Multiple Choice Questions

Select the best alternate and check your answer with the answers given at
the end of the book.
(A) Liquidity Ratios
1. 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
Answer
Answer: B

2. Current Ratio is :
(A) Solvency Ratio
(B) Liquidity Ratio
(C) Activity Ratio
(D) Profitability Ratio

Answer
Answer: B

3. Current Ratio is :
(A) Liquid Assets/Current Assets
(B) Fixed Assets/Current Assets
(C) Current Assets/Current Liabilities
(D) Liquid Assets/Current Liabilities

Answer
Answer: C
4. Liquid Assets do not include :
(A) Bills Receivable
(B) Debtors
(C) Inventory
(D) Bank Balance

Answer
Answer: C

5. Ideal Current Ratio is :

(A) 1 : 1
(B) 1 : 2
(C) 1 : 3
(D) 2 : 1

Answer
Answer: D

6. Working Capital is the :

(A) Cash and Bank Balance
(B) Capital borrowed from the Banks
(C) Difference between Current Assets and Current Liabilities
(D) Difference between Current Assets and Fixed Assets

Answer
Answer: C

7. Current assets include only those assets which are expected to be

realised within ……………………..
(A) 3 months
(B) 6 months
(C) 1 year
(D) 2 years

Answer
Answer: C

8. The ………………… of a 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

Answer
Answer: B

9. Ideal Quick Ratio is :

(A) 1 : 1
(B) 1 : 2
(C) 1 : 3
(D) 2 : 1

Answer
Answer: A

10. Quick Assets do not include

(A) Cash in hand
(B) Prepaid Expenses
(C) Marketable Securities
(D) Trade Receivables

Answer
Answer: B

11. Current Assets do not include :

(A) Prepaid Expenses
(B) Inventory
(C) Goodwill
(D) Bills Receivable

Answer
Answer: C

12. Quick Ratio is also known as :

(A) Liquid Ratio
(B) Current Ratio
(C) Working Capital Ratio
(D) None of the Above

Answer

13. Liquid Assets include :

(A) Debtors
(B) Bills Receivable
(C) Bank Balance
(D) All of the Above
Answer
Answer: D

14. Liquid Ratio is equal to liquid assets divided by :

(A) Non-Current Liabilities
(B) Current Liabilities
(C) Total Liabilities
(D) Contingent Liabilities

Answer
Answer: B

15. Patents and Copyrights fall under the category of:

(A) Current Assets
(B) Liquid Assets
(C) Intangible Assets
(D) None of Above

Answer
Answer: C

16. Cash Balance ₹15,000; Trade Receivables ₹35,000; Inventory

₹40,000; Trade Payables ₹24,000 and Bank Overdraft is ₹6,000. Current
Ratio will
be :
(A) 3.75 : 1
(B) 3 : 1
(C) 1 : 3
(D) 1 : 3.75
Answer
Answer: B

17. Trade Receivables ?40,000; Trade Payables ₹60,000; Prepaid

Expenses ₹10,000; Inventory ₹1,00,000 and Goodwill is ₹15,000. Current
Ratio will be :
(A) 1 : 2
(B) 2 : 1
(C) 2.33 : 1
(D) 2.5 : 1

Answer
Answer: D

18. Cash Balance ₹5,000; Trade Payables ₹40,000; Inventory ₹50,000;

Trade Receivables ₹65,000 and Prepaid Expenses are ₹10,000. Liquid
Ratio will be
(A) 1.75 : 1
(B) 2 : 1
(C) 3.25 : 1
(D) 3 : 1

Answer
Answer: A

19. Current Assets ₹4,00,000; Current Liabilities ₹2,00,000 and Inventory

is ₹50,000. Liquid Ratio will be :
(A) 2 : 1
(B) 2.25 : 1
(C) 4 : 7
(D) 1.75 : 1

Answer
Answer: D

20. 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

Answer
Answer: C

21. Which of the following transactions will improve the quick ratio?
(A) Sale of goods for cash
(B) Sale of goods on credit
(C) Issue of new shares for cash
(D) All of the Above

Answer
Answer: D

22. A company’s Current Ratio is 2 : 1. After cash payment to some of its

creditors, Current Ratio will:
(A) Decrease
(B) Increase
(C) As before
(D) None of these

Answer
Answer: B

23. A Company’s Current Assets are ₹8,00,000 and its current liabilities are
₹4,00,000. Subsequently, it purchased goods for ₹1,00,000 on credit.
Current ratio will be
(A) 2 : 1
(B) 2.25 : 1
(C) 1.8 : 1
(D) 1.6 : 1

Answer
Answer: C

24, A company’s Current assets are ₹3,00,000 and its current liabilities are
₹2,00,000. Subsequently, it paid ₹50,000 to its trade payables. Current
ratio will be
(A) 2 : 1
(B) 1.67 : 1
(C) 1.25 : 1
(D) 1.5 : 1

Answer
Answer: B
25. Current Assets of a Company were ? 1,00,000 and its current ratio was
2 : 1. After this the company paid ?25,000 to a Trade Payable. The Current
Ratio after the payment will be :
(A) 5 : 1
(B) 2 : 1
(C) 3 : 1
(D) 4 : 1

Answer
Answer: C

26. Current liabilities of a company were ₹2,00,000 and its current ratio
was 2.5 : 1. After this the company paid ₹1,00,000 to a trade payable. The
current ratio after the payment will be :
(A) 2 : 1
(B) 4 : 1
(C) 5 : 1
(D) None of the above

Answer
Answer: B

27. A Company’s liquid assets are ₹10,00,000 and its current liabilities are
₹8,00,000. Subsequently, it purchased goods for ₹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

Answer
Answer: A
28. A Company’s liquid assets are ₹5,00,000 and its current liabilities are
₹3,00,000. Thereafter, it paid 1,00,000 to its trade payables. Quick ratio will
be:
(A) 1.33 : 1
(B) 2.5 : 1
(C) 1.67 : 1
(D) 2 : 1

Answer
Answer: D

29. The is a measure of liquidity which excludes generally the least liquid
asset.
(A) Current ratio, Accounts receivable
(B) Liquid ratio, Accounts receivable
(C) Current ratio, inventory
(D) Liquid ratio, inventory

Answer
Answer: D

30. Assuming that the current ratio is 2 : 1, purchase of goods on credit

would:
(A) Increase Current ratio
(B) Decrease Current ratio
(C) have no effect on Current ratio
(D) decrease gross profit ratio

Answer
Answer: B
31. Assuming that the current ratio is 2 : 1, Cash paid against Bills Payable
would:
(A) increase current ratio
(B) Decrease Current ratio
(C) have no effect on Current ratio
(D) decrease gross profit ratio

Answer
Answer: A

32. 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

Answer
Answer: C

33. Liquid Assets :

(A) Current Assets – Prepaid Lxp.
(B) Current Assets – Inventory + Prepaid Exp.
(C) Current Assets – Inventory – Prepaid Exp.
(D) Current Assets + Inventory – Prepaid Exp.

Answer
Answer: C
34. Current Assets ₹85,000; Inventory ₹22,000; Prepaid Expenses ₹3,000.
Then liquid assets will be :
(A) ₹63,000
(B) ₹60,000
(C) ₹82,000
(D) ₹1,10,000

Answer
Answer: B

35. A Company’s Quick Ratio is 1.5 : 1; Current Liabilities are ₹2,00,000

and Inventory is ₹1,80,000. Current Ratio will be :
(A) 0.9 : 1
(B) 1.9 : 1
(C) 1.4 : 1
(D) 2.4 : 1

Answer
Answer: D

36. A Company’s Quick Ratio is 1.8 : 1; Liquid Assets are ₹5,40,000 and
Inventory is ₹1,50,000. Its Current Ratio will be :
(A) 2 : 1
(B) 2.3 : 1
(C) 1.8 : 1
(D) 1.3 : 1

Answer
Answer: B
37. A Company’s Current Ratio is 2.8 : 1; Current Liabilities are ₹2,00,000;
Inventory is ₹1,50,000 and Prepaid Expenses are ₹10,000. Its Liquid Ratio
will be :
(A) 3.6 : 1
(B) 2.1 : 1
(C) 2 : 1
(D) 2.05 : 1

Answer
Answer: C

38. A Company’s Current Ratio is 3 : 1; Current Liabilities are ₹2,50,000;

Inventory is ₹60,000 and Prepaid Expenses are ₹5,000. Its Liquid Assets
will be :
(A) ₹6,90,000
(B) ₹6,95,000
(C) ₹6,85,000
(D) ₹8,15,000

Answer
Answer: C

39. On the basis of following data, the liquid ratio of a company will be :
Current Ratio 5 : 3; Current Liabilities ₹75,000 and Inventory ₹25,000
(A) 1 : 1
(B) 2:1.8
(C) 3 : 2
(D) 4 : 3

Answer
Answer: D

40. Current ratio of a firm is 9 : 4. Its current liabilities are ₹1,20,000.

Inventory is ₹30,000. Its liquid ratio will be :
(A) 1 : 1
(B) 1.5 : 1
(C) 2 : 1
(D) 1.6 : 1

Answer
Answer: C

41. A firm’s current ratio is 3.5 : 2. Its current liabilities are ?80,000. Its
working capital will be :
(A) ₹1,20,000
(B) ₹1,60,000
(C) ₹60,000
(D) ₹2,80,000

Answer
Answer: C

42. A Company’s Current Ratio is 3 : 1 and Liquid Ratio is 1.2 : 1. If its

Current Liabilities are ₹2,00,000, what will be the value of Inventory?
(A) ₹2,40,000
(B) ₹3,60,000
(C) ₹4,00,000
(D) ₹40,000
Answer
Answer: B

43. A Company ’ s Current Ratio is 2.5 : 1 and Liquid Ratio is 1.6 : 1. If its
Current Assets are ₹7,50,000, what will be the value of Inventory?
(A) ₹4,50,000
(B) ₹4,80,000
(C) ₹2,70,000
(D) ₹1,80,000

Answer
Answer: C

44. Current Ratio of a Company is 2.5 : 1. If its working capital is ₹60,000,

its current liabilities will be :
(A) ₹40,000
(B) ₹60,000
(C) ₹1,00,000
(D) ₹24,000

Answer
Answer: A

45. A Company’s Current Assets are ₹6,00,000 and working capital is

₹2,00,000. Its Current Ratio will be :
(A) 3 : 1
(B) 1.5 : 1
(C) 2 : 1
(D) 4 : 1
Answer
Answer: B

46. A Company’s Current Ratio is 2.4 : 1 and Working Capital is ₹5,60,000.

If its Liquid Ratio is 1.5, what will be the value of Inventory?
(A) ₹6,00,000
(B) ₹2,00,000
(C) ₹3,60,000
(D) ₹6,40,000

Answer
Answer: C

47. A Company’s Current Ratio is 2.5 : 1 and its Working Capital is

₹60,000. If its Inventory is ₹52,000, what will be the liquid Ratio?
(A) 2.3 : 1
(B) 2.8 : 1
(C) 1.3 : 1
(D) 1.2 : 1

Answer
Answer: D

48. If a Company’s Current Liabilities are ₹80,000; Working Capital is

₹2,40,000 and Inventory is ₹40,000, its quick ratio will be:
(A) 3.5 : 1
(B) 4 : 1
(C) 4.5 : 1
(D) 3 : 1
Answer
Answer: A

49. A Company’s Liquid Assets are ₹2,00,000, Inventory is ₹1,00,000,

Prepaid Expenses are ₹20,000 and Working Capital is ₹2,40,000. Its
Current Ratio will be:
(A) 1.33 : 1
(B) 4 : 1
(C) 2.5 : 1
(D) 3 : 1

Answer
Answer: B

(B) Solvency Ratios

50. Long term solvency is indicated by :
(A) Current Ratio
(B) Quick Ratio
(C) Net Profit Ratio
(D) Debt/Equity Ratio
Answer

51. Debt Equity Ratio is :

(A) Liquidity Ratio
(B) Solvency Ratios
(C) Activity Ratio
(D) Operating Ratio

Answer
52. Debt Equity Ratio is :
(A) Long Term Debts/Shareholder’s Funds
(B) Short Term Debts/Equity Capital
(C) Total Assets/Long term Debts
(D) Shareholder’s Funds/Total Assets

Answer

53. Proprietary Ratio is :

(A) Long term Debts/Shareholder’s Funds
(B) Total Assets/Shareholder’s Funds
(C) Shareholder’s Funds/Total Assets
(D) Shareholder’s Funds/Fixed Assets

Answer

54. Fixed Assets ₹5,00,000; Current Assets ₹3,00,000; Equity Share

Capital ₹4,00,000; Reserve ₹2,00,000; Long-term Debts ₹40,000.
Proprietary Ratio will be :
(A) 75%
(B) 80%
(C) 125%
(D) 133%

Answer
55. The ………….. ratios provide the information critical to the long run
operation of the firm.
(A) Liquidity
(B) Activity
(C) Solvency
(D) Profitability

Answer

56. If Debt equity ratio exceeds , it indicates risky financial position.

(A) 1 : 1
(B) 2 : 1
(C) 1 : 2
(D) 3 : 1

Answer

57. In debt equity ratio, debt refers to :

(A) Short Term Debts
(B) Long Term Debts
(C) Total Debts
(D) Debentures and Current Liabilities

Answer

58. Proprietary Ratio indicates the relationship between Proprietor’s Funds

and
(A) Long-Term Debts
(B) Short Term & Long Term Debts
(C) Total Assets
(D) Debentures

Answer

59. The formula for calculating the Debt Equity Ratio is :

Answer

60. Equity Share Capital ₹20,00,000; Reserve 5,00,000; Debentures

₹10,00,000; Current Liabilities ₹8,00,000. Debt-equity ratio will be :
(A) .4 ; 1
(B) .32 : 1
(C) .72 : 1
(D) .5 : 1

Answer

61. Debt equity ratio of a company is 1 : 2. Which of the following

transactions will increase it:
(A) Issue of new shares for cash
(B) Redemption of Debentures
(C) Issue of Debentures for cash
(D) Goods purchased on credit
Answer

62. Satisfactory ratio between Long-term Debts and Shareholder’s Funds is

:
(A) 1 : 1
(B) 3 : 1
(C) 1 : 2
(D) 2 : 1

Answer

63. On the basis of following data, the Debt-Equity Ratio of a Company will
be:
Equity Share Capital ₹5,00,000; General Reserve ₹3,20,000; Preliminary
Expenses ₹20,000; Debentures ₹3,20,000; Current Liabilities ₹80,000.
(A) 1 : 2
(B) 52 : 1
(C) 4 : 1
(D) 37 : 1

Answer

64. On the basis of following information received from a firm, its Debt-
Equity Ratio will be :
Equity Share Capital ₹5,80,000; Reserve Fund ₹4,30,000; Preliminary
Expenses ₹40,000; Long term Debts ₹1,28,900; Debentures ₹2,30,000.
(A) 42 : 1
(B) 53 : 1
(C) 63 : 1
(D) 37 : 1
Answer

65. On the basis of following data, the proprietary ratio of a Company will
be :
Equity Share Capital ₹6,00,000; Debentures ₹2,40,000; Statement of Profit
& Loss Debit Balance ₹40,000.
(A) 74%
(B) 65%
(C) 82%
(D) 70%

Answer

66. On the basis of following information received from a firm, its

Proprietary Ratio will be :
Fixed Assets ?3,30,000; Current Assets ₹1,90,000; Preliminary Expenses
₹30,000; Equity Share Capital ₹2,44,000; Preference Share Capital
₹1,70,000; Reserve Fund ₹58,000.
(A) 70%
(B) 80%
(C) 85%
(D) 90%

Answer

67. On the basis of following data, a Company’s Total Assets-Debt Ratio

will be: Working Capital ₹2,70,000; Current Liabilities ₹30,000; Fixed
Assets ₹4,00,000; Debentures ₹2,00,000; Long Term Bank Loan ₹80,000.
(A) 37%
(B) 40%
(C) 45%
(D) 70%
Hint: Working Capital + Current Liabilities = Current Assets

Answer

68. On the basis of following information received from a firm, its Total
Assets-Debt Ratio will be :
Working Capital ₹3,20,000; Current Liabilities ₹1,40,000; Fixed Assets
₹2,60,000; Debentures ₹2,10,000; Long Term Bank Debt ₹78,000.
(A) 40%
(B) 60%
(C) 30%
(D) 70%

Answer

(C) Activity Ratios

69. Inventory Turnover Ratio is:
(A) Average Inventory/Revenue from Operations
(B) Average Inventory/Cost of Revenue from Operations
(C) Cost of Revenue from Operations/Average Inventory
(D) G.P./Average Inventory
Answer

70. Opening Inventory ₹1,00,000; Closing Inventory ₹1,50,000; Purchases

₹6,00,000; Carriage ₹25,000; Wages ₹2,00,000. Inventory Turnover Ratio
will be :
(A) 6.6 Times
(B) 7.4 Times
(C) 7 Times
(D) 6.2 Times

Answer

71. Revenue from Operations ₹8,00,000; Gross Profit Ratio 25%; Opening
Inventory ₹1,00,000; Closing Inventory ₹60,000. Inventory Turnover Ratio
will be :
(A) 10 Times
(B) 7.5 Times
(C) 8 Times
(D) 12.5 Times

Answer

72. On the basis of following data, the cost of revenue from operations by a
company will be :
Opening Inventory ₹70,000; Closing Inventory ?₹80,000; Inventory
Turnover Ratio 6 Times.
(A) ₹1,50,000
(B) ₹90,000
(C) ₹4,50,000
(D) ₹4,80,000

Answer

73. Opening Inventory of a firm is ₹80,000. Cost of revenue from

operations is ?6,00,000. Inventory Turnover Ratio is 5 times. Its closing
Inventory will be:
(A) ₹1,60,000
(B) ₹1,20,000
(C) ₹80,000
(D) ₹2,00,000

Answer

74. Cost of revenue from operations ₹6,00,000; Inventory Turnover Ratio

5; Find out the value of opening inventory, if opening inventory is ₹8,000
less than ” the closing inventory.
(A) ₹1,12,000
(B) ₹1,16,000
(C) ₹1,28,000
(D) ₹1,24,000

Answer

75. Revenue from Operations ₹2,00,000; Inventory Turnover Ratio 5;

Gross Profit 25%. Find out the value of Closing In ventory, if Closing
Inventory is ₹8,000 more than the Opening Inventoiy.
(A) ₹38,000
(B) ₹22,000
(C) ₹34,000
(D) ₹26,000

Answer

76. If the inventory turnover ratio is divided into 365, it becomes a measure
of
(A) Sales efficiency
(B) Average Age of Inventory
(C) Sales Turnover
(D) Average Collection Period

Answer

77. If average inventory is ₹50,000 and closing inventory is ₹2,000 less

than the opening inventory, opening and closing inventory will be :
(A) ₹52,000 and ₹50,000
(B) ₹50,000 and ₹48,000
(C) ₹48,000 and ₹46,000
(D) ₹51,000 and ₹49,000

Answer

78. Opening Inventory ₹50,000; Closing Inventory ₹40,000 and cost of

revenue from operations ₹7,20,000. What will be Inventory Turnover Ratio?
(A) 18 Times
(B) 16 Times
(C) 14.4 Times
(D) 8 Times

Answer

79. Average Inventory ₹60,000; Inventory Turnover Ratio 8; Gross Profit

20% on revenue from operations; what will be Gross Profit?
(A) ₹1,20,000
(B) ₹96,000
(C) ₹80,000
(D) ₹15,000

Answer

80. Opening Inventory ₹75,000; Closing Inventory ₹1,05,000; Inventory

Turnover Ratio 6; Gross Profit 20% on cost; what will be Gross Profit?
(A) ₹1,35,000
(B) ₹1,08,000
(C) ₹90,000
(D) ₹18,000

Answer

81. Opening Inventory ₹40,000; Purchase ₹4,00,000; Purchase Return

₹12,000, what will be Inventory turnover ratio if Closing Inventory is less
than Opening Inventory by ₹8,000?
(A) 9 Times
(B) 10.78 Times
(C) 11 Times
(D) 8.82 Times

Answer
82. The formula for calculating the Trade Receivables Turnover Ratio is :

Answer

83. Total revenue from operations ₹9,00,000; Cash revenue from

operations ₹3,00,000; Debtors ₹1,00,000; B/R ₹20,000. T rade
Receivables Turnover Ratio will be :
(A) 5 Times
(B) 6 Times
(C) 7.5 Times
(D) 9 Times

Answer

84. Total revenue from operations ₹27,00,000; Credit revenue from

operations ₹18,00,000; Opening Debtors ₹3,20,000; Closing Debtors
₹4,00,000; Provision for Doubtful Debts ₹60,000. Trade Receivables
Turnover Ratio will be :
(A) 7.5 times
(B) 9 times
(C) 6 times
(D) 5 times

Answer
85. Credit revenue from operations ₹24,00,000; Trade Receivables
Turnover Ratio 6 times; Opening Debtors ₹3,20,000. Closing Debtors will
be :
(A) ₹4,00,000
(B) ₹4,80,000
(C) ₹80,000
(D) ₹7,20,000

Answer

86. A firm makes credit revenue from operations of ₹2,40,000 during the
year. If the trade receivables turnover ratio is 8 times, calculate closing
debtors, if the closing debtors are more by ₹6,000 than the opening
debtors :
(A) ₹33,000
(B) ₹36,000
(C) ₹24,000
(D) ₹27,000

Answer

87. Credit revenue from operations ₹3,00,000. Trade Receivables

Turnover Ratio 5; Calculate Closing Debtors, if closing debtors are two
times in comparison to Opening Debtors.
(A) ₹40,000
(B) ₹60,000
(C) ₹ 80,000
(D) ₹1,20,000

Answer
88. Credit revenue from operations ₹5,60,000; Debtors ₹70,000; B/R
₹10,000. Average Collection Period will be :
(A) 52 Days
(B) 53 Days
(C) 45 Days
(D) 46 Days

Answer

89. Credit revenue from operations ₹6,00,000; Cash revenue from

operations ? 1,50,000; Debtors ₹1,00,000; B/R ₹50,000. Average
Collection Period will be :
(A) 2 Months
(B) 2.4 Months
(C) 3 Months
(D) 1.6 Months

Answer

90. On the basis of following data, a Company’s closing debtors will be:
Credit revenue from operations ₹9,00,000; Average Collection period 2
months; Opening debtors are ₹15,000 less as compared to closing
debtors.
(A) ₹1,42,500
(B) ₹1,57,500
(C) ₹1,80,000
(D) ₹75,000

Answer
91. Total credit revenue from operations of a firm is ₹5,40,000. Average
collection period is 3 months. Opening debtors are ₹1,10,000. Its closing
debtors will be :
(A) ₹1,35,000
(B) ₹1,60,000
(C) ₹2,20,000
(D) ₹1,80,000

Answer

92. The formula for calculating Trade Payables Turnover Ratio is :

Answer

93. Credit Purchases ₹12,00,000; Opening Creditors ₹2,00,000; Closing

Creditors ₹1,00,000. Trade Payables Turnover Ratio will be :
(A) 6 times
(B) 4 times
(C) 8 times
(D) 12 times

Answer
94. Total Purchases ₹4,50,000; Cash Purchases ₹1,50,000; Creditors
₹50,000; Bills Payable ₹10,000. Trade Payables Turnover Ratio will be :
(A) 7.5 times
(B) 6 times
(C) 9 times
(D) 5 times

Answer

95. Credit Purchases ₹6,00,000; Trade Payables Turnover Ratio 5;

Calculate closing creditors, if closing creditors are ? 10,000 less than
opening creditors.
(A) ₹1,15,000
(B) ₹1,25,000
(C) ₹1,30,000
(D) ₹1,10,000

Answer

96. Credit Purchases ₹9,60,000; Cash Purchases ₹6,40,000; Creditors

₹2,40,000; Bills Payable ₹80,000. Average Payment Period will be :
(A) 3 months
(B) 4 months
(C) 2.4 months
(D) 6 months

Answer
97. Current Assets ₹5,00,000; Current Liabilities ₹1,00,000; Revenue from
Operations ₹28,00,000. Working Capital turnover Ratio will be:
(A) 7 times
(B) 5.6 times
(C) 8 times
(D) 10 times

Answer

98. On the basis of following data, the Waiting Capital Turnover Ratio of a
company will be :
Liquid Assets ₹3,70,000; Inventory ₹80,000; Current Liabilities ₹1,50,000;
Cost of levcnue from operations ₹7,50,000.
(A) 2.5 Times
(B) 3 Trimes
(C) 5 Times
(D) 3.8 Times

Answer

99. A firm’s cwTent assets are ₹3,60,000; Cur from operations is

₹12,00,000. Its worki
(A) 3 Times
(B) 5 Trimes
(C) 8 Times
(D) 4 Times

Answer
(D) Profitability Ratios
100. Opening Inventory ₹1,00,000; Closing Inventory ₹1,20,000;
Purchases ₹20,00,000; Wages ₹2,40,000; Carriage Inwards ₹1,50,000;
Selling Exp. ₹60,000; Revenue from Operations ₹30,00,000. Gross Profit
ratio will be :
(A) 29%
(B) 26%
(C) 19%
(D) 21%
Answer

101. Cash Revenue from Operations ₹4,00,000 Credit Revenue, from

Operations ₹21,00,000; Revenue from Operations Return ₹1,00,000; Cost
of revenue from operations ₹19,20,000. G.P. ratio will be
(A) 4%
(B) 23.2%
(C) 80%
(D) 20%

Answer

102. A film’s credit revenue from operations is ₹3,60,000, cash revenue

from operations is ₹70,000, Cost of reverse from operations is ₹3,61,200,
Its gross profit ratio will be :
(A) 11%.
(B) 23.2%
(C) 18%
(D) 20%

Answer
103. On the basis of following data, a Company’s Gross Profit Ratio will
be :
Net Profit ₹40,000; Office Expenses ₹20,000; Selling Expenses ₹36,000;
Total revenue from operations ₹6,00,000.
(A) 16%
(B) 20%
(C) 6.67%
(D) 12.5%

Answer

104. What will be the amount of Gross Profit. if revenue from operations
are ₹6,00,000 and Gross . Profit Ratio is 20% of cost?
(A) ₹1,50,000
(B) ₹1,00,000
(C) ₹1,20,000
(D) ₹5,00,000

Answer

105. What will be the amount of Gross Profit, if revenue from operations
are ₹6,00,000 and Gross Profit Ratio 20% of revenue from operations?
(A) ₹1,50,000
(B) ₹1,00,000
(C) ₹1,20,000
(D) ₹5,00,000

Answer
Answer: C
106. Revenue from operations is ₹1,80,000; Rate of Gross Profit is 25% on
cost. What will be the Gross Profit?
(A) ₹45,000
(B) ₹36,000
(C) ₹40,000
(D) ₹60,000

Answer

107. Operating ratio is :

(A) Cost of revenue from operations + Selling Expenses/Net revenue from
operations
(B) Cost of production + Operating Expenses/Net revenue from operations
(C) Cost of revenue from operations + Operating Expenses/Net Revenue
from Operations
(D) Cost of Production/Net revenue from operations.

Answer
Answer: C

108. Cost of Revenue from Operations =

(A) Revenue from Operations – Net Profit
(B) Revenue from Operations – Gross Profit
(C) Revenue from Operations – Closing Inventory
(D) Purchases – Closing Inventory

Answer
Answer: B
109. Total Revenue from Operations ₹15,00,000; Cost of Revenue from
Operations ₹9,00,000 and Operating Expenses ₹2,25,000. Calculate
operating ratio :
(A) 75%
(B) 25%
(C) 60%
(D) 15%

Answer
Answer: A

110. Purchases ₹7,20,000; Office Expenses ₹30,000; Selling Expenses

₹90,000; Opening Inventory ₹1,40,000; Closing Inventory ₹80,000;
Revenue from Operations ₹12,00,000. Calculate operating ratio
(A) 60%
(B) 75%
(C) 70%
(D) 65%

Answer
Answer: B

111. Revenue from Operations ₹6,00,000; Gross Profit 20%; Office

Expenses ₹30,000; Selling Expenses ?₹48,000. Calculate operating ratio
(A) 80%
(B) 85%
(C) 96.33%
(D) 93%

Answer
Answer: D

112. Which of the following is not operating expenses?

(A) Office Expenses
(B) Selling Expenses
(C) Bad Debts
(D) Loss by Fire

Answer
Answer: D

Below is a list of multiple-choice questions and answers on

Accounting Ratios to help students understand the topic better.
1. Working Capital is the ______.
A) Capital borrowed from the Banks.
B) Difference between Current Assets and Current Liabilities.
C) Difference between Current Assets and Fixed Assets.
D) Cash and Bank Balance.
Answer B) Difference between Current Assets and Current
Liabilities.
2. Liquid Ratio is equal to liquid assets divided by ______.
A) Current Liabilities.
B) Total Liabilities.
C) Contingent Liabilities.
D) Non-Current Liabilities.
Answer A) Current Liabilities.
3. Which of the following transactions will improve the
Current Ratio?
A) Purchase of Goods for Cash.
B) Payment to Trade Payables.
C) Credit purchase of Goods.
D) Cash collected from Trade Receivables.
Answer B) Payment to Trade Payables.
4. The ______ is a measure of liquidity that excludes
generally the least liquid asset.
A) Liquid ratio, Accounts receivable.
B) Current ratio, inventory.
C) Liquid ratio, inventory.
D) Current ratio, Accounts receivable.
Answer C) Liquid ratio, inventory.
5. Two basic measures of liquidity are _____.
A) Current ratio and Quick ratio.
B) Gross Profit ratio and Operating ratio.
C) Current ratio and Average collection period.
D) Inventory turnover and Current ratio.
Answer A) Current ratio and Quick ratio.
6. The ________ of a business firm is measured by its
ability to satisfy its short-term obligations as they become
due.
A) Liquidity
B) Debt
C) Profitability
D) Activity
Answer A) Liquidity
7. Inventory ratio is a relationship between ______.
A) Cost of goods purchased and cost of average inventory.
B) Cost of goods sold and cost of average inventory, and cost
of goods purchased and cost of average inventory.
C) Cost of goods sold and cost of average inventory.
D) None of the options is correct.
Answer C) Cost of goods sold and cost of average
inventory.
8. Debt to equity ratio establishes the relationship between
______.
A) Long-term debt (external equities) and current assets
(internal equities).
B) Long-term debt (external equities) and equity (internal
equities), and long-term debt (external equities) and current
assets (internal equities).
c) Long-term debt (external equities) and equity (internal
equities).
D) None of the options are correct.
Answer C) Long-term debt (external equities) and equity
(internal equities).
9. Operating ratio is ______.
A) Cost of the production + Operating expenses / Net revenue
from operations.
B) Cost of revenue from operation + Operating expenses / Net
revenue from operations.
C) Cost of production / Net revenue from operations.
D) Cost of revenue from operations + Selling expenses / Net
revenue from operations.
Answer B) Cost of revenue from operation + Operating
expenses / Net revenue from operations.
10. Equity or Shareholders fund is equal to _____.
A) Equity share capital + Preference share capital.
B) Equity share capital + Revenues and Surplus.
C) Equity share capital + Preference share capital + Revenues
and Surplus.
D) None of the options are correct.
Answer C) Equity share capital + Preference share capital
+ Revenues and Surplus

practical Multiple Choice Questions of Accounting Ratios

with answers of Accountancy class 12
Let’s Practice

The current Ratio is 2 : 1. On the sale of a fixed asset (Book

value ₹ 40,000) for ₹36,000 on credit, state whether the current
Ratio will

a) improve
b) Decline
c) Not change
d) Can’t say

Show Answer
If opening inventory is ₹ 1,20,000, Cost of Revenue from
Operations is ₹ 10,00,000 and Inventory Turnover Ratio is 5
Times. then Closing Inventory will be

a) ₹ 3,20,000
b) ₹ 2,80,000
c) ₹ 1,60,000
d) ₹ 4,00,000

Show Answer
If current Ratio of a firm is 2.5:1 and its current liabilities are ₹
4,00,000. Its working capital will be
a) ₹ 6,00,000
b) ₹ 7,50,000
c) ₹ 8,00,000
d) ₹ 14,00,000

Show Answer
Non-current assets of a firm are ₹ 26,00,000, Current Assets are
₹ 9,00,000 and Shareholder’s Funds are ₹ 21,50,000. Total
debts of the firm will be.

a) ₹ 43,50,000
b) ₹ 13,50,000
c) ₹ 21,50,000
d) ₹ 38,50,000

Show Answer
Working Capital is ₹ 7,20,000; Trade Payables ₹ 40,000; Other
current Liabilities ₹ 2,00,000; Calculate Current Ratio.

a) 2 : 1
b) 4 : 1
c) 5 : 1
d) 7 : 1

Show Answer
Current Assets are ₹ 10,00,000; Inventories ₹ 5,00,000; Working
Capital ₹ 6,00,000. Calculate Current Ratio.

a) 2.5 : 1
b) 1 : 1
c) 2 : 1
d) 1 : 2

Show Answer
If Total Assets are ₹ 1,25,000, Total Debts, i.e., external debts are ₹
1,00,000 and current liabilities are ₹ 50,000. Debt
Equity Ratio will be
a) 1 : 1
b) 1 : 2
c) 2 : 1
d) None of these

Ans – c)

If Credit Revenue from Operations is ₹ 7,00,000, Cash Revenue from

Operations is ₹ 1,00,000. Cost of Revenue from Operations
is ₹ 6,40,000, then Gross Profit Ratio will be

a) 15%
b) 18%
c) 25%
d) 20%

Ans – d)

If Revenue from Operations is ₹ 1,60,000 and Gross Profit is ₹

40,000, Gross Profit Ratio will be

a) 30%
b) 25%
c) 40%
d) 50%

Ans – b)

Revenue from Operations ₹ 9,00,000, Gross Profit 25% on Cost,

Operating Expenses ₹ 90,000, Operating Ratio will be

a) 100%
b) 50%
c) 90%
d) 10%

Ans – c)
From the following information, calculate Proprietary Ratio: Share
Capital ₹ 5,00,000, Non-Current Assets ₹ 22,00,000,
Reserves and Surplus ₹ 3,00,000, Current Assets ₹ 10,00,000.

a) 100%
b) 70%
c) 40%
d) 25%

Ans – d)

Given that:

Opening Inventory – ₹ 1,20,000

Purchases – ₹ 9,00,000
Return Outward – ₹ 40,000

and the closing inventory is ₹ 20,000 less than opening inventory,

then, Inventory Turnover Ratio is:

a) 5 Times
b) 7 Times
c) 8 Times
d) 10 Times

Ans – c)

If LR Ltd has Total Debts of ₹ 3,70,000, Long Term Debts of ₹

2,00,000 and working capital of ₹ 1,80,000 then its current Ratio
will be _ .

a) 2.6 : 1
b) 3.2 : 1
c) 2.06 : 1
d) 1.03 : 1

Ans – c)
A firm’s current ratio is 1.75 : 1. If current liabilities are ₹ 80,000,
then its working capital will be:

a) ₹ 1,20,000
b) ₹ 1,60,000
c) ₹ 60,000
d) ₹ 2,80,000

Ans – c)

A firm’s working capital is ₹ 90,000. Its current ratio is 3.5 : 2. Its

current assets will be:

a) ₹ 1,35,000
b) ₹ 3,15,000
c) ₹ 2,10,000
d) ₹ 1,80,000

Ans – c)

A firm’s current assets are ₹ 3,60,000, current ratio is 3 : 1. Cost of

revenue from operations is ₹ 12,00,000. Its working
capital turnover ratio will be:

a) 3 times
b) 5 times
c) 8 times
d) 4 times

Ans – b)

Given that:

Current Ratio 2.5

Quick Ratio 1.5
Working Capital ₹60,000

The value of current liabilities will be:

a) ₹ 15,000
b) ₹ 40,000
c) ₹ 60,000
d) ₹ 1,00,000

Ans – b)

If Share Capital ₹ 4,00,000, Reserves and Surplus ₹ 1,50,000, Non-

current Assets ₹ 18,00,000, Current Assets ₹ 4,00,000,
then proprietary ratio will be:

a) 12%
b) 25%
c) 8.33%
d) None of the above

Ans – b)

A company extends credit terms of 45 days it its customers, its

credit collection would be considered poor if its average
collection period was:

a) 30 days
b) 52 days
c) 41 days
d) 36 days

Ans – b)

Cost of Revenue from operations ₹ 15,00,000, Current Assets ₹

4,00,000, Current Liabilities ₹ 1,50,000. Find its Working
Capital Turnover Ratio.

a) 3.75 times
b) 5 times
c) 6 times
d) 10 times
Ans – c)

If selling price is fixed 25% above the cost, the Gross Profit Ratio is:

a) 13%
b) 28%
c) 26%
d) 20%

Ans – d)

Net Revenue from Operation ₹ 4,00,000, Average inventory ₹

50,000, Gross Loss on sales 25%. Find Inventory Turnover Ratio:

a) 8 times
b) 10 times
c) 2 times
d) None of these

Ans – b)

A Company’s Current Ratio is 3 : 1; Current Liabilities are ₹ 2,00,000;

Inventories are ₹ 1,50,000 and Prepaid Expenses are ₹
10,000. Its Liquid Ratio will be:

a) 3.6 : 1
b) 2.2 : 1
c) 3 : 2
d) 2.05 : 1

Ans – b)

A firm’s current ratio is 1.8 : 1. Its current liabilities are ₹ 80,000. Its
working capital will be:

a) ₹ 1,20,000
b) ₹ 1,60,000
c) ₹ 64,000
d) ₹ 2,80,000

Ans – c)

Current Assets ₹ 77,000; Inventory ₹ 22,000; Prepaid Expenses ₹

2,500 and Current Ratio is 2.2:1; then Liquid Ratio will be:

a) 3 : 1
b) 1.5 : 1
c) 1 : 1
d) None of these

Ans – b)

Total Revenue from Operations ₹ 15,00,000; Cost of Revenue from

Operations ₹ 9,00,000 and Operting Expenses ₹ 2,25,000. Operating
Ratio will be:

a) 75%
b) 25%
c) 60%
d) 15%

Ans – a)

A firm has current ratio of 5 : 2. Its Current Assets are ₹ 6,50,000 and
Inventories ₹ 26,000. The liquid ratio of the fimr is:

a) 2.8 : 1
b) 2.4 : 1
c) 5:3:2
d) None of these

Ans – b)

Current Assets of a concern are ₹ 7,00,000. Its current ratio is 7:2

and liquid ratio is 3:1. The value of its liquid assets is:
a) ₹4,00,000
b) ₹6,00,000
c) ₹80,000
d) None of these

Ans – b)

In a concern, Total Assets to Debt Ratio is 3:1. Its total assets are ₹
12,00,000 and current liabilities are ₹80,000. Its
equity is of:

a) ₹ 2,40,000
b) ₹ 6,00,000
c) ₹ 7,20,000
d) None of these

Ans – c)

On the basis of the following information: answer the question that

follows:

Share capital ₹ 5,00,000, Reserve and surplus ₹ 1,20,000. Current

Assets ₹ 1,80,000 and Non current Assets ₹ 7,20,000

The Proprietary ratio is:

a) 1.25:1
b) 0.68:1
c) 2:5
d) None of these

Ans – b)

Calculate Working Capital Turnover Ratio from the following

information:

Revenue from operations ₹ 12,00,000

Current Assets ₹ 3,00,000
Total Assets ₹ 8,00,000
Non-Current Liabilities ₹ 3,00,000
Shareholders Funds ₹ 4,00,000

a) 6 times
b) 4 times
c) 2.5 times
d) None of these

Ans – a)

XYZ Ltd. earned a gross profit of ₹ 6,00,000 during the year and its
gross profit ratio is 30%. Thus, its Revenue from Operations is:

a) ₹ 40,00,000
b) ₹ 20,00,000
c) ₹ 25,00,000
d) None of these

Ans – b)

Compute gross profit ratio; if revenue from operations is ₹ 3,25,000

and gross profit is 30% of the cost.

a) 23%
b) 32%
c) 27%
d) None of these

Ans – a)

From the following information, calculate Operating Ratio:

Cost of Revenue from Operations ₹ 4,00,000

Operating Expenses ₹ 55,000
Revenue from Operations ₹ 6,50,000
a) 55%
b) 70%
c) 65%
d) None of these

Ans – b)

From the following information, calculate Operating Rato:

Revenue from Operations ₹ 6,30,000

Rate of Gross Profit on Cost ₹ 40%
Selling Expenses ₹ 12,500
Administrative Expenses ₹ 10,000

a) 55%
b) 85%
c) 75%
d) None of these

Ans – c)

From the following information, Calcualte Return on Investment.

Net Profit after Interest and Tax ₹ 4,05,000

9% Debentures ₹ 15,00,000
Tax @10%
Capital Employed ₹ 3,00,000

a) 8%
b) 12%
c) 19.85%
d) 15%

Ans – c)
A company’s current ratio is 3:1 and liquid ratio is 1.8:1. If its current
liabilities are ₹ 2,00,000, the value of inventory
is:

a) ₹ 2,40,000
b) ₹ 3,60,000
c) ₹ 1,20,000
d) None of these

Ans – a)

A company’s current ratio is 2.5:1 and liquid ratio is 3:2. If its current
assets are ₹ 7,20,000, its inventory is:

a) ₹ 2,88,000
b) ₹ 4,80,000
c) ₹ 3,28,000
d) None of these

Ans – a)

If the average inventory is ₹ 1,00,000 and closing inventory is two

times more than that in the begining, then the value the
closing inventory:

a) ₹ 2,00,000
b) ₹ 1,50,000
c) ₹ 1,80,000
d) None of these

Ans – b)

A company’s revenue from opeartoins is ₹ 20,00,000, cost of

revenue from operations is ₹ 14,00,000, closing inventories ₹ 50,000
and indirect expenses are ₹ 2,00,000. The amount of gross profit on
the basis of given information is:
a) 40%
b) 25%
c) 30%
d) 35%

Ans – c)

Purchase of a fixed asset by issuing debentures will _ the debt

equity ratio (2:1).

a) Increase
b) Decrease
c) No change
d) May increase or decrease

Ans – a)

If capital employed is ₹ 8,00,000, total debt is ₹ 5,00,000, current

liability is ₹ 2,00,000 then the value of debt equity
ratio is:

a) 2:5
b) 3:5
c) 5:8
d) None of these

Ans – b)

If Net Revenue form Operations of a firm are ₹ 15,00,000, Gross

Profit is ₹ 9,00,000 and Operating Expenses are ₹ 75,000.
The opearting profit ratio will be:

a) 45%
b) 50%
c) 55%
d) 65%
Ans – c)

The current assets and current liabilities of Accounts Guru Ltd are ₹
3,00,000 and ₹ 2,00,000 respectively. The company is
planning to avail a bank loan. The minimum current ratio required
by bank is 2:1 to consider the loan proposed. The amount of
sundry creditors to be paid to achieve the desired level of current
ratio will be:

a) ₹ 1,00,000
b) ₹ 2,00,000
c) ₹ 1,50,000
d) ₹ 3,00,000

Ans – a)

Bhumi Ltd. has current ratio of 4 : 1 and quick ratio of 2.5:1.

Assuming inventories (stock) are ₹ 22,500. The amount of total
current assets will be:

a) ₹ 60,000
b) ₹ 45,000
c) ₹ 80,000
d) ₹ 54,200

Ans – a)

A firm has current ratio of 4:1 and quick ratio of 2.5:1. Assuming
inventories (stock) are ₹ 22,500, Total amount of current liabilities
will be:

a) ₹ 20,000
b) ₹ 16,000
c) ₹ 15,000
d) ₹ 30,000

Ans – c)
If Jyoti Ltd. has a liquid ratio of 7:3 and its stock is ₹ 25,000 and
current liabilities are ₹ 75,000. The amount of liquid
assets will be:

a) ₹ 1,75,000
b) ₹ 2,00,000
c) ₹ 2,25,000
d) ₹ 5,000

Ans – a)

If X Ltd. has a liquid ratio of 7:3 and its stock is ₹ 25,000 and current
liabilities are ₹ 75,000. The amount of the current
assets will be:

a) ₹ 1,25,200
b) ₹ 54,000
c) ₹ 2,00,000
d) ₹ 65,200

Ans – c)

If PQR Ltd. has a liquid ratio of 7:3 and its stock is ₹25,000 and
current liabilities are ₹ 75,000, the current ratio will
be:

a) 2.67:1
b) 2.35:1
c) 4:1
d) 2.36:1

Ans – a)

Sheetal Ltd. has a current ratio of 3:1. It its stock is ₹40,000 and
total current liabilities are ₹ 75,000, the quick ratio will
be:
a) 2.7:1
b) 2.47:1
c) 4:1
d) 2.36:1

Ans – b)

Shalini Ltd. has a current ratio of 3:1. It its stock is ₹ 40,000 and total
current liabilities are ₹ 75,000, the amount
of current assets of Shalini Ltd will be:

a) ₹ 75,000
b) ₹ 2,25,000
c) ₹ 2,50,000
d) ₹ 98,500

Ans – b)

Aakash Ltd has a current ratio of 3:1. It its stock is ₹ 40,000 and total
current liabilities are ₹ 75,000, the amount
of liquied assets of Aakash Ltd will be:

a) ₹ 1,85,000
b) ₹ 2,25,000
c) ₹ 2,50,000
d) ₹ 98,500

Ans – a)

If Current assets of a company are ₹ 5,00,000; current ratio 2.5:1 and

Quick Ratio 1:1. The value of current liabilities
will be:

a) ₹ 1,20,000
b) ₹ 2,10,000
c) ₹ 2,00,000
d) ₹ 1,50,000
Ans – c)

If Current assets of a company are ₹ 5,00,000; current ratio 2.5:1 and

Quick Ratio 1:1, the value of liquid assets will be:

a) ₹ 1,20,000
b) ₹ 2,10,000
c) ₹ 2,00,000
d) ₹ 1,50,000

Ans – c)

If Current assets of a company are ₹ 5,00,000; current ratio 2.5:1 and

Quick Ratio 1:1, the value of inventory will be:

a) ₹ 1,20,000
b) ₹ 2,10,000
c) ₹ 3,00,000
d) ₹ 1,50,000

Ans – c)

Current liabilities of a company are ₹ 1,20,000. Its current ratio is

3.00 and liquid ratio is 0.90. The amount of Current
Asset will be:

a) ₹ 1,20,000
b) ₹ 2,10,000
c) ₹ 3,60,000
d) ₹ 1,50,000

Ans – c)

Current liabilities of a company are ₹ 1,20,000. Its current ratio is

3.00 and liquid ratio is 0.90. The amount of Liquid
Assets will be?
a) ₹ 1,20,000
b) ₹ 2,10,000
c) ₹ 3,60,000
d) ₹ 1,08,000

Ans – d)

Current liabilities of a company are ₹ 1,20,000. Its current ratio is

3.00 an liquid ratio is 0.90. The amount of Inventory
will be:

a) ₹ 1,20,000
b) ₹ 2,10,000
c) ₹ 2,52,000
d) ₹ 1,50,000

Ans – c)

Current ratio of a company is 3:1, working capital is ₹ 30,000. The

amount of current assets and current liabilities is:

a) 12,000; 24,000
b) 21,000; 45,000
c) 45,000; 15,000
d) 50,000; 65,000

Ans – c)

The current Ratio establishes a relation between

a) (Current Assets – Inventory) and Current Liabilities

b) Quick Assets and Current Liabilities
c) Current Assets and Current Liabilities
d) None of the above
Show Answer
Ans – c)

Which of the following is/are objectives of ratio analysis?

a) To know the areas of the business which need more attention.

b) To provide a deeper analysis of the profitability, liquidity,
solvency
and efficiency levels in the business.
c) To provide information by making cross-sectional analysis by
comparing the performance with the best industry standards
d) All of the above
Show Answer
Ans – d)

The Current Ratio is classified under the group of

a) Solvency Ratios
b) Liquidity Ratios
c) Activity Ratios
d) Profitability Ratios
Show Answer
Ans – b)

Which of the following points out the significance of ratio analysis?

a) It helps the business in identifying the problem areas.

b) It ignores price level changes.
c) It ignores qualitative aspects
d) All of the above

Ans – a)

The proprietary Ratio falls under the group of

a) Liquidity Ratios
b) Solvency Ratios
c) Activity Ratios
d) Profitability Ratios

Ans – b)

Ratio analysis can help know about the potential areas which can be
improved
with the effort in the desired direction.

a) True
b) False
c) Can’t say
d) Partially true

Ans – b)

Inventory Turnover Ratio falls under the group of

a) Activity Ratios
b) Solvency Ratios
c) Profitability Ratios
d) Liquidity Ratios

Ans – a)

Working capital is the excess of current assets over current

liabilities.

a) True
b) False
c) Can’t say
d) Partially true

Ans – a)

Young India Ltd. has an operating Profit Ratio of 20%. To maintain

this ratio at 25%, management may
a) Increase selling price of a stock in trade
b) Reduce the cost of Revenue from operations
c) Increase selling price of a stock in trade and reduce the cost of
revenue
from operations
d) All of the above.

Ans – d)

The quick ratio _ the short-term financial position.

a) Higher, better
b) Lower, better
c) Higher, poorer
d) Lower; Poorer

Ans – a)

_________ is considered as an ideal current ratio.

a) 1 : 1
b) 4 : 1
c) 2 : 1
d) There is no such value

Ans – c)

A higher total asset to debt ratio is beneficial as it indicates a larger

the safety margin for lenders.

a) True
b) False
c) Can’t say
d) Partially True

Ans – a)
A transaction involving a decrease in Debt-Equity Ratio and increase
in Current Ratio is

a) Issue of Debentures against in purchase of fixed assets

b) Issue of Debentures for cash
c) Redemption of Preference shares for cash
d) Issue of Equity shares for cash

Ans – d)

_______ means the firm’s ability to meet its long-term liabilities.

a) Solvency
b) Liquidity
c) Efficiency
d) None of the above

Ans – a)

Which of the following ratios measure the short term solvency of an

a) Current Ratio
b) Liquid Ratio
c) Debt Equity Ratio
d) Both a) and b)

Ans – d)

Working Capital Turnover Ratio falls under the group of

a) Activity Ratios
b) Solvency Ratios
c) Liquidity Ratios
d) Profitability Ratios

Ans – a)

_____________ + Operating Profit ratio (%) = 100.

a) Operating Ratio (%)
b) Gross Profit Ratio
c) Net Profit Ratio
d) None of these

Ans – a)

____________ Provides an approximation of the average time that it

takes to
collect debtors.

a) Average Collection period

b) Average payment period
c) Debtors turnover ratio
d) None of the above

Ans – a)

Return on Investment falls under the group of

a) Liquidity Ratios
b) Profitability Ratios
c) Solvency Ratios
d) Activity Ratios

Ans – b)

Operating Ratio falls under the group of

a) Activity Ratios
b) Liquidity Ratios
c) Solvency Ratios
d) Profitability Ratios

Ans – d)
A lower trade receivable ratio indicates the inefficient credit sales
policy
of the management.

a) True
b) False
c) Can’t say
d) Partially true

Ans – a)

The purchase of goods ₹ 40,000 for cash will increase the operating
ratio.

a) True
b) False
c) Can’t say
d) Partially True

Ans – a)

Provision for Doubtful Debts is deducted from Trade Receivables

while computing

a) Current Ratio
b) Quick Ratio
c) Trade Receivables Turnover Ratio
d) a) and b)

Ans – d)

If current assets and current liabilities are both reduced by the same
amount, the
current ratio will

a) increase
b) Decrease
c) No change
d) Either a) or b)

Ans – a)

The current ratio of Vidur Pvt Ltd is 3:2. The accountant wants to
maintain it at
2:1. Following options are available.

i) He can repay bills payable

ii) He can take short term loan
iii) He can purchase goods on credit

Choose the correct option.

a) Only i) is correct
b) only ii) is correct
c) only i) and iii) are correct
d) Only ii) and iii) are correct

Ans – a)

The operating profit ratio is classified under the group of

a) Profitability Ratios
b) Solvency Ratios
c) Liquidity Ratios
d) Activity Ratios

Ans – a)

The difference between Total Assets and Current liabilities is

a) Total Assets
b) Total Debts
c) Capital Employed
d) Shareholders Funds
Ans – c)

A ratio reflects quantitative as well as qualitative aspects of results.

a) True
b) False
c) Can’t say
d) Partially True

Ans – b)

Ratios are comparable even if different accounting policies and

procedures
are followed by different firms

a) True
b) False
c) Can’t say
d) Partially true

Ans – b)

The aggregate of Non-current Assets and Current Asset is

a) Quick Assets
b) Total Assets
c) Total Debts
d) Capital Employed

Ans – b)

Liquidity ratios assess the enterprise’s ability to meet its _

financial obligations.

a) Short term
b) Long term
c) Both a) and b)
d) None of these
Ans – a)

What will be the effect on the current ratio if a bills payable is

discharged on
maturity.

a) it will increase
b) it will decrease
c) Either a) or b)
d) Can’t say

Ans – a)

Which of the following is not true?

a) Gross profit = Revenue from operations – Cost of Revenue from

operations
b) Operating Profit = Revenue from Operations – Operating Cost.
c) Equity – Total Assets – Total Debts
d) Equity = Capital Employed + Debt

Ans – d)

A transaction involving a decrease in both current Ratio and Quick

Ratio is

a) Sale of Noncurrent Asset for cash

b) Sale of Stock in Trade at a loss
c) Cash payment of a Non-current Liability
d) Issue of Bonus Shares

Ans – c)

Which of the following is/are not the components of quick assets.

a) Inventories
b) Prepaid expenses
c) Cash and cash equivalents
d) Both a) and b)

Ans – d)

Which of the following ratios measure the long-term solvency of an

organization.

a) Debt-quity ratio
b) Liquid ratio
c) Proprietary ratio
d) Both a0 and c)

Ans – d)

Which of the following is not an Activity Ratio?

a) Inventory Turnover Ratio

b) Interest coverage Ratio
c) Working Capital Turnover Ratio
d) Trade Receivables Turnover Ratio

Ans – b)

The is a measure of liquidity which excludes _______ generally the

least liquid asset.

a) Current ratio, trade receivables

b) liquid ratio, trade receivables
c) current ratio, inventory
d) liquid ratio, inventory

Ans – d)

A very high current ratio implies heavy investment in current assets

which is not a good sign
as it reflects under-utilization or improper utilization of resources.
a) True
b) False
c) Can’t say
d) Partially true

Ans – a)

The debt Equity ratio is the relationship between

a) Long term debts and share capital

b) Long term debts and shareholders Funds
c) Long term debts and Total Assets
d) Long term debts and working capital

Ans – b)

Interest Coverage Ratio is the relationship between

a) Net Profit and interest charge

b) Gross Profit and interest charge
c) Profit before interest and tax and interest on long term
Borrowings
d) Profit after interest and tax and interest on Long term Borrowings

Ans – c)

Purchase of machinery for cash will _ the quick ratio.

a) increase
b) Decrease
c) No change
d) Either a) or b)

Ans – b)

Generally, a lower current ratio is considered better.

a) True
b) False
c) Can’t say
d) Partially True

Ans – b)

The difference between Revenue from Operations and Operating

Profit is

a) Gross Profit
b) Operating Profit
c) Operating cost
d) Net Profit before tax

Ans – c)

Out of the following, a ratio that is not a part of the Profitability

Ratio is

a) Proprietary Ratio
b) Gross Profit Ratio
c) Operating Ratio
d) Net Profit Ratio

Ans – a)

The ______ ratio provides information critical to the long-run

operation of the firm.

a) Liquidity
b) activity
c) solvency
d) Profitability

Ans – c)

1:1 is the ideal quick ratio

a) True
b) False
c) Can’t say
d) Partially true

Ans – a)

The two basic measures of operational efficiency of a company are

a) Inventory Turnover Ratio and Working Capital Turnover Ratio

b) Liquid Ratio and Operating Ratio
c) Liquid Ratio and Current Ratio
d) Gross Profit Margin and Net profit margin

Ans – a)

_______ ratios are calculated for measuring the efficiency of

operations of business based on effective utilization of resources.

a) Liquidity ratios
b) Solvency ratios
c) Activity ratios
d) None of these

Ans – c)

Inventory turnover ratio shows the relationship between

the _ during a given period and the _ carried during the period.

a) Cost of revenue from operations: average inventory.

b) cost of revenue from operations, closing inventory
c) cost of revenue from operations, opening inventory
d) None of the above

Ans – a)

Name the difference between Capital Employed and Non-current

Liabilities.
a) Shareholder’s funds
b) Capital Employed
c) Total Debts
d) Total Assets

Ans – a)

The profitability Ratio in relation to investment is

a) Gross Profit Ratio

b) Operating Profit Ratio
c) Operating Ratio
d) Return on Investment

Ans – d)

If P Ltd obtains a Bank loan of ₹ 30,00,000 payable after 5 years,

then its proprietary ratio will

a) Increase
b) Decrease
c) No change
d) Either a) or b)

Ans – b)

The debt-equity ratio expresses the relationship between short-

term debt and equity share capital of an enterprise.

a) True
b) False
c) can’t say
d) Partially True

Ans – b)

The objective of the Current Ratio is

a) To assess the firm’s ability to meet its short-term liabilities on
time.
b) To assess the ability of the firm to meet its current liabilities
immediately
c) To assess the ability of the firm to meet its long term liabilities
d) to measure the proportion of total assets funded by the
shareholders

Ans – a)

The ratio that measures the relationship between operating profit

and Revenue from operations are

a) Operating Ratio
b) Operating Profit Ratio
c) Gross Profit ratio
d) Net Profit Raito

Ans – b)

Purchase returns amounting to ₹ 20,000 will deteriorate the

inventory turnover ratio.

a) True
b) False
c) Can’t say
d) Partially true

Ans – b)

________ 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

Ans – c)

Which of the following is not correct?

a) Equity = Capital Employed + Debt

b) Equity = Share capital + Reserves and Surplus
c) Debt = Long term Borrowings + Long term provisions
d) Working Capital = Current Assets – Current Liabilities

Ans – a)

A transaction that does not change both the Current Ratio and
Quick Ratio is

a) Sale of Stock in Trade at a loss

b) Cash payment of a Non-current liability
c) Cash received from trade debtors
d) Sale of furniture for cash

Ans – c)

Low __ may be due to bad buying behavior, obsolete stock, and is a

danger signal.

a) average payment period

b) Inventory turnover ratio
c) average collection period
d) quick ratio

Ans – a)

A very high working capital turnover ratio may be a sign of _________

a) under-trading
b) overtrading
c) Optimal-trading
d) None of these

Ans – b)

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

Ans – b)

While computing the current Ratio, Current Assets does not include:

a) Loose tools and stores and spares

b) Provision for Bad Debts
c) Prepaid Expenses
d) Both a) and b)

Ans – d)

The ________ ratios are primarily measures of return.

a) activity
b) profitability
c) liquidity
d) debt

Ans – b)

Interest coverage ratio depicts the relationship between net profit

before interest and tax
and interest payable on long-term debts.
a) True
b) False
c) can’t say
d) Partially true

Ans – a)

Which of the following will increase the liquid ratio without

affecting current
ratio?

a) Sale of stock at a loss

b) Sale of stock at a profit
c) Sale of investment at cost
d) Sale of stock at cost

Ans – d)

Which of the following will reduce the current ratio?

a) Payment of Bills payable on maturity

b) Conversion of debentures into equity shares
c) Declaration of final dividend
d) Issue of bonus shares

Ans – c)

The _______ is useful in evaluating credit and collection policies.

a) Average payment period

b) current ratio
c) average collection period
d) current asset turnover

Ans – c)

Profitability ratios help in assessing the overall efficiency with which

a business is being managed.
a) True
b) False
c) Can’t say
d) Partially true

Ans – a)

Total Assets to debt ratio is a:

a) Profitability Ratio
b) Solvency Ratio
c) Activity Ratio
d) Liquidity Ratio

Ans – b)

Which of the following will have no effect on the Debt Equity Ratio?

a) Purchase of fixed asset by taking long term loan

b) Conversion of debentures into shares
c) Issue of bonus shares
d) Sale of fixed assets at a loss

Ans – c)

The interest coverage ratio is given by:

a) Net Profit/Interest on long term borrowing

b) Long term borrowings/Interest on long term borrowings
c) Profit before interest and tax/interest on long term borrowings
d) Profit before Tax/Interest on long term borrowings

Ans – c)

The total assets to debt ratio establish a relationship

between ______  and  _____ .
a) total assets; total long term debts
b) total assets; total debts
c) non-current assets; total long term debts
d) None of the above

Ans – a)

______ the ratio shows the extent to which the total assets have been
financed by the proprietor.

a) Proprietary ratio
b) Debt equity ratio
c) Total assets to debt ratio
d) None of the above

Ans – a)

Which of the ratios show how efficiently a company’s resources are

used?

a) Profitability Ratio
b) Solvency Ratio
c) Activity Ratio
d) Liquidity Ratio

Ans – c)

To calculate the trade receivable turnover ratio __ is divided by

average trade receivables.

a) Gross Revenue from Operations

b) Net Revenue from Operations
c) Net Credit Revenue from Operations
d) Net Cash Revenue from Operations

Ans – c)

A rise in the operating ratio will indicate a rise in inefficiency.

a) True
b) False
c) Can’t say
d) Partially true

Ans – b)

Which ratio indicates the speed with which amount is being paid to
the creditors?

a) Trade payables turnover ratio

b) Trade receivables ratio
c) Inventory turnover ratio
d) None of the above

Ans – a)

Which ratio is complementary to each other?

a) Current and Liquid Ratio

b) Operating and Operating Profit Ratio
c) Gross and Net profit ratio
d) Trade Receivable and Trade Payable

Ans – b)

The best definition of capital employed in calculating the rate of

return on investment is:

a) Current Assets + Gross Fixed Assets

b) Current Assets + Non-current Assets
c) Working capital + Gross Fixed Assets
d) Working Capital + Non-Current Assets

Ans – d)

Which of the following formulas is used to calculate working capital

turnover ratio?
a) revenue from operations/current assets
b) Revenue from operations/COGS
c) Gross Sales/COGS
d) Revenue from operations/current assets current liabilities

Ans – d)

Which of the following groups of ratios primarily measure risk?

a) Liquidity, activity, and profitability

b) Liquidity, activity, and common stock
c) Liquidity, activity, and debt
d) Activity, debt, and profitability

Ans – c)

Collection of debtors will ________ .

a) Decreases current ratio

b) increases the current ratio
c) has no effect on the current ratio
d) none of the above

Ans – c)

A transaction involving a decrease in Debt-Equity ratio and an

increase in Current Ratio is:

a) Issue of Debentures against the purchase of fixed assets

b) Redemption of preference shares for cash
c) Issue of shares for cash
d) Issue of debentures for cash

Ans – c)

The two basic measures of operational efficiency of a company are

a) Inventory turnover ratio and working capital turnover ratio
b) Liquid Ratio and Operating Ratio
c) Liquid Ratio and Current Ratio
d) Gross Profit Margin and Net Profit Margin

Ans – d)

What will be the current ratio of a company whose net working

capital is Zero?

a) 1:1
b) 0
c) 1.5
b) Can’t say

Ans – a)

If 365 is divided by the Inventory Turnover ratio, it becomes a

measure of:

a) Revenue from Operations Efficiency

b) Average Collection period
c) Average age of Inventory
d) Revenue from Operations Turnover

Ans – c)

The ______ indicates the percentage of each sales rupee remaining

after the firm has paid the cost of goods sold.

a) Net profit margin

b) Gross Profit Margin
c) Operating Cost Margin
d) Earnings available to equity shareholders

Ans – b)
The _______ may indicate that the firm is experiencing stockouts and
lost sales.

a) Average payment method

b) Inventory turnover ratio
c) Average Collection period
d) Quick ratio

Ans – b)

What will be the effect of the purchase of goods for cash ₹3000 on
gross profit ratio?

a) It will increase
b) It will decrease
c) Either a) or b)
d) No change

Ans – b)

The higher the ratio, the more favorable it is, does not stand true
for:

a) Liquidity Ratio
b) Net profit Ratio
c) Operating Ratio
d) Inventory turnover Ratio

Ans – c)

Two basic measures of liquidity are:

a) Inventory turnover and a current ratio

b) Current ratio and Quick ratio
c) Gross Profit ratio and Operating ratio
d) Current ratio and Average Collection period

Ans – b)
The sale of goods on credit for ₹67,000 will increase the gross profit
ratio. Is this statement true?

a) True
b) False
c) Can’t say
d) Partially True

Ans – a)

Liquid Assets do not include:

a) Bills Receivable
b) Debtors
c) Inventory
d) Bank Balance

Ans – c)

The difference between Operating costs and Operating Expenses is:

a) Operating profit
b) Net profit
c) Cost of revenue from operations
d) None of these

Ans – c)

Which of the following is expressed as a pure ratio?

a) Inventory turnover ratio

b) quick ratio
c) Gross Profit ratio
d) None of these

Ans – b)

Which of the following ratios is expressed in times?

a) Inventory turnover ratio
b) Current ratio
c) Net profit ratio
d) None of these

Ans – a)

To assess the efficiency of inventory management in the business,

we may use:

a) Operating profit ratio

b) Current ratio
c) Inventory Turnover ratio
d) Debt Equity ratio

Ans – c)

Working capital is the :

a) Cash and bank balance

b) Loans borrowed from the banks
c) Difference between current assets and current liabilities
d) Difference between current assets and fixed assets

Ans – c)

Current assets include only those assets which are expected to be

realized within:

a) 3 months
b) 6 months
c) 9 years
d) 2 years

Ans – a)

Which of the following will decrease the Debt Equity Ratio?

a) Purchase of a fixed asset by taking a long term loan
b) Purchase of a fixed asset by issuing shares for consideration.
c) Sale of fixed assets (book value ₹ 10,0000) for ₹8,000.
d) Issue of debentures of ₹ 2,00,000 in the market

Ans – b)

What does a low proprietary ratio mean?

a) Adequate safety cover for lender and creditors

b) Greater risk to unsecured lenders and creditors
c) Shareholders funds are more than the total assets
d) None of these

Ans – b)

The current ratio of Vidur Pvt Ltd is 3:2. The accountant wants to
maintain it at
2:1. following options are available.

i) He can repay Bills payable

ii) He can purchase goods on credit
iii) He can take short term loan

choose the correct option.

a) Only i) is correct
b) Only ii) is correct
c) Only i) and iii) are correct
d) All are correct

Ans – a)

Which of the following ratios is not a solvency ratio?

a) Debt to Equity ratio

b) Current Ratio
c) Total Assets to Debt Ratio
d) Proprietary Ratio

Ans – b)

The Liquidity ratio of concern is 1.5:1, and it purchased goods of ₹

50,000
for cash, The ratio will:

a) increase
b) decrease
c) not change
d) may increase or decrease

Ans – b)

_______ of a business means the business is in a position to meet its

short-term financial obligations as and when they become due.

a) Liquidity
b) Profitability
c) Solvency
d) All of these

Ans – a)

Which of the following transaction will decrease the Quick Ratio?

a) Debentures converted into equity shares

b) Paid rent in advance
c) Payment received from a debtor
d) All of these

Ans – b)

The interest coverage ratio is a :

a) Solvency Ratio
b) Activity Ratio
c) Profitability Ratio
d) Liquidity Ratio

Ans – a)

Current and Liquid ratios fall under the head of:

a) Solvency Ratio
b) Liquidity Ratio
c) Activity Ratio
d) Profitability Ratio

Ans – b)

Two basic measures of Long term Solvency are:

a) Inventory turnover ratio and a current ratio

b) Total asset to Debt ratio and Proprietory ratio
c) Gross Profit Ratio and Operating ratio
d) Current ratio and average collection period

Ans – b)

The Current Ratio is:

a) Liquid Assets/Current Assets

b) Fixed Assets/Current Assets
c) Current Assets/Current Liabilities
d) Liquid Assets/Current Liabilities

Ans – c)

Liquid Assets do not include:

a) Bills Receivable
b) Debtors
c) Inventory and Prepaid Expenses
d) Inventory

Ans – c)

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

Ans – c)

Working Capital is:

a) Current Assest + Non-current assets – Current liabilities

b) Capital Employed – Non-current assets
c) Fixed Assets – Current Liabilities
d) All current assets except inventory and prepaid expenses

Ans – b)

Current Assets is:

a) Working Capital + Current Liabilities

b) Quick Assets + Inventory + Prepaid Expenses
c) Total Assets – Non-current assets
d) All of the above

Ans – d)

Shareholders Funds or Equity is:

a) Total Assets – Total Debts – (Non Current Liabilities + Current

Liabilities)
b) Capital Employed – Long term debts
c) Equity and Preference Share Capital + Reserve and Surplus
d) All of the above

Ans – d