Refer to MCQs for Accountancy Class 12 with Answers Chapter 5 Accounting Ratios designed as per the latest syllabus issued by CBSE. All Multiple choice questions have been provided with solutions and have been prepared based on the expected pattern in upcoming board exams

Question: Proprietary or equity ratio is equal to
a) Shareholders funds/ total assets
b) Shareholders funds+ total assets
c) Shareholders funds- total assets
d) None of the options

Question. Long term solvency is indicated by :
a) Current Ratio
b) Quick Ratio
c) Net Profit Ratio
d) Debt/Equity Ratio

Question.Two basic measures of liquidity are:
a. Inventory turnover and Current ratio
b. Current ratio and Quick ratio
c. Gross Profit ratio and Operating ratio
d. Current ratio and average Collection period

Question. ________ ratios are a measure of the speed with which various accounts are converted into revenue from operations or cash :
(a) Activity
(b) Liquidity
(c) Debt
(d) Profitability 
(a) Activity

Question: The solvency position of any firm is determined and measured with the help of
a) None of the options
b) Activity Ratios
c) Profitability Ratios
d) Solvency ratios

Question. Current ratio is:
a. Solvency Ratio
b. Liquidity ratio
c. Activity Ratio
d. Profitability Ratio

Question: Management are interested in
a) Activity Ratios and Profitability Ratios
b) Activity Ratios
c) Profitability Ratios
d) None of the options

Question. The ________ ratios are primarily measures of return :
(a) liquidity
(b) activity
(c) debt
(d) profitability 

Question. Current Ratio is :
a. Liquid Assets/Current Assets
b. Fixed Assets/Current Assets
c. Current Assets/Current Liabilities
d. Liquid assets/Current Liabilities

Question: The excess of Current ratio is also treated as a sign of managerial
a) Inefficiency and Efficiency
b) Efficiency
c) Inefficiency
d) None of the options

Question. Liquid Assets do not include:
a. Bills Receivable
b. Debtors
c. Inventory
d. Bank Balance

Question: Which ratio is considered as safe margin of solvency?
a) None of the options
b) Liquid ratio
c) Current ratio
d) Current ratio

Question. The ________ of business firm is measured by its ability to satisfy its short-term obligations as they become due :
(a) activity
(b) liquidity
(c) debt
(d) profitability 

Question. Ideal Current Ratio is:
a. 1:1
b. 1:2
c. 1:3
d. 2:1

Question: Inventory ratio is a relationship between
a) Cost of good sold and cost of average inventory
b) Cost of good Purchased and cost of average inventory
c) Cost of good sold and cost of average inventory and Cost of good Purchased and cost of average inventory
d) None of the options

Question. The ________ is a measure of liquidity which excludes ________ , generally the least liquid asset :
(a) current ratio, trade receivable
(b) liquid ratio, trade receivable
(c) current ratio, inventory
(d) liquid ratio, inventory

Question. Working Capital is the :
a. Cash and Bank Balance
b. Capital borrowed from Banks
c. Difference between Current Assets and Current Liabilities
d. Difference between Current Assets and Fixed assets

Question: Current Ratio is 3:4, Current Liabilities Rs. 24000, the amount of current assets will be
a) Rs 15000
b) Rs 18000
c) Rs 16000
d) Rs 20000

Question. Current assets include only those assets which are expected to be realized within……
a. 3 months
b. 6 months
c. 1 year
d. 2 years

Question: Financial ratio analysis are conducted by which groups of analysts
a) All of the options
b) Managers
c) Equity investors
d) Long term creditors

Question. The ________ measures the activity of a firm’s inventory.
(a) average collection period
(b) inventory turnover
(c) liquid ratio
(d) current ratio 

Question. A Company’s liquid assets are Rs.5,00,000 and its current liabilities are Rs.3,00,000.Thereafter, it paid Rs.1,00,000 to its trade payables. Quick ratio will be:
a. 33:1
b. 5:1
c. 67:1
d. 2:1

Question: Collection of debtors
a) None of the options
b) Increases current ratio
c) Has no effect on current ratio
d) Decreases current ratio

Question: Capital Employed is equal to
a) Fixed Capital+Working Capital
b) Total Assets-Total Liabilities
c) Total Assets
d) Total Liabilities

Question. A Company’s Quick Ratio is 1.5:1; Current Liabilities are Rs.2,00,000 and Inventory is Rs.1,80,000.Current Ratio will be:
a. 9:1
b. 9:1
c. 4:1
d. 4:1

Question. The ________ may indicate that the firm is experiencing stockouts and lost sales.
(a) average payment period
(b) inventory turnover ratio
(c) average collection period
(d) quick ratio 

Question: A low Stock turnover indicates
a) Over investment in stock
b) Monopoly situation
c) Solvency Position
d) None of the options

Question. Fixed Assets Rs.5,00,000; Current Assets Rs.3,00,000; Equity Share Capital Rs.4,00,000; Reserve Rs.2,00,000;Long –term debts Rs.40,000.Proprietory Ratio will be:
a. 75%
b. 80%
c. 125%
d. 133%

Question: Which ratio indicates the long-term or future solvency position of the business
a) Equity ratio
b) Net Profit Ratio
c) Gross Profit Ratio
d) None of the options

Question. If Debt equity ratio exceeds ……………., it indicates risky financial position.
a. 1:1
b. 2:1
c. 1:2
d. 3:1

Question. ________ are especially interested in the average payment period, since it provides them with a sense of the bill-paying patterns of the firm.
(a) Customers
(b) Stockholders
(c) Lenders and suppliers
(d) Borrowers and buyers 

Question: When ratios are calculated on the basis of accounting information, they are called
a) Accounting ratios
b) Working Capital Ratio
c) Profit ratio
d) None of the options

Question. Equity Share Capital Rs.20,00,000; Reserves Rs.5,00,000; Debentures Rs.10,00,000; Current Liabilities Rs.8,00,000. Debt-equity ratio will be:
a) 0.4 : 1
b) 0.32 : 1
c) 0.72 : 1
d) 0.5 : 1

Question. Patents and Copyrights fall under the category of:
a) Current Assets
b) Liquid Assets
c) Intangible Assets
d) None of Above

Question. The ________ ratios provide the information critical to the long run operation to the firm
(a) liquidity
(b) activity
(c) solvency
(d) profitability 

Question. On the basis of following data, the Debt-Equity Ratio of a Company will be: Equity Share Capital Rs.5,00,000; General Reserve Rs.3,20,000; Preliminary Expenses Rs.20,000; Debentures Rs.3,20,000; Preliminary Expenses Rs.20,000; Debentures Rs.3,20,000; Current Liabilities Rs.80,000.
a) 1:2
b) 0.52:1
c) 0.4:1
d) 0.37:1

Question. Which ratio is not a part of Solvency Ratio?
a) Current Ratio
b) Debt to Equity Ratio
c) otal Assets to Debt Ratio
d) Proprietary Ratio

Question. On the basis of the following information received from a firm, its Proprietory Ratio will be: Fixed Assets Rs.3,30,000; Current Assets Rs.1,90,000; Preliminary Expenses Rs.30,000; Equity share Capital Rs.2,44,000; Preference Share capital Rs.1,70,000; Reserve Fund Rs.58,000.
a) 70%
b) 80%
c) 85%
d) 90%

Question. Current Assets Rs.5,00,000; Current Liabilities Rs. 1,00,000; Revenue from Operations Rs.28,00,000. Working Capital turnover Ratio will be:
a) 7 times
b) 5.6 times
c) 8 times
d) 10 times

Question: The _ ratios are primarily measures of return.
a) Debt
b) Liquidity
c) Profitability
d) Activity

Question. On the basis of the following information received from a firm, its Total Assets-Debt ratio will be:
a) 40%
b) 60%
c) 30%
d) 70%

Question. The ________ is useful in evaluating credit and collection policies.
(a) average payment period
(b) current ratio
(c) average collection period
(d) current asset turnover

Question. Opening Inventory Rs.1,00,000; Closing Inventory Rs.1,50,000; Purchases Rs.6,00,000; Carriage Rs.25,000; wages Rs.2,00,000. Inventory Turnover Ratio will be:
(A) 6.6 Times
(B) 7.4 Times
(C) 7 Times
(D) 6.2 Times

Question: Limitations of Ratio Analysis
a) All of the options
b) Accounting ratios ignore qualitative factors
c) Absence of universally accepted terminology
d) Ratios are affected by window-dressing

Question. A Company’s liquid assets are Rs. 10,00,000 and its current liabilities are Rs.8,00,000. Subsequently, it purchased goods for Rs. 1,00,000 on credit. Quick ratio will be …………….
a) 1.11:1
b) 1.22:1
c) 1.38 : 1
d) 1.25 : 1

Question. Revenue from Operations Rs.2,00,000; Inventory Turnover ratio 5; Gross Profit 25%. Find out the value of Closing Inventory, if Closing Inventory is Rs.8,000 more than the Opening Inventory.
(A) Rs.38,000
(B) Rs.22,000
(C) Rs.34,000
(D) Rs.26,000

Question: The_____ratio may indicate the firm is experiencing stock outs and lost sales.
a) Quick
b) Inventory turnover
c) Average collection period
d) None of the options

Question. Total revenue from operations Rs.9,00,000; Cash revenue from operations Rs.3,00,000; Debtors Rs.1,00,000; Debtors Rs.1,00,000; B/R Rs.20,000. Trade Receivables Turnover Ratio will be:
(A) 5 Times
(B) 6 Times
(C) 7.5 Times
(D) 9 Times

Question. The following groups of ratios are primarily measure risk :
(a) liquidity, activity, and profitability
(b) liquidity, activity, and inventory
(c) liquidity, activity, and debt
(d) liquidity, debt and profitability 

Question: Low Current Ratio indicates
a) Business cannot meet long term liability
b) Business can meet long term liability
c) Business cannot meet short term liability
d) Business can meet short term liability

Question. A firm’s credit revenue from operations is Rs.3,60,000, cash revenue from operations is Rs.70,000. Cost of revenue from operations is Rs.3,61,200. Its gross profit ratio will be:
(A) 11%
(B) 15%
(C) 18%
(D) 16%

Question: Ratio of Net Sales to Net Working Capital is
a) Liquidity Ratio
b) Profitability Ratio
c) Working Capital Turnover Ratio
d) None of the options

Question. The two basic measures of liquidity are :
(a) Inventory turnover and current ratio
(b) Current ratio and liquid ratio
(c) Gross profit margin and operating ratio
(d) Current ratio and average collection period

Question. Revenue from Operations Rs.6,00,000; Gross Profit 20%; Office Expenses Rs.30,000;Selling Expenses Rs.48,000.Calculate operating ratio.
(A) 80%
(B) 85%
(C) 96.33%
(D) 93%

Question: Which Items Included in Current Assets for get the current ratio
a) All of the options
b) Current investments
c) Current Stock
d) Trade receivables (bills receivable and sundry debtors less provision for doubtful debts)

Question: Traditional Classification is further divided into the categories
a) Composite Ratios
b) Income Statement Ratios
c) Balance Sheet Ratios
d) All of the options

Question. Liquid Assets :
a) Current Assets – Prepaid Exp.
b) Current Assets – Inventory + Prepaid Exp.
c) Current Assets – Inventory – Prepaid Exp.
d) Current Assets + Inventory – Prepaid Exp.

Question. X Ltd. has a Debt-Equity Ratio at 3 : 1. According to the management it should be maintained at 1 : 1 what are the choice in front of management to do so :
(a) Increase equity
(b) Reduce debt
(c) Both, i.e, increase equity and reduce debt
(d) All of these C

Question. Assuming liquid ratio of 1.2 : 1, cash collected from debtors would :
(A) increase liquid ratio
(B) decrease liquid ratio
(C) have no effect on liquid ratio
(D) increase gross profit ratio

Question: If Trade Payable turnover ratio shows a high turnover ratio it means
a) Availability of less credit or fast payment
b) Profitability of the firm
c) Net Profit
d) Shows after how much times funds are collected

Question: Activity Ratios is relate to
a) Sales or cost of goods sold
b) Profit
c) Loss
d) None of the options

Question: Average Inventory is used to calculate the_______
a) Inventory Turnover Ratio
b) Interest Coverage Ratio
c) Debt Equity Ratio
d) Current Ratio

Question: The quick ratio of a company is 2 : 1. State giving reasons, (for any four) which of the following would improve, reduce or not change the ratio
a) Purchase of machinery for cash
b) Purchase of goods on credit (iii) Sale of furniture at cost
c) Sale of goods at a profit
d) None of the options

Question. Current liabilities of a company were Rs.2,00,000 and its current ratio was 2.5 : 1. After this the company paid Rs. 1,00,000 to a trade payable. The current ratio after the payment will be :
a) 4 : 1
b) 2 : 1
c) 5 : 1
d) None of the above

Question: Establishes the relationship between long-term debt (external equities) and the equity (internal equities)
a) Debt to Equity ratio
b) Quick Ratio
c) Test Ratio
d) None of the options

Question. Which of the following transactions will improve the Current Ratio :
a) Cash Collected from Trade Receivables
b) Purchase of goods for cash
c) Payment to Trade Payables
d) Credit purchase of Goods

Question. Total credit revenue from operations of a firm is Rs.5,40,000. Average collection period is 3 months. Opening debtors are Rs. 1,10,000. Its closing debtors will be :
a Rs.1,35,000
b) Rs.1,60,000
c) Rs.2,20,000
d) Rs.1,80,000

Question. On the basis of following data, the cost of revenue from operations by a company will be : Opening Inventory Rs.70,000; Closing Inventory Rs.80,000; Inventory Turnover Ratio 6 Times.
a) Rs.1,50,000
b) Rs.90,000
c) Rs.4,50,000
d) Rs.4,80,000

Question. A Company’s Current Assets are Rs. 8,00,000 and its current liabilities are Rs.4,00,000. Subsequently, it purchased goods for Rs. 1,00,000 on credit. Current ratio will be …………….
a) 2 : 1
b) 2.25 : 1
c) 1.8:1
d) 1.6:1

Question. On the basis of following data, a Company’s Total Assets-Debt Ratio will be: Working Capital Rs.2,70,000; Current Liabilities Rs.30,000; Fixed Assets Rs.4,00,000; Debentures Rs.2,00,000; Long Term Bank Loan Rs. 80,000.
a) 37%
b) 40%
c) 45%
d) 70%

Question. Revenue from operations is Rs. 1,80,000; Rate of Gross Profit is 25% on cost. What will be the Gross Profit?
a) Rs.45,000
b) Rs.36,000
c) Rs.40,000
d) Rs.60,000

Question. On the basis of following data, the Debt-Equity Ratio of a Company will be: Equity Share Capital Rs.5,00,000; General Reserve Rs.3,20,000; Preliminary Expenses Rs.20,000; Debentures Rs.3,20,000; Current Liabilities Rs.80,000.
a) 1 : 2
b) .52 : 1
c) .4 : 1
d) .37 : 1

Question. Credit revenue from operations Rs.6,00,000; Cash revenue from operations Rs.1,50,000; Debtors Rs.1,00,000; B/R Rs.50,000. Average Collection Period will be :
a) 2 Months
b) 2.4 Months
c) 3 Months
d) 1.6 Months

QuestionLong term solvency is indicated by :
a) Current Ratio
b) Quick Ratio
c) Net Profit Ratio
d) Debt/Equity Ratio

Question. Sincere Ltd. has a Proprietary Ratio of 25%. To maintain this ratio at 30%, management may ~
a) increase Equity.
b) Reduce Debt.
c) Either Increase Equity or Reduce Debt.
d) lncrease Current Assets.

Question. Name the difference between Capital Employed and Non-current Liabilities:
a) Shareholders’ Funds
b) Capital Employed
c) Total Debts
d) Total Assets

Question. A Company’s Current Ratio is 2.8 : 1; Current Liabilities are Rs.2,00,000; Inventory is Rs. 1,50,000 and Prepaid Expenses are Rs. 10,000. Its Liquid Ratio will be :
a) 3.6 : 1
b) 2.1 : 1
c) 2 : 1
d) 2.05 : 1

Question. Quick Ratio is also known as :
a) Liquid Ratio
b) Current Ratio
c) Working Capital Ratio
d) None of the Above

Question. Credit Purchases Rs.9,60,000; Cash Purchases Rs.6,40,000; Creditors Rs.2,40,000; Bills Payable Rs.80,000. Average Payment Period will be :
a) 3 months
b) 4 months
c) 2.4 months
d) 6 months

Question: Working Capital is equal to
a) Current Assets Current Liabilities
b) Current Assets + Current Liabilities
c) Current Assets/Current Liabilities
d) None of the options

Question. The operating ratio of X. Ltd. is 84%. State giving reason whether Conversion of Debentures into Equity Shares will improve, reduce or will bring no change in the ratio.

Question. The current ratio of Vishakha Ltd. is 2 : 1. State giving reason whether ‘Sale of Goods at Loss’ will improve, reduce or not change the ratio.

Question. The current ratio of a company is 2.5 : 1. State giving reason whether ‘Purchase of Goods for Cash’ will improve, reduce or not change the ratio.
Ans.

Question. The current ratio of Vikas Ltd. is 2 : 1. State giving reasons whether ‘Repayment of current liability’ will improve, reduce or not change the ratio.

Question. Assuming that the Debt Equity Ratio is 1 : 2, state giving reason, whether the ratio will improve,decline or will have no change in case equity shares are issued for cash.

Question. State whether the following statement is True or False:
Solvency refers to the ability of the enterprise to meet its current obligations.

Question. State whether the following statement is True or False:
Current ratio improves with increase in sales at profir.

Fill in the blanks with appropriate word:

Question. An ideal Quick Ratio is ……………

Question. ……………is the process of determining and interpreting numerical relationship between figures of the financial statements.

Question. State whether the following statement is True or False:
Lower the Gross Profit Ratio, higher will be the profitability of a company.