Accountancy M.C.Q (1 Marks)

2. Plant acquire on account

Explanation:

When plant is acquired on account the fixed asset would increase and there would be increase in the creditors amount, hence the current ratio would decrease. When goods are sold on credit the stock would decrease and the debtors would increase and hence there would be no effect on current ratio.

2. Benchmarking.

1. Net profit ratio

Explanation:

Operating ratio shows the efficiency of a company's management by comparing company's operating expense to net sales.

The smaller the ratio the greater the organisation generate profit. Thus, we can say that it is complementary to net profit ratio as they both are similar.

3. Solvency.

3. Financial statement

Explanation:

Ratio analysis is the process of determining and interpreting numerical relationship based on financial statements.

It is the technique of interpretation of financial statements with the help of accounting ratios derived from balance sheet and profit and loss account hence, it is indispensable part of interpretation of result reveled by financial statement.

4. Redemption of Debt

Explanation:

Debt to total assets ratio signifies the proportion of contribution of debt in the total assets. Total assets can be funded by a combination of equity and debt.

In order to ensure better stability of the capital structure, it is always advisable to keep the debt low so that the available assets are sufficient for the debt to be cleared.

Therefore, Debt to total assets ratio can be improved by decreasing the amount of debt.

For example, debt Rs.7000 and the total assets is Rs.10000

Debt to assets ratio will be 7000/10000 i.e. 70%

That signifies that 70% amount is funded through debt in total assets.

If debts are reduced to Rs.4000, the revised ratio will be 40%.

1. Average payment period.

3. Composite

Explanation:

When one variable is from income statement and another variable from balance sheet it is known as composite ratio. For example Trade receivable turnover ratio is calculated using the Net credit sales figure from the income statement and the Average balance of trade receivables figure from the balance sheet.

2. 4 times

3. Analyzing profit ratios in terms of profit margin and turnover ratios.

2. Activity.

3. No effect

1. Investigation

Explanation:

Ratio analysis reflects the firm's performance in relation to its competitors. It involves comparison of a firm over a period of time, that is, present ratios are compared with past ratios. It indicates the area of investigation i.e. change in the performance, improvements, deterioration etc.

2. 0.25

Explanation:

Debt to Equity ratio is a financial ratio indicating the relative proportion of shareholders' equity & debt which is used to finance a company's assets. Closely related to leveraging, the ratio is also known as risk,gearing or leverage. Here we are given that Debt to total Assets of a firm is 0.2.

The formula debt to Equity is Debt/Equity & we have given debt to total Assets as 0.2. We can consider Total Assets as Debt+Equity. Now debt + Equity=1, substituting debt=0.2 we get Equity=0.8. Finally using Debt to Equity formula=0.25

3. Relative.

2. 18.5%

Explanation:

Operating ratio + Operating profit ratio = 100%

Therefore, operating profit = 100-81.5 = 18.5

2. Current liabilities

Explanation:

The current ratio gives idea to the company's ability to payback its liabilities (debts & accounts payable) with its assets(cash,marketable securities,accounts receivable). As such, current ratio can be used to make a rough estimate of a company's financial health and its liquidity.

4. Financial leverage and operating leverage

2. Inventory turnover.

2. Increase in Expense

Explanation:

Gross profit ratio is a profitability ratio that shows the relationship between gross profit and total net sales revenue. It is a popular tool to evaluate the operational performance of the business. The net profit percentage is the ratio of after-tax profit to net sales.

1. Gross profit to net total sales

2. Rs. 778

3. 6.48%

4. Quick ratio

Explanation:

Quick ratio is a liquidity ratio or short term solvency ratio. Whereas the remaining three ratios are leverage ratios.

4. Efficiency ratios

Explanation:

Turnover ratios are also referred to as activity ratios or efficiency ratios with which a firm manages its current assets. The following ratios can be calculated to judge the effectiveness of the asset's use.

Inventory Turnover Ratio

Accounts Receivables Turnover ratio

Creditor Turnover Ratio

Assets Turnover Ratio

2. Discounting of Bills receivable

2. Management is not reinvesting profits

Explanation:

A high payout ratio indicates that the company is paying out a large share of its net income to common shareholders in the form of dividend payments.

It means management is not reinvesting profits.

2. Debt-equity ratio

Explanation:

Proprietary ratio also called as net worth ratio or equity ratio is used to evaluate the soundness of the capital structure of the company. It is computed by dividing the stockholder's equity by total assets. We can say that, it is a variant of debt-equity ratio.

3. Earning that are distributed through dividends

Explanation:

The payout ratio is a financial metric showing the proportion of earnings a company pays its shareholders in the form of dividends, expressed as a percentage of the company's total earnings. On some occasions, the payout ratio refers to the dividends paid out as a percentage of a company's cash flow.

1. Increase

Explanation:

Quick assets are the current assets excluding inventory and prepaid expenses. The quick assets can be used up or converted into cash within a period of three months or less. When we sale inventory then cash will come then current asset will increase which lead to increase in quick ratio.

3. Interest Coverage Ratio

Explanation:

The interest coverage ratio is used to determine how easily a company can pay their interest expenses on outstanding debt.

2. EBIT ÷ EBT

Explanation:

Financial leverage depicts the amount of the debt used to acquire additional assets. It is the proportion of debt present in the total Capital Structure. The formula for Financial leverage is EBIT/ EBT.

4. All of the above

Explanation:

Return on investment measures the gain or loss generated on an investment relative to the amount of money invested. It is usually expressed as percentage & is typically used for personal financial decisions, to compare company's profitability or to compare efficiency of different investments.

3. Old profit sharing ratio itself

Explanation:

Sacrificing Ratio is the ratio in which the partners give up their share of profits for the new partner. If a new ratio is given, Sacrificing ratio = Old Ratio- New Ratio. If nothing has been specified, the sacrificing ratio is the old profit sharing ratio of the partners before admission.

1. Total liabilities.

Explanation:

Total liabilities = Outside liabilities + Owners equity

4. Net working capital

Explanation:

The formula for calculation of "Net working capital" is as follows:

Net working capital = Total current assets - Total current liabilities

Net working capital is the aggregate amount of all current assets minus current liabilities. It is used to measure the short-term liquidity of a business, and can also be used to obtain a general impression of the ability of a company management to utilize assets in an efficient manner.

4. Profitability.

4. None of the above

3. Lenders and suppliers.

2. Earnings per Share

Explanation:

Earnings per share is calculated by dividing company's net income by total number of outstanding shares. The higher the earnings per share the better is the profitability.

2. All other things remaining the same, issue of new shares for cash will improve the current ratio.

1. Assets which can be converted into the cash within one year.

Explanation:

Current assets are all the assets of a company that are expected to be sold or used as a result of standard business operations within one year. Current assets include cash, cash equivalents, accounts receivable, stock inventory, marketable securities, pre-paid liabilities, and other liquid assets.

4. Financing Risk

Explanation:

Financial leverage represents the amount of debts that an equity uses to buy additional assets. Its basically represents the proportion of debt in the capital structure of the company. Higher the debt in the capital structure, higher is the financial leverage with high financing risk. Companies with high leverage are considered to be high risk of bankruptcy.

3. Bank overdraft

Explanation:

The quick ratio is a financial ratio used to gauge a company's liquidity. The quick ratio is also known as the acid test ratio. The quick ratio compares the total amount of cash and cash equivalents + marketable securities + accounts receivable to the amount of current liabilities.

1. 1:1

Explanation:

Ideal level of quick ratio or acid test ratio is 1:1. Usually, a high acid-test ratio is an indication that the firm is liquid has ability to meet its current or liquid liabilities in time and on the other hand a low quick ratio represents that the firm's liquidity position is not good.

2. The average age of the inventory.

4. All of the above

3. Liquidity ratios

Explanation:

Liquidity ratios calculate the ability of the business to pay its due to the stakeholders. Examples of liquidity ratios are Current asset ratio, Quick ratio, Cash ratio and Net working capital ratio.

4. Liquid ratio, inventory.

2. Debt-service coverage ratio