# HOTS Accountancy Class 12 Chapter 5 Accounting Ratios

Students of Class 12 Commerce should refer to the HOTS Accountancy Class 12 Accounting Ratios with solutions given below, this will help them to understand the concepts and related questions given in the Class 12 Accountancy NCERT book. It’s very important to understand High Order Thinking Skills questions and answers to get better marks in examinations. Also, don’t forget to go through class 12 accountancy dk goel solutions

Question: How will you asses the liquidity or short term financial position of a  business ?

Answer: Short term financial position of the business is assessed by calculating current ratio and liquid ratio.

Question: Current ratio of Reliance Textiles Ltd. Is 1.5 at present. In future it want to improve this ratio to 2.
Suggest any two accounting transaction for improving the current ratio.

Answer: (i) Payment of current liabilities.
(ii) Issue of share capital etc.

Question: State one transaction which results in an increase in ‘ liquid ratio ‘and nochange in ‘current ratio’.

Answer: Sale of stock at cost price.

Question: Why stock is excluded from liquid assets ?

Answer: (i) because there is uncertainty whether it will be sold or not.
(ii) It will take time before it is converted into debtors’ and cash.

Question: Quick ratio of a company is 1.5 :1 . state giving reason whether the ratio will improve , decline or
Not change on payment of dividend by the company.

Answer: Quick ratio will improve as both the liquid assets and current liabilities will decrease by the same
Amount.

Question: State one transaction which result in a decrease in ‘ debt-equity ratio ‘ and no change in ‘ current
Ratio ‘.

Answer: Conversion of debentures into shares.

Question: How does ratio analysis becomes less effective when the price level changes?

Answer: Accounting ratios are calculated from financial statements, which are down on the basis of historical
Cost as recorded in the book of accounts .

Question: Indicate which ratio a shareholders would use who is examining his portfolio and wants to decide Whether he should hold or sell his shareholdings?

Answer: Total Assets to Debt Ratio.

Question.: Indicate which ratio would be used by a Long-Term creditor who is interested in determining
whether his claim is adequately secured ?

Question: What will be the Operating profit, If operating Ratio is 78% ?

Question: The Debaters turnover Ratio of a company is 6 times. State with reasons whether the ratio will
Improve , decrease, or not change due to increases in the value of closing stock by Rs. 50,000?

Answer: No change because it will neither affect net credit sales nor average receivable.

Question: What will be the impact of ‘ Issue of shares against the purchase of fixed assets ‘ on a debt
Equity ratio of 1:1 ?

Answer: Debt-equity ratio will decrease because the Long-term loans remain unchanged where as the
Shareholders funds are increased by the amount f share capital issued .

Question: State one transaction involving a decrease in Liquid ratio and no change in current ratio.

Answer: Purchase of goods for cash .

Question: Assuming that the Debt Equity Ratio is 2:1. State giving reason , whether the ratio will improve
, decline or will have no change in case bonus shares allotted to equity shareholders by
Capitalizing profits.

Answer: Debt equity ratio will not change as the total amount of shareholders funds will remain same.

Question: The ratio of current Assets (Rs. 9,00,000) to current liabilities is 1.5:1. The accountant of this
Firm is interested in maintaining a current ratio of 2:1 by paying some part of current liabilities
You are required to suggest him the amount of current liabilities which must be paid for the  Purpose.

Answer: Payment of current Liabilities Rs.3,00,000.

Question: A company has a loan of Rs.15,00,000 as part of its capital employed. The interest payable on
Loan is 15% and the ROI of the company is 25%. The rate of income tax is 60%.what is the
Gain to shareholders due to the loan raised by the company ?

Answer: Net gain to shareholders Rs.60,000.

Question: Rs.2,00,000 is the cost of goods sold, inventory turnover 8 times, stock at the beginning is 1.5
Times more than the stock at the end. Calculate the value of opening & closing stock .

Opening stock = Rs.35,715.

Question: From the given information, calculate the stock turnover ratio: sales Rs.5,00,000, Gross Profit
25% on cost , opening stock was 1/3rd of the value of closing stock. Closing stock was 30%
Of sales.

Answer: Stock turnover Ratio = 4 times .

Question: Calculate cost of goods sold from the following information: Sales Rs.12,00,000, Sales
Returns Rs.80,000, operating expenses Rs.1,82,000, operating ratio 92%.

Answer: Cost of goods sold =Rs.8,48,400.

Question: Calculate the amount of opening stock and closing stock from the following figures:
Average Debt collection period 4 month stock turnover ratio 3 times. Average Debtors
Rs.1,00,000 Cash sales being 25% of total sales Gross profit ratio 25% stock at the end was 3
Times that in the beginning.

Closing stock Rs. 1,50,000.

Question: (a) Calculate return on Investment from the following information :
Net profit after Tax Rs.6,50,000.
2.5% convertible debentures Rs 8,00000.
Income Tax 50%
Fixed Assets at cost Rs.24,60,000.
Depreciation reserve Rs.4,60,000.
Current Assets Rs. 15,00,000.
Current Liabilities Rs. 7,00,000.
(b)   Profit before interest and tax(PBIT) Rs.2,00,000, 10% preference shares of Rs.100 each.
Rs.2,00,000, 2,0000 equity shares of Rs. 10 each, Rate of tax @ 50% calculate earning pen
Share(EPS).

Answer: (a) Net profit before interest Rs.14,00,000
capital employed Rs. 28,00,000
Return on investment 50%.
(b)Earning per share Rs. 4.