CBSE Test Paper 05

Ch-10 Statement Analysis Tools and Accounting Ratios

1. Payment of outstanding liabilities will:

a. Reduce current liabilities
b. Both
c. None of these
d. Reduce total current assets
2. Match the following

a) Operating profit ratio i) Relationship between operating profit and net sale

b) Operating ratio ii) Relationship between gross profit to net sales

c) Gross profit iii) Relationship between operating cost and net sale

a. a(i), b(iii), c(ii)

b. a(iii), b(i), c(ii)
c. a(ii), b(iii), c(i)
d. a(i), b(ii), c(iii)
3. Quick Assets do not include:
a. Inventories
b. Cash
c. Bank
d. B/R
4. The definition, The term accounting ratio is used to describe significant relationship
which exist between figures shown in a balance sheet, in a profit and loss account, in
a budgetary control system or in a any part of the accounting organization is given by
a. Lord Keynes
b. J. Betty
c. Biramn and Dribin
d. None of these
5. From the following, calculate Inventories turnover ratio— Net Revenue from
operations –₹2,00,000 Gross Profit = 25% , Opening Inventories = ₹5000, Inventories at
the end -₹15000

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 a. 10 times
b. 25 times
c. 15 times
d. 5 times

6. What are the Current Assets?

7. What does ‘Creditors Turnover Ratio or Trade Payable Ratio’ indicate?

8. What is Working Capital Turnover Ratio?

9. What does Gross Profit Ratio indicate?

10. What do you mean by ‘Ratio Analysis’?

11. Compute debt-equity ratio, proprietary ratio, and total assets to debt ratio from the
following information:

Equity Share Capital 2,00,000

12% Preference Share Capital 3,00,000

Reserves and Surplus 2,50,000

The balance of Statement of Profit and Loss 1,50,000

10% Debentures 10,00,000

Loan from IDBI 6,00,000

Current Liabilities 6,80,000

Net Fixed Assets 21,00,000

Long Term Investment 2,00,000

Current Assets 8,80,000

12. i. Compute ‘working capital turnover ratio’ from the following information Cash
revenue from operations Rs. 1,30,000, credit revenue from operations Rs. 3,80,000,
returns from revenue from operations Rs. 10,000, liquid assets Rs. 1,40,000,
current liabilities Rs. 1,05,000 and inventory Rs. 90,000.
ii. Calculate ‘debt equity ratio’ from the following information

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 Total assets Rs. 3,50,000, total debt Rs. 2,50,000 and current liabilities Rs. 80,000.

13. Calculate: (i) Gross Profit Ratio, (ii) Operating Ratio and (iii) Inventory Turnover Ratio
from the following:

Particulars (Rs.)

Opening Inventory 3,00,000

Closing Inventory 4,20,000

Purchases 14,00,000

Wages 3,70,000

Carriage Inwards 1,50,000

Administrative Expenses 84,000

Selling Expenses 36,000

Revenue from Operations 24,00,000

14. The Current Ratio of a Company is 2: 1. State, giving reasons which of the following
transactions would (i) improve, (ii) reduce or (iii) not alter, the current ratio:

a. Repayment of a Current Liability

b. Purchasing goods on credit
c. Sale of an Office Equipment for Rs. 4,000 (Book Value Rs. 5,000)
d. Sale of goods for Rs. 11,000 (Cost Rs. 10,000)
e. Payment of Dividend already declared.

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 CBSE Test Paper 05
Ch-10 Statement Analysis Tools and Accounting Ratios

Answer

1. b. Both, Explanation: Payment of outstanding liabilities will decrease cash

balance and outstanding liabilities balance also. So both current assets and
liabilities will decrease

2. a. a(i), b(iii), c(ii), Explanation: The operating profit ratio indicates how much
profit a company makes after paying for variable costs of production such as
wages , raw materials etc. It is expressed as a percentage of sales and shows the
efficiency of a company controlling costs and expenses associated with business
operations Operating ratio is a company's operating expenses as a percentage of
revenue.
Gross profit ratio is used to assess a company's financial health and business
model by revealing the proportion of money left over from revenues after
accounting for the cost of goods sold

3. a. Inventories, Explanation: Quick assets include a company's most liquid assets

which can be easily converted into cash. Inventories have less liquidity and
therefore not included in quick assets.

4. b. J. Betty, Explanation: J. Betty

5. c. 15 times, Explanation: Inventory Turnover Ratio = 15 Times

Cost of Revenue from operations = 2,00,000 – (25% of Net Revenue from
operations) = 1,50,000
Average inventory = 5,000 + 15,000 = 20,000/2 = 10,000
Inventory turnover ratio = 1,50,000/10,000 = 15

6. Current Assets include assets which are expected to be realised within a short period
(generally within a year).

7. This ratio indicate the pattern of payment of accounts payable. As we know that
accounts payable are concerned with credit purchase, so this ratio establishes a
relationship between credit purchase and average trade payable during the year. This
ratio indicate the speed with which amount is being paid to trade payables.

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 8. Working Capital Turnover Ratio =

It reveals how efficiently working capital has been utilised in making sales.

9. It indicates the profit earning capacity of the organisation with reference to its sales.

10. Ratio Analysis is a financial statement analysis tool that is used to measure the
financial status (financial strengths and weaknesses) of a business firm in several key
areas.

11. (i) Debt-Equity Ratio

= = = 1.78 : 1
Working Note :
Long-Term Debts = 10% Debentures + Loan from IDBI
= Rs. 10,00,000 + 6,00,000 = Rs. 16,00,000
Shareholders’ Fund = Equity Share Capital + 12 % Preference Share Capital + Reserves
and Surplus
= 2,00,000 + 3,00,000 + 2,50,000 + 1,50,000 = Rs. 9,00,000
(ii) Proprietary Ratio

= = = 0.28 : 1
Working Note :
Total Assets = Investment + Current Assets + Fixed Assets
= 2,00,000 + 8,80,000 + 21,00,000 = Rs. 31,80,000
(iii) Total Assets to Debt Ratio

= = = 1.99: 1

12. 1. Calculation of Working Capital Turnover Ratio =

Revenue from operations / Working Capital

= (500000 / 125000) = 4 times

Working notes:

Revenue from Operations = Cash Revenue from Operations + Credit Revenue from

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 Operations - Returns from Revenue from Operations
= 1,30,000 + 3,80,000 - 10,000
= Rs. 5,00,000
Current Assets = Liquid Assets + Inventory = 1,40,000 + 90,000 = Rs. 2,30,000
Working Capital = Current Assets - Current Liabilities = 2,30,000 - 1,05,000 =
Rs.1,25,000

2. Calculation of Debt Equity Ratio = (long-term debt/equity or shareholders fund) =

(170000/100000) =1.7 :1

Working notes:
Long-term Debt = Total Debts - Current Liabilities
= 2,50,000 - 80,000
= Rs. 1,70,000
Equity or Shareholders' Funds = Total Assets - Total Debt
= 3,50,000 - 2,50,000
= Rs.1,00,000

13. (i) Gross Profit Ratio

= 25%
Working Note:-

Gross Profit = Revenue from Operations - Cost of Revenue from Operations

Here, Revenue from Operations = 24,00,000

And Cost of Revenue from Operations = Opening Inventory + Purchases + Wages +

Carriage Inwards - Closing Inventory
= 3,00,000 + 14,00,000 + 3,70,000 + 1,50,000 - 4,20,000
= 18,00,000
(ii) Operating Ratio

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 =

= 80%

Working Note:-

Operating Expenses = Administrative Expenses + Selling Expenses

= 84,000 + 36,000 = Rs. 1,20,000

(iii) Inventory Turnover Ratio

= 5 times

Working Note:-

Average Inventory = = Rs. 3,60,000

14. Current Ratio = 2 : 1

Let Current Assets = Rs. 2,00,000

So, Current Liabilities = Rs. 1,00,000

a. Repayment of a Current Liability : Suppose, a current liability amounting to Rs

50,000 is repaid:

= 3: 1

Current ratio is improved.

b. Purchasing Goods on Credit: Suppose, goods for Rs 25,000 is purchased on credit:

= 1.8: 1

Current ratio is reduced

c. Sale of an Office Equipment for Rs 4,000 (Book Value Rs. 5,000): Sale of Office
Equipment results in an increase in Cash Balance by Rs 4,000:

= 2.04: 1
Current Ratio is improved.

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d. Sale of Goods for Rs 11,000 (cost Rs 10,000):

= 2.01: 1
Current Ratio is improved.
e. Payment of Dividend Already Declared: Suppose, proposed dividend amounting to
Rs 10,000 is included in current liabilities. It is now paid off. It will reduce the
amount of current liabilities on the one hand and on the other hand, it will also
reduce the current assets :

= 2.11: 1

Current Ratio is improved.

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