Gujarat Board GSEB Class 12 Commerce Accounts Important Questions Part 2 Chapter 5 Accounting Ratios and Analysis Important Questions and Answers.

GSEB Class 12 Accounts Important Questions Part 2 Chapter 5 Accounting Ratios and Analysis

Answer the following in one sentence only :

Question 1.
For useful interpretation of financial statement which thing is included in analysis of ratio?
Answer:
For useful interpretation of financial statement, comparison is included in ratio analysis.

Question 2.
In how many parts classification of ratios can be done? which are they?
Answer:
Classification of ratios can be done into two parts :

• Traditional classification
• Functional classification.

Question 3.
State the traditional classification of ratios.
Answer:
Traditional classification of ratios is as under :

• Ratios of Trading A/c and Profit and Loss A/c
• Ratios of Balance Sheet
• Composite ratios.

Question 4.
State the functional classification of ratios.
Answer:
Functional classification of ratios is as under :

• Profitability ratios
• Liquidity ratios
• Solvency ratios
• Efficiency ratios.

Question 5.
State the classification of profitability ratios.
Answer:
Classification of profitability ratios is as under :

• Gross profit ratio
• Operating ratio
• Operating profit ratio
• Net profit ratio.

Question 6.
What is meant by gross profit?
Answer:
Gross profit means excess of sales over cost of goods sold.
In short, Gross profit = Sales – Cost of goods sold.

Question 7.
Generally in which form profitability ratios are described (shown)?
Answer:
Profitability ratios are shown in terms of percentage.

Question 8.
Between whom gross profit ratio discloses the relation?
Answer:
Gross profit ratio discloses the relation between gross profit and sales.

Question 9.
Between whom operating ratio disclose the relation?
Answer:
Operating ratio disclose the relation between operating cost and sales.

Question 10.
Give formula of operating cost.
Answer:
Operating cost = Cost of goods sold + Operating expenses.

Question 11.
What is suggested by decreasing trend of operating ratio?
Answer:
The decreasing trend of operating ratio suggest the increase in profitability.

Question 12.
Give formula of operating profit.
Answer:
Operating profit = Sales – Operating cost.

Question 13.
What is suggested by increasing trend of net profit ratio?
Answer:
The increasing trend of net profit ratio suggest the increase in net/total profitability of a business unit.

Question 14.
State the liquidity ratios.
Answer:
Liquidity ratios are

• current ratio and
• liquid ratio.

Question 15.
What is current assets?
Answer:
Current assets means which is in the cash form or cash equivalent or which can be converted into cash within 12 months or which can be converted into cash equivalent.

Question 16.
What is meant by current liabilities?
Answer:
Current liabilities means such liabilities which are payable within the time period of 12 months.

Question 17.
Generally which proportion of current ratio is considered to be an ideal?
Answer:
Generally 2: 1 proportion of current ratio is considered to be an ideal.

Question 18.
Give formula of working capital.
Answer:
Working capital = Current assets – Current liabilities.

Question 19.
What is liquid assets?
Answer:
From the current assets the stock and expenses paid in advance are deducted, the balancing figure is liquid assets.

Question 20.
Generally, which proprotion of liquid ratio is desirable?
Answer:
Generally, the proportion of 1:1 of liquid ratio is desirable.

Question 21.
Which ratios are useful to know the payment capacity of short-term liabilities of a business unit?
Answer:
Liquidity ratios

• Current ratio
• Liquid ratio are useful to know the payment capacity of short term liabilities of a business unit.

Question 22.
Which ratios are useful to determine the payment capacity of long term liabilities of a business unit?
Answer:
Solvency ratios

• Debt-equity ratio
• Total assets-debt ratio
• Proprietary ratio and
• Interest coverage ratio are useful to determine the payment capacity of long-term liabilities of a business unit.

Question 23.
What does indicate by debt-equity ratio?
Answer:
Debt-equity ratio indicates the proportion of equity against debt.

Question 24.
Due to which object debt-equity ratio is find out?
Answer:
The objective of debt-equity ratio is to know the proportion of owners capital and borrowed funds which are acquired by the business as a long-term source of finance.

Question 25.
What is known by total-assets to debt ratio?
Answer:
From total assets to debt ratio we can ascertained that out of total assets, what proportion of total assets is acquired through non-current liabilities.

Question 26.
If the total assets to debt ratio is higher then what is the risk for lenders to lend their funds?
Answer:
If the total assets to debt ratio is higher then it is less risky to the lenders to lend their funds.

Question 27.
Which two approaches are used to determine the owners funds?
Answer:
Followings two approaches are used to determine the owner’s funds :

• Liabilities Based Approach
• Assets Based Approach.

Question 28.
State the efficiency ratios.
Answer:
Efficiency ratios are as follows :

• Stock turnover
• Working capital turnover
• Debtors turnover
• Creditors turnover.

Question 29.
What is stock turnover?
Answer:
The measurement of efficiency for the conversion of stock into sales means stock turnover.

Question 30.
What is known by stock turnover?
Answer:
On the basis of stock turnover, we can know that during the year, how many times average stock is converted into cost of goods sold and finally into sales of a business unit.

Question 31.
What does indicate the increasing trend of stock turnover?
Answer:
The increasing trend indicates that very often the stock is converted into cost of goods sold and finally into sales. Generally it is established that higher the ratio-higher the sales-higher the profit.

Question 32.
Why it is desirable to maintain optimum level of stock ratio in a business unit?
Answer:
Generally higher stock ratio can be the result of deficit (shortage) of working capital and lower stock – ratio can be the result of unnecessary investment in working capital. Thus, it is desirable to main optimum level of stock.

Question 33.
Which things can be known by debtors turnover ratio?
Answer:
By debtors turnover ratio it can be ascertained that how many times debtors and bills receivables are emerged due to credit sales and how quickly the collection is converted into cash or cash equivalent.

Question 34.
What does higher debtors’ turnover ratio show?
Answer:
The higher debtors turnover ratio shows higher collection efficiency and lower investment in debtors and bills receivables.

Question 35.
What does lower creditors turnover ratio show?
Answer:
The lower creditors’ turnover ratio shows higher payment efficiency and higher investment in creditors and bills payable.

Select the correct option for each question :

Question 1.
In which form ratio represent the financial information?
(A) Fraction
(B) Detailed
(C) Brief
(D) Qualitative
Answer:
(C) Brief

Question 2.
In which type of operating decision if a business unit, ratios are helpful?
(A) Primary
(B) Social
(C) Political
(D) Qualitative
Answer:
(D) Qualitative

Question 3.
Which things are keep at center by money lenders?
(A) Solvency
(B) Profitability
(C) Liquidity
(D) Efficiency
Answer:
(A) Solvency

Question 4.
From the following which ratio is presented in form of proportion?
(A) Gross profit ratio
(B) Operating ratio
(C) Stock turnover
(D) Liquid ratio
Answer:
(D) Liquid ratio

Question 5.
From the following which ratio is not presented in form of percentage?
(A) Operating ratio
(B) Stock turnover
(C) Gross profit ratio
(D) Net profit ratio
Answer:
(B) Stock turnover

Question 6.
In how many parts ratios can be classified?
(A) Two
(B) Three
(C) Four
(D) Five
Answer:
(A) Two

Question 7.
Which of the following ratio is profitability ratio?
(A) Liquid Ratio
(B) Stock turnover
(C) Operating ratio
(D) Working capital turnover
Answer:
(C) Operating ratio

Question 8.
On which things, gross profit and net profit ratio depends upon?
(A) Expenses
(B) Income
(C) Capital
(D) Assets
Answer:
(B) Income

Question 9.
Gross profit = ……………………. .
(A) Sales – Cost of goods sold
(B) Cost of goods sold – Sales
(C) Sales + Cost of goods sold
(D) Sales ÷ Cost of goods sold
Answer:
(A) Sales – Cost of goods sold

Question 10.
On which thing operating ratio depends upon?
(A) Expenses
(B) Capital
(C) Assets
(D) Income
Answer:
(A) Expenses

Question 11.
Which of the following is not included in operating expenses?
(A) Depreciation
(B) Expenses related to employee
(C) Interest paid
(D)Selling-distribution expenses
Answer:
(C) Interest paid

Question 12.
Which type of expenses are not considered in operating expenses?
(A) Administrative
(B) Financial
(C) Sell ing-distnbution
(D)Employees related expenses
Answer:
(B) Financial

Question 13.
Operating profit = ………………………… .
(A) Sales + Operating cost
(B) Operating cost — Sales
(C) Sales – Operating Cost
(D)Sales ÷ Operating cost
Answer:
(C) Sales – Operating Cost

Question 14.
Which of the following is a liquidity ratio?
(A) Liquid ratio
(B) Operating ratio
(C) Proprietary ratio
(D)Interest coverage ratio
Answer:
(A) Liquid ratio

Question 15.
Generally in which proportion current ratio is desirable?
(A) 1 : 1
(B) 1 : 2
(C) 2 : 1
(D) 1:1
Answer:
(C) 2: 1

Question 16.
Generally, in which proportion, liquid ratio is desirable?
(A) 2 : 1
(B) 1 : 2
(C) 3 : 1
(D) 1 : 1
Answer:
(D) 1 : 1

Question 17.
Working capital = …………………… .
(A) Sales – Current Assets
(B) Current liabilities – Current Assets
(C) Current Assets + Current liabilities
(D) Total Assets – Total liabilities.
Answer:
(C) Current Assets + Current liabilities

Question 18.
To measure financial (economic) health of business unit, which aspect is taken into consideration?
(A) Profitability
(B) Liquidity
(C) Solvency
(D) Efficiency.
Answer:
(C) Solvency

Question 19.
Which ratio provides information of economic solvency and margin of safety to the creditors of the business?
(A) Debt-equity ratio
(B) Total Assets – Debt ratio
(C) Proprietary ratio
(D) Interest – coverage ratio
Answer:
(C) Proprietary ratio

Question 20.
For a company, purchase is ₹ 1,50,000; purchase expenses ₹ 25,000; changes in stock ₹ (25,000) and sales is ₹ 2,50,000 then find gross profit ratio?
(A) 20%
(B) 24%
(C) 36%
(D) 64%
Answer:
(C) 36%

Question 21.
For a company, cost of goods sold ₹ 18,00,000. If operating expenses ₹ 3,00,000; non-operating expenses ? 2,50,000, financial cost ₹ 1,50,000 and sales ₹ 30,00,000 then find out operating profit ratio.
(A) 16.67%
(B) 20%
(C) 25%
(D) 30%
Answer:
(D) 30%

Question 22.
If opening stock ₹ 2,50,000; Closing stock ₹ 1,50,000; Sales ? 20,00,000 and Gross profit ratio is 20%, then find out the Purchase.
(A) 6,00,000
(B) ₹ 12,00,000
(C) ₹ 15,00,000
(D) ₹ 18,00,000
Answer:
(C) ₹ 15,00,000

Question 23.
For a company, gross profit and credit sales are ₹ 1,20,000 and ₹ 4,80,000 respectively. If cash sales is 20% of total sales then find gross profit ratio.
(A) 20%
(B) 25%
(C) 20.83%
(D) 30%
Answer:
(A) 20%

Question 24.
In a company working capital turnover is 5 times, current assets ₹ 8,00,000 and sales ₹ 24,00,000 then find out current liabilities.
(A) ₹ 3,20,000
(B) ₹ 3,60,000
(C) ₹ 6,80,000
(D) ₹ 4,00,000
Answer:
(A) ₹ 3,20,000

Question 25.
In a company, cost of goods sold ₹ 6,40,000; current assets ₹ 4,80,000; current liabilities ₹ 1,60,000 and gross profit rate on sales is 20% then find out working capital turnover.
(A) 0.5 times
(B) 2 times
(C) 2.4 times
(D) 2.5 times
Answer:
(D) 2.5 times