DELHI PUBLIC SCHOOL SURAT

SUBJECT : ACCOUNTANCY WORKSHEET CLASS : XII

CHAPTER: RATIO ANALYSIS (MCQ)

1. Inventory Turnover Ratio of Vinod Ltd., is 3times. State giving reason, whether the ratio improves,
decline or does not change because of increase in the value of closing stock by `5,000.
Ans: Inventory Turnover Ratio will decline because of increase in average inventory and cost
of Revenue from operations will decrease.
2. Which of the following is used to assess the long-term financial position of the enterprise:
a. Liquidity Ratios
b. Profitability Ratios
c. Activity Ratios
d. Solvency Ratios
Ans: Solvency Ratio
3. Current Ratio of Vinod Ltd., is 3:1. State with reason wether the payment of `20,000 to the creditors
will increase, decline or not change the ratio.
Ans: Current Ratio will increase because after the payment of `20,000 both current assets and
current liabilities will be reduced.
4. Name any two tools of Analysis of Financial Statements.
Ans: Common Size statement, Ratio Analysis, Cash Flow Statement
5. Pinegrove Ltd. has a current ratio of 3.5:1 and Quick Ratio of 2:1. If the excess of Current Assets
over Quick Assets as represented by stock is 1,50,000, calculate current assets and current liabilities
Ans: current assets 3,50,000 and current liabilities 1,00,000
6. Which of the following ratio is not calculated under the head Solvency Ratios?
a. Debt to Equity Ratio
b. Proprietary Ratio
c. Inventory Turnover Ratio
d. Interest Coverage Ratio
Ans: Inventory Turnover Ratio
7. The Quick Ratio of Vinod Ltd., id 1.5:1. State with the reason if the ratio will increase, decrease or
no change, when rent `3,000 is paid in advance.
 Ans: Quick Ratio will decrease because quick assets decreased by `3,000 but current
liabilities are same.
8. From the following information, compute Debt to Equity Ratio:
Long term Borrowings 4,00,000
Long term provision 2,00,000
Current Liabilities 1,00,000
Non-Current Assets 7,20,000
Current Assets 1,80,000
Ans: Debt to Equity Ratio = Debt/Equity
Debt = 400000 + 200000 = 600000
Equity = 2,00,000(Total Assets 900000 – Liabilities 700000)
Debt to Equity Ratio = 600000/200000 = 3:1
9. Vinod Ltd., has a Current Ratio of 3.5:1 and Quick Ratio of 1.5:1. If the excess of current assets over
quick assets as represented by stock is 60000, what will be the value of current assets and the current
liabilities?
a. Current Assets `1,20,000 and Current Liabilities `30,000
b. Current Assets `1,05,000 and Current Liabilities `30,000
c. Current Assets `1,20,000 and Current Liabilities `40,000
d. Current Assets `1,20,000 and Current Liabilities `40,000
Ans: Current Assets `1,05,000 and Current Liabilities `30,000
10. The Debt to Equity Ratio of a company is 1:2 State with reason which of the following transactions
would increase, decrease or not change the ratio. When issued Equity Shares of `1,00,000.
Ans: Ratio will decrease due to increase in equity with no change in debt.
11. Current Ratio of Vinod Ltd., is 3:1. State with the reason whether the payment of `20,000 to the
creditors will increase, decrease or not change the ratio.
Ans: Both current assets and current liabilities will decrease after the payment of `20,000 to
the creditors. Therefore, current ratio will increase.
12. Which of the following items is not included to the current assets while calculating current ratio?
a. Cash and cash equivalents
b. Only Loose tools
c. Only Stores and Spares
d. Both Loose tools and Stores and Spares
Ans: Both Loose tools and Stores and Spares
13. Trade Receivables Turnover Ratio of a company is 6 Times. State with reason whether the ratio will
improve, decrease on not change due to increase in the values of closing inventory (Stock) by
`40,000.
 Ans: There will be no change in ratio because it will effect neither net credit sales nor
average trade receivables.
14. If the Current Ratio of a company is 2:1, State giving the reason whether the ratio will improve,
decline or will have no change in case a Bill Receivables is dishonoured.
Ans: No change in ratio because dishonour of a bill will not change the total of current assets
(B/R will be replaced with Debtors)
15. Which of the following is not a part of Activity Ratios/ Turnover Ratios:
a. Trade Receivables Turnover Ratio
b. Trade Payable Turnover Ratio
c. Interest Coverage Ratio
d. Working Capital Turnover Ratio
Ans: Interest Coverage Ratio
16. The Current Ratio of VK Ltd., is 1:1. Company issued 50,000 Equity Shares of `10 each to the
Vendor’s of Machinery purchased. What will be the impact of this transaction on current ratio of the
company?
Ans: No change in Current Ratio because issue of shares will neither effect current assets nor
current liabilities.
17. What will be the effect on Proprietary Ratio when a loan is obtained from the bank `2,00,000
payable after 5 years?
Ans: Proprietary Ratio will decrease because there is no change in shareholders’ funds but
total assets will increase by `2,00,000.
18. ‘Working Capital Turnover Ratio’ is the part of:
a. Activity Ratios
b. Solvency Ratios
c. Profitability Ratios
d. Liquidity Ratios
Ans: Activity Ratios
19. Inventory Turnover Ratio of a company is 3 times. State, giving reason, whether the ratio improves,
decline or does not change because of increase in the value of closing stock by `5,000.
Ans: There will be decrease in Inventory Turnover Ratio, as the average inventory will
increase while cost of revenue from operations will decrease.
20. Assuming that the Debt to Equity Ratio is 2:1. State giving reason, whether this ratio will increase or
decrease or will have no change if machinery is purchased by taking a long term loan.
Ans: Ratio will increase because shareholders’ funds remain unchanged and long term debts
are increased.
21. Ratio of /current assets (`6,00,000) to current ratio (`4,00,000) is 1.5:1. The accountant of the firm is
interested in maintaining a Current ratio of 2:1, by paying a part of the current Liabilities. How much
 amount of current Liabilities should be paid so that current ratio at the level of 2:1 may be
maintained?
a. `4,00,000
b. `3,00,000
c. `2,00,000
d. `1,00,000
Ans: `2,00,000
22. Quick Ratio of the company is 1:1. State, giving a reason if the ratio will increase, decrease or will
have no change, if goods are sold at profit.
Ans: Ratio will improve because sales of goods at profit will increase the total of Quick ratio.
23. Quick Ratio of the company is 1:1. State, giving a reason if the ratio will increase, decrease or will
have no change, if there is Sales of furniture at cost.
Ans: It will increase the ratio because there is increase in quick assets.
24. ‘Return on Investment’ is calculated under:
a. Liquidity Ratio
b. Solvency Ratio
c. Profitability Ratio
d. Activity Ratio
Ans: Profitability Ratio
25. A company has earned `7,50,000 as profit before interest and tax. ROI is 20%. Find out the value of
Capital Employed in the company.
Ans: Capital Employed = 7,50,000*100/20 = `37,50,000.
26. What will be the Operating Profit Ratio, if the Operating Ratio is 88.94%?
Ans:Operating Profit Ratio = 100-88.94= 11.06%
27. Calculation of capital employed is generally while calculating:
a. Quick Ratio
b. Current Ratio
c. Gross Profit Ratio
d. Return on Investment(ROI)
Ans: Return on Investment(ROI)
28. X Ltd. has a current ratio of 3:1 and quick ratio of 2:1. If the excess of current assets over Quick
assets as represented by stock is `40,000, calculated Current Assets and Current Liabilities
Ans: Current Assets `1,20,000 and Current Liabilities `40,000
29. Which ratio of 1:1 is considered as ideal ratio?
a. Current Ratio
b. Quick Ratio
c. Debt and Profit Ratios
 d. Both (a) and (b)
Ans: Quick Ratio
30. What is meant by ‘Activity Ratio’?
Ans: ‘Activity Ratio’ means the ratios that measure the effectiveness with which a firm users
its available resources.