Class 12 Accounting Ratios Mock Test (CBSE)

Topics in Accounting Ratios

• Meaning of accounting ratios
• Objectives of ratio analysis
• Advantages and limitations of ratio analysis
• Types of ratios
• Liquidity ratios
• Solvency ratios
• Activity (turnover) ratios
• Profitability ratios

Accounting Ratios practice questions with answers

1. Q1Multiple choice·1 mark
   If Revenue from Operations (Net Sales) is Rs. $6,00,000$, Gross Profit is $25\%$ on Cost, and Inventory is Rs. $1,00,000$, what will be the Inventory Turnover Ratio?

   1. (a)$4.0$ Times
   2. (b)$4.8$ Times
   3. (c)$5.0$ Times
   4. (d)$6.0$ Times
   Show answer and step marks

   1. Correct option: (b) $4.8$ Times. Cost of Revenue from Operations = $\frac{100}{125} \times \text{Revenue from Operations} = \frac{100}{125} \times 6,00,000 = \text{Rs. } 4,80,000$. Inventory Turnover Ratio = $\frac{\text{Cost of Revenue from Operations}}{\text{Inventory}} = \frac{4,80,000}{1,00,000} = 4.8$ Times.+1

   Answer: (b)
2. Q2Multiple choice·1 mark
   What is the primary objective of calculating accounting ratios?

   1. (a)To ascertain the liquidity, solvency, and profitability of an enterprise
   2. (b)To calculate the exact amount of tax payable to the government
   3. (c)To determine the market value of the company's shares
   4. (d)To record daily financial transactions in the books of accounts
   Show answer and step marks

   1. Correct option: (a) To ascertain the liquidity, solvency, and profitability of an enterprise.+1

   Answer: (a)
3. Q3Assertion and reason·1 mark
   Assertion (A): A high current ratio always guarantees that the firm has adequate liquid funds to pay its short-term obligations immediately. Reason (R): Current ratio includes inventory and prepaid expenses which may take time to be converted into cash.

   1. (a)Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
   2. (b)Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A).
   3. (c)Assertion (A) is true but Reason (R) is false.
   4. (d)Assertion (A) is false but Reason (R) is true.
   Show answer and step marks

   1. Correct option: (d) Assertion (A) is false but Reason (R) is true. Inventory and prepaid expenses are less liquid current assets, so a high current ratio does not guarantee immediate liquidity.+1

   Answer: (d)
4. Q4Assertion and reason·1 mark
   Assertion (A): Debt-Equity Ratio measures the long-term financial soundness of an enterprise. Reason (R): It establishes the relationship between long-term debt and equity (shareholders' funds).

   1. (a)Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
   2. (b)Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A).
   3. (c)Assertion (A) is true but Reason (R) is false.
   4. (d)Assertion (A) is false but Reason (R) is true.
   Show answer and step marks

   1. Correct option: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).+1

   Answer: (a)
5. Q5Short answer·2 marks
   What is meant by an 'Accounting Ratio'? State any two ways in which accounting ratios are commonly expressed.
   Show answer and step marks

   1. Meaning: An accounting ratio is an arithmetical expression of the relationship between two interdependent accounting variables.+1
   2. First form, any one of: pure ratio (e.g. $2:1$); percentage (e.g. $20\%$); times or rate (e.g. $4$ times); fraction (e.g. $\frac{1}{2}$); or any other valid form of expression.+0.5
   3. Second form, a different one from the same list.+0.5

   Answer: An accounting ratio is an arithmetical relationship between two interdependent accounting variables; any two forms of: pure ratio, percentage, times (rate), fraction.
6. Q6Short answer·2 marks
   What is meant by "Accounting Ratios"? State any two forms in which they can be expressed.
   Show answer and step marks

   1. Definition: an accounting ratio is an arithmetical expression of the relationship between two related or interdependent accounting variables.+1
   2. First form, any one of: pure ratio (e.g. $2 : 1$); percentage (e.g. $25\%$); rate or times (e.g. turnover of $4$ times); fraction (e.g. $\frac{1}{4}$); or any other valid form.+0.5
   3. Second form, a different one from the same list.+0.5

   Answer: An accounting ratio is an arithmetical relationship between two related accounting variables. Any two of: pure ratio, percentage, rate (times), fraction.

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