Accounting Ratios

Previous Years' CBSE Board Questions

5.4 Limitations of Ratio Analysis

SAII (3/4 marks)

1 "It is a technique which involves regrouping of data by application of arithmetical relationships." Identify the technique and state any two limitations of the technique identified. (2023)

5.6 Liquidity Ratios

MCQ

2 Given below are two statements, one labelled as Assertion (A) and the other labelled as Reason (R): (iv) Honoured bills payable ₹ 5,000 on maturity.

Assertion (A): Current Ratio establishes relationship between Current Assets and Current Liabilities. (Delhi 2017) Ap

Reason (R): The objective of this ratio is to measure the ability of the firm to meet its short term obligations as and when due without relying upon the realisation of inventories.

In the context of the above two statements, choose the correct option.

1. (A) is correct but (R) is incorrect.
2. Both (A) and (R) are correct and (R) is the correct explanation of (A).
3. Both (A) and (R) are incorrect.
4. (A) is incorrect but (R) is correct.

(Term-I, 2021-22)

1. Because of exclusion of non-liquid current assets, which of the following ratio is considered better than current ratio as a measure of liquidity position of the business?

1. Debt - Equity Ratio
2. Acid Test Ratio
3. Proprietary Ratio
4. Interest Coverage Ratio (Term-I, 2021-22) [II]

1. Current ratio of a company is 3: 1. The value of its current liabilities is ₹4,00,000. Its current assets will be:
2. ₹3,00,000 (b) ₹12,00,000
3. ₹2,00,000 (d) ₹9,00,000 (Term-I, 2021-22) EV

1. helps to assess the short term solvency of a business.
2. Turnover Ratio (b) Solvency Ratio
3. Liquidity Ratio (d) Profitability Ratio

(2021C)

VSA (1 mark)

1. The current ratio of a company is 2: 1. State giving reason whether purchase of goods on credit will increase, decrease or not change the ratio.

SA II (3/4 marks)

The Current Ratio of a company is 2: 1. State giving

reasons, whether the following transactions would

reduce, improve or not change the Current Ratio:

Payment of Current Liability

(iii)

1. The quick ratio of a company is 0.8: 1. State with reason whether the following transactions will increase, decrease or not change the quick ratio.
2. Purchase of loose tools ₹ 2,000.
3. Insurance premium paid in advance ₹ 500.

(1111) Sale of goods on credit ₹ 3,000.

The current ratio of a company is 2.1: 1.2. State

with reasons which of the following transactions will

increase, decrease or not change the ratio.

1. Redeemed 9% debentures of ₹ 1,00,000 at a premium of 10%.
2. Received from debtors ₹ 17,000.
3. Issued ₹ 2,00,000 equity shares to the vendors of machinery.
4. Accepted bills of exchange drawn by the creditors ₹ 7.000. (AI 2015)

The guick ratio of a company is 1.5: 1. State with

reason which of the following transactions would

(i) increase (ii) decrease or (iii) not change the ratio :

1. Paid rent ₹ 3,000 in advance.
2. Trade receivables included a debtor Shri Ashok who paid his entire amount due ₹ 9,700.

(AI 2014) EV

57 Solvency Ratios

MCQ

_____ ratios are calculated to determine the ability of

the business to service its debt in long-run.

1. Profitability (b) Solvency
2. Liquidity (d) Turnover (2023)

From the following information, calculate Interest

Coverage Ratio: Net profit after tax ₹ 6,00,000

10% Debentures ₹50,00,000

Tax Rate 40%

1. 1.2 times (b) 3 times
2. 2 times (d) 5 times (Term-I, 2021-22)

Which of the following ratio establishes relationship

of 'Shareholders funds' to 'Net assets'?

1. (b) Interest Coverage Ratio

(Delhi 2020) Ap

1. Proprietary Ratio
2. Debt - Equity Ratio (Term-I, 2021-22) U

1. Given below are two statements, one labelled as Assertion (A) and the other labelled as Reason (R): Assertion (A): A high debt-equity ratio is risky. Reason (R): It may put the firm into difficulty to pay long term debts. In the context of the above two statements, choose the correct option.
2. (A) is correct but (R) is incorrect.
3. Both (A) and (R) are correct.
4. (A) is incorrect but (R) is correct.
5. Both (A) and (R) are incorrect.

(Term-I, 2021-22) U

During the year ended 31-03-2021, Some Ltd. earned net profit after tax ₹6,00,000. The company has a long term 10% debt of ₹50,00,000. The tax rate is 40%. The interest coverage ratio of the company will be:

1. 2 times (b) 3 times
2. 1.2 times (d) 1.5 times (Term-I, 2021-22)

VSA (1 mark)

1. What is meant by solvency of business? (Delhi 2016)

(3/4 marks)

1. The debt equity ratio of M Ltd. is 2:1. State with reasons whether the following transactions will increase, decrease or not change the debt equity ratio:
2. Obtained a loan from ICICI Bank ₹1,00,000 payable after 5 years.
3. Purchased machinery for cash ₹1,50,000.
4. Redeemed 9% Debentures of ₹1,00,000.
5. Issued equity shares for purchase of machinery

of ₹5,00,000 to the vendors. (2023)

1. (a) Calculate 'Total Assets to Debt ratio' from the following information: ₹ Equity Share Capital 4.00,000 Long Term Borrowings 1,80,000 Surplus i.e., Balance in Statement of Profit and Loss 1,00,000 General Reserve 70.000 Current Liabilities 30,000 Long Term Provision 1,20,000

The Debt Equity Ratio of a company is 1:2. State whether 'Issue of bonus shares' will increase, decrease or not change the Debt Equity Ratio. (Delhi 2019) EV

From the following information related to Naveen Ltd. Calculate: Total Assets to Debts Ratio. Information: Fixed Assets ₹ 75,00,000, Current Assets ₹ 40,00,000, Current Liabilities ₹ 27,00,000, 12% Debentures ₹ 80,00,000 and Net Profit before Interest, Tax and Dividend ₹ 14,50,000. (Delhi 2015) 1 27. What is meant by 'Activity Ratios'?

From the following information compute 'Proprietary

Ratio': Long-Term Borrowings 2,00,000

Long-Term Provisions 1,00,000

Current - Liabilities 50,000

Non-Current Assets 3,60,000

Current Assets 90,000

(AI 2014)

5.8 Activity (or Turnover) Ratios

MCQ

21. The Inventory Turnover Ratio from the following

information will be: Revenue from Operations ₹12,00,000

Average Inventory ₹2,00,000

Gross Loss Ratio: 20%

1. 6 times (b) 5 times
2. 7.2 times (d) 3 times (2023)

ratios indicate the speed at which activities

of the business are being performed.

1. Profitability (b) Turnover
2. Solvency (d) Liquidity (Term-I, 2021-22) [U

From the following information, calculate Inventory

Turnover Ratio. Revenue from operations ₹2,00,000

Average inventory ₹20,000

Gross profit ratio 10%

1. 9 times (b) 10 times
2. 12 times (d) 20 times (Term-I, 2021-22)

Which of the following ratio establishes the

relationship between 'credit revenue from

operations' and 'trade receivables'?

1. (b) Interest Coverage Ratio
2. (d) Trade Receivables Turnover Ratio (Term-I, 2021-22)

Which of the following is not an activity ratio?

1. (b) Interest Coverage Ratio
2. (d) Trade Receivables Turnover Ratio (Delhi 2020)

VSA. (1 mark)

26. State whether the following statement is true or

false. Inventory Turnover Ratio measures the level of

financial leverage. (2020)

(Delhi 2016)