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CBSE Questions for Class 12 Commerce Accountancy Accounting Ratios Quiz 8 - MCQExams.com
CBSE
Class 12 Commerce Accountancy
Accounting Ratios
Quiz 8
From the following details find the current ratio of
A
B
C
Ltd. Cash in hand Rs.
5000
, Stock in trade Rs.
15
,
000
, Trade Debtors RS.
5000
, Prepaid Expenses A/c Rs.
3000
, Plant Rs.
20
,
000
, Miscellaneous expenses to be written off Rs.
2000
, Creditors Rs.
10
,
000
, Bills payable Rs.
3000
, Outstanding Expenses Rs.
1000
, Capital
30
,
000
, Profit and surplus Rs.
6000
Report Question
0%
1
:
2
0%
3
:
2
0%
2
:
1
0%
3
:
1
Long term assets being Rs. 300000, Current Assets Rs. 80,000, outside liabilities Rs.Find owners equity.........
Report Question
0%
Rs. 350000
0%
Rs. 260000
0%
Rs. 200000
0%
None
Which of these will cause change in working capital
Report Question
0%
Payment of Creditors in cash
0%
Realization of amount due from the Debtors
0%
Sale of office equipment for cash
0%
Providing depreciation on plant and Machinery
Wrong valuation of closing inventory affects ______.
Report Question
0%
liquidity ratio
0%
operating profitability
0%
Financial position
0%
all the three
Conversion of unsold stock into sales will effect ........
Report Question
0%
Current ratio
0%
Quick ratio
0%
Debt equity ratio
0%
Return on investment
Explanation
Conversion of unsold stock into sales will effect the quick ratio.
As quick ratio does not add the closing stock value when we sale it then cash or debtor increase the value of current assets.
So quicck ratio will be change.
Hence b is the correct answer.
Unless stated otherwise sacrificing ratio is __
Report Question
0%
New profit sharing ratio
0%
Gaining ratio
0%
Old profit sharing ratio itself
0%
None of these
Under statement of opening work in progress may lead to ___________.
Report Question
0%
Over statement of profit of current year
0%
under statement of profit of net year
0%
under statement of profit of current year
0%
all the three
Which of these is not a component of current ratio.
Report Question
0%
Sundry creditor
0%
Sundry debtor
0%
Bills payable
0%
Security premium A/c
Explanation
The current ratio is also known as the working capital ratio. It will measure the relationship between current assets and current liabilities.
Current assets include stock, debtors, cash and bank balances, bills receivable, and short-term loans.
Current liabilities include creditors, outstanding expenses, short term loans bank overdrafts, and provision for taxation.
Hence security premium is not the part of current ratio.
What is new profit sharing ratio in question No.47
Report Question
0%
12:9:7
0%
9:12:7
0%
7:12:9
0%
6:5:9
Which of the following is the most liquid asset
Report Question
0%
Saving bank deposit
0%
Cash in hand
0%
Accounts receivable
0%
Stock in trade
Explanation
Cash in hand is considered the most liquid type of liquid asset since it is cash itself as
it can most quickly and easily be converted into other assets.
Hence b is the correct answer.
Gaining ratio is _________.
Report Question
0%
New profit sharing ratio - old profit sharing ratio
0%
Old profit sharing ratio-new profit sharing ratio
0%
Old profit sharing ratio itself
0%
New profit sharing ratio itself
Explanation
Gaining ratio is a type of financial tool that is helps in determining the proportion by which the remaining partners of a firm will share the profits of an existing partner in the event of his death or retirement. The ratio by which they share the profits is known as gaining ratio.
Gaining ratio = New Ratio - Old Ratio
Therefore, A is the correct answer.
Which of these is/are monetary items?
Report Question
0%
Cash
0%
Accounts receivables
0%
Accounts payables
0%
All the three
Explanation
Monetary item mean item which is realised in the form money.
Monetary items are cash, marketable securities, accounts receivable, accounts payable, sales taxes payable, and notes payable.
Hence d is the correct answer.
Which of the following is a non-cash expese?
Report Question
0%
Goodwill written off A/c
0%
Discount on issue of shares
0%
Interest on drawing
0%
Share premium A/c
Explanation
A non-cash expense is an expenses that is reported on the income statement of the current accounting period, but there was no related cash payment during the period.
Most Common Non-Cash Expenses
Depreciation.
Amortization.
Stock-based compensation.
Unrealized gains.
Unrealized losses.
Deferred income taxes.
Goodwill impairments.
Hence a is the correct answer.
Which of these is a non-monetary items?
Report Question
0%
Cash
0%
Accounts receivables
0%
Accounts payables
0%
Stock in trade
Explanation
A non-monetary item is subject to a change in value and cannot be quickly converted to cash. A factory or piece of equipment is a non-monetary item because its value generally declines over time with usage. Inventory is also a non-monetary asset because it can become obsolete.
Therefore, D is the correct option.
Which of the following is the least liquid asset
Report Question
0%
Saving bank Deposit
0%
Cash in hand
0%
Accounts receivable
0%
Stock in trade
Quick assets exclude(s) ___________.
Report Question
0%
Prepaid expenses
0%
Stock in trade
0%
Terms deposits
0%
All the three
Explanation
Generally, the current ratio includes all current assets, except inventores, prepaid expenses.
Term deposits are the non-current assets that disqualifies it from being current assets.
Therefore, D is the correct option.
Which of these is not a component of a Quick Asset
Report Question
0%
Cash in hand
0%
Preliminary expenses
0%
Sundry Creditors
0%
Sundry Debtors
Assets which can be converted into cash immediately are known as ...........
Report Question
0%
Current assets
0%
Floating assets
0%
Quick assets
0%
Liquid assets
Explanation
Quick assets are therefore considered to be
the most highly liquid assets held by a company
. They include cash and equivalents, marketable securities, and accounts receivable. Hence, the correct option is C.
The excess of current assets over current liabilities is known as
Report Question
0%
Working capital
0%
Idle cash
0%
Surplus funds
0%
Cash in hand
Explanation
Working capital refers to the excess of current assets over current liabilities.
It is the difference between a company’s current assets, like cash, accounts receivable (customers’ unpaid bills) and inventories of raw materials and finished goods, and its current liabilities, like accounts payable.
Hence a is the correct anwer.
Stock Turnover ratio is a
.
Report Question
0%
Liquidity ratio
0%
Profitability ratio
0%
Solvency ratio
0%
Activity ratio
Explanation
Stock (Inventory) Turnover ratio is a activity ratio as it shows how much times the stock is being used or sold with respect to the turnover or cost of goods sold.
Let Cost of goods sold =
R
s
.
100000
, Opening inventory =
R
s
.
55000
and Closing Inventory =
R
s
.
45000
Stock turnover ratio = Cost of goods sold/ Average Inventory
Average Inventory = [Opening Inventory + Closing Inventory] /
2
=[
55000
+
45000
]/
2
=
R
s
.
50000
Stock turnover ratio =
100000
/
50000
=
2
times
Which of the following items is not taken into account when computing current ratio?
Report Question
0%
Sundry Creditors.
0%
Sundry Debtors.
0%
Bank Overdraft.
0%
Furniture.
Explanation
Current ratio = Current assets/ Current liabilities
Current assets include inventories, sundry debtors, cash and bank balances,receivables, loans and advances, disposable investments etc.
Current liabilities include creditors, short term loans, bank overdraft, cash credit, provisions, outstanding expenses etc.
F
urniture is a fixed asset and it is not included in current assets. Hence while calculating the current ratio furniture is not taken into account.
Match the following
A
1.Wages and salary
Liquidity position
Gainning ratio
Debenture
B
Current ratio
Fixed interest
Profit and loss A/c
Retirement of a partner
Report Question
0%
(1,4), (2,3), (3,2), (4,1)
0%
(1,2), (2,3), (3,4), (4,1)
0%
(1,4), (2,2), (3,4), (4,3)
0%
(1, 3), (2,1), (3,4), (4,2)
Which of the following is normally treated as a satisfactory ratio of current assets to current liabilities?
Report Question
0%
1
:
1
0%
2
:
1
0%
3
:
1
0%
1
:
2
Explanation
The rule of thumb for a satisfactory current ratio is
2
:
1
. Let Current assets be
R
s
.
100000
and the Current liabilities be
R
s
.
40000
Now, Current ratio = Current assets/ Current liabilities
=
100000
/
40000
=
2.5
:
1
.
This current ratio is satisfactory as it shows that the current assets available are
2.5
times the amount of current liabilities.
Method of inventory valuation will not affect
Report Question
0%
Current ratio
0%
Working capital
0%
Gross profit
0%
Net block
The application of sacrificing ratio is used when...
Report Question
0%
A partner retires from the firm
0%
There is death of any partner
0%
A partner is admitted in the firm
0%
There is expulsion of any partner
Explanation
In the following case, the sacrificing ratio is used: 1) When the existing partners of a partnership firm agree to change the profit-sharing ratio.
2) When a new partner is admitted, the amount of goodwill brought by him or her is distributed among the old partners in proportion to their sacrificing ratio.
Hence c is the correct answer.
Which of the following is the long term liquidity ratio?
Report Question
0%
Interest coverage ratio
0%
Current ratio
0%
Stock turnover ratio
0%
Operating ratio
Explanation
Current ratio is a short term liquidity ratio.
Stock turnover ratio is an activity ratio
Operating ratio is a profitability ratio
Interest coverage ratio is a long term liquidity ratio which calculates the ability of the firm to meet the interest obligations.
____________ assets are those which are meant to be converted cash at the earliest opportunity.
Report Question
0%
quick
0%
current
0%
floating
0%
temporary
Right of stoppage of goods in transit can be effected for
Report Question
0%
Non-payment of price
0%
Non-payment of godown rent
0%
Both
0%
None
Explanation
Right of Stoppage in Transit. This right is an extension to the right of lien. The right of stoppage in transit means that an unpaid seller has the right to stop the goods while they are in transit, regain possession, and retain them till he receives the full price.
Therefore, A is the correct option.
Sale of inventory on account will cause the inventory turnover ratio to
.
Report Question
0%
increase
0%
decrease
0%
remain unchanged
0%
none of these
Explanation
Inventory turnover ratio = Cost of goods sold(COGS) / Average inventory
Let Cost of goods sold be
R
s
.
80000
, Opening inventory =
R
s
.
20000
and Closing Inventory =
R
s
.30000
Average Inventory = [Opening Inventory + Closing Inventory] / 2
=
[
20000
+
30000
]
/
2
R
s
.
25000
Inventory turnover ratio =
80000
/
25000
=
3.2
times
If inventory of
R
s
.
10000
is sold on credit then COGS =
R
s
.
90000
and the Closing Inventory =
R
s
.
20000
Revised Average Inventory =
[
20000
+
20000
]
/
2
=
R
s
.
20000
Revised Inventory turnover ratio =
90000
/
20000
80000/25000
=
4.5
3.2
times
So sale of Inventory on account will cause the inventory turnover ratio to Increase.
Which of the following transactions will change the current ratio?
Report Question
0%
Purchase of goods for cash.
0%
Plant acquired on account.
0%
Sold goods on credit.
0%
Debentures converted into equity capital.
Explanation
When goods are purchased for cash the stock would increase and the cash balance would decrease and so there would be no effect on the current ratio.
When plant is acquired on account the fixed asset would increase and there would be increase in the creditors amount, hence the current ratio would decrease.
When goods are sold on credit the stock would decrease and the debtors would increase and hence there would be no effect on current ratio.
When debentures are converted into equity capital there would be no changes in current assets and current liabilities and so no change in current ratio.
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