
Total Assets =
R
s
.100000
Net profit margin
10
%
The net profit is _____________.
Report Question
0%
R
s
.
10
,
000
0%
R
s
.
15
,
000
0%
R
s
.
25
,
000
0%
R
s
.
30
,
000
Explanation
Total assets t/o=Net Sales/Total Assets.
Let net sales be 'x'
Given: 3='x'/1,00,000
Therefore 'x'=1,00,000 X 3= 3,00,000
Net profit = Sales X Net profit margin= 3,00,000 X 10%= Rs.30,000
Activity ratio is ____________________.
Report Question
0%
Capacity ratio
Efficiency rate
0%
Efficiency rate
Capacity ratio
0%
Capacity ratio
×
Efficiency rate
0%
None of these
Explanation
Activity ratios are a category of financial ratios that measure a firms ability to convert different accounts within its balance sheet into cash or sales. Activity ratios measures the relative efficiency of a firm based on its use of its assets, leverages, or other similar balance sheet items and are important in determining whether a company's management is doing a good enough job of generating revenues and cash from its resources.
Current Ratio
2.5
, Liquid Ratio
1.5
and Working Capital
R
s
.
60
,
000
. What is the amount of Current Assets?
Report Question
0%
R
s
.
60
,
000
0%
R
s
.
80
,
000
0%
R
s
.
1
,
00
,
000
0%
R
s
.
1
,
20
,
000
Explanation
Current Ratio = Current Assets (C.A)/ Current Liabilities (C.L) =
2.5
So, CA=
2.5
CL
Now, Working Capital = Current Assets(C.A) minus Current Liabilities (C.L) =
R
s
.60000
So, C.A - C.L =
60000
2.5
C.L-CL =
60000
C.L =
R
s
.
40000
Now, C.A =
2.5
x
40000
=
R
s
.
100000
A) Equity to fixed interest - bearing securities is Acid Test Ratio.
B) Ratio analysis is a technique of planning and control.
Of these.
Report Question
0%
Both (a) and (b) are true
0%
Both (a) and (b) are false
0%
(a) is true but, (b) is false
0%
(a) is false but, (b) is true
Explanation
a)
The
acid
-
test
, or
quick ratio
, compares a company's most short-term assets to its most short-term liabilities to see if a company has enough cash to pay its immediate liabilities, such as short-term debt. The
acid
-
test ratio
disregards current assets that are difficult to liquidate quickly such as inventory.
b)
The purpose and importance of
ratio analysis
are to evaluate or
analyze
the
financial
performance of the firm in terms of Risk, Profitability, Solvency, and Efficiency. It helps us to compare the trends of two or more company over a period of time.
Ratio of Net profit before Interest and Tax to sales is called _________________.
Report Question
0%
Operating Profit Ratio
0%
Capital gearing
0%
Solvency ratio
0%
Stock turnover ratio
Explanation
The net profit of a company before interest and tax is known as operating profit, income from operations and earnings before interest and taxes. Operating Profit Ratio = Operating Profit / Sales x 100.
Long-term solvency is indicated by __________________.
Report Question
0%
Debt-Equity ratio
0%
Net Profit ratio
0%
Current ratio
0%
Accounting ratio
Explanation
Long
-
term solvency is indicated
by Debt-equity
ratio
. The debt-to-equity (D/E)
ratio
is calculated by dividing a company's total liabilities by its shareholder equity. These numbers are available on the balance sheet of a company's financial statements.
One aspect of the working capital management is the trade-off between profitability and _______________.
Report Question
0%
Risk
0%
Liability
0%
Uncertainity
0%
Innovation
Explanation
The
risk
-return
trade
-
off
involved in
managing
the firm's
working capital
is a
trade
-
off between
the firm's liquidity and its
profitability
.
Other things being equal, the greater the firm's reliance is on the short-term debts or current liability in financing its current
investment
, the greater the
risk
of illiquidity will be there.
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