Tamilnadu State Board New Syllabus Samacheer Kalvi 12th Accountancy Guide Pdf Chapter 9 Ratio Analysis Text Book Back Questions and Answers, Notes.

Tamilnadu Samacheer Kalvi 12th Accountancy Solutions Chapter 9 Ratio Analysis

12th Accountancy Guide Ratio Analysis Text Book Back Questions and Answers

I Multiple Choice Questions

Choose the correct answer

Question 1.
The mathematical expression that provides a measure of the relationship between two figures is called
(a) Conclusion
(b) Ratio
(c) Model
(d) Decision
Answer:
(b) Ratio

Question 2.
Current ratio indicates
(a) Ability to meet short term obligations
(b) Efficiency of management
(c) Profitability
(d) Long term solvency
Answer:
(a) Ability to meet short term obligations

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 3.
Current assets excluding inventory and prepaid expenses is called
(a) Reserves
(b) Tangible assets
(c) Funds
(d) Quick assets
Answer:
(d) Quick assets

Question 4.
Debt equity ratio is measure of
(a) Short term solvency
(b) Long term solvency
(c) Profitability
(d) Efficiency
Answer:
(b) Long term solvency

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 5.
Which of the following is not a tool of financial statement analysis?
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 1
Answer:
(a) (i) – 1,(ii) – 4,(iii) – 3,(iv) – 2

Question 6.
To test the liquidity of a concern, which of the following ratios are useful?
(i) Quick ratio
(ii) Net Profit ratio
(iii) Debt – equity ratio
(d) Current ratio
Select the correct answer using the codes given below:
(a) (i) and (ii)
(b) (i) and (iv)
(c) (ii) and (iii)
(d) (ii) and iv)
Answer:
(b) (i) and (iv)

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 7.
Proportion of share holders’ funds to total assets is called
(a) Proprietary ratio
(b) Capital gearing ratio
(c) Debt equity ratio
(d) Current ratio
Answer:
(a) Proprietary ratio

Question 8.
Which one of the following is not correctly matched?
(a) Liquid ratio – Proportion
(b) Gross profit ratio – Percentage
(c) Fixed assets turnover ratio – Percentage
(d) Debt – equity ratio – Proportion
Answer:
(c) Fixed assets turnover ratio – Percentage

Question 9.
Current liabilities ₹ 40,000; Current assets ₹ 1,00,000; Inventory ₹ 20,000. Quick ratio is
(a) 1:1
(b) 2,5:1
(c) 2:1
(d) 1:2
Hint:
Quick ratio or Liquid ratio = \(\frac{\text { Liquid Assets }}{\text { Current liabilities }}\)
Liquid assets = Current Assets – Inventory
= 1,00,000 – 20,000
= 80,000
= \(\frac{80,000}{40,000}\)
= 2:1
= 110%
Answer:
(c) 2:1

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 10.
Cost of revenue from operation 3,00,000; Inventory at the beginning of the year 60,000; Inventory at the close of the year’ 40,000. Inventory turnover ratio is.
(a) 2 times
(b) 3 times
(c) 6 times
(d) 8 times
Hint:
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 2
Answer:
(c) 6 times

II Very Short Answer Questions

Question 1.
What is meant by accounting ratios?
Answer:
The ratio is a mathematical expression of the relationship between two related or interdependent items. It is the numerical or quantitative relationship between two items. It is calculated by dividing one item by the other related item. When ratios are calculated on the basis of accounting information, these are called ‘accounting ratios’.

Question 2.
What is the quick ratio?
Answer:
The quick ratio gives the proportion of quick assets to current liabilities. It indicates whether the business concern is in a position to pay its current liabilities and when they become due, out of its quick assets.

Question 3.
What is meant by debt-equity ratio?
Answer:
It is calculated to assess the long-term solvency position of a business concern. The debt equity ratio expresses the relationship between long term debt and shareholder’s funds.
Debt equity ratio = \(\frac{\text { Long term debt }}{\text { Shareholders funds }}\)
Capital employed = Shareholder’s funds + Noncurrent liabilities
Greater the return on investment better is than the profitability of a business and vice versa.

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 4.
What does the return on investment ratio indicate?
Answer:
Return on investment shows the proportion of net profit before interest and tax to capital employed (shareholders’ funds and long term debts). This ratio measures how efficiently the capital employed is used in the business. It is an overall measure of the profitability of a business concern.

Question 5.
Statement any two limitations of ratio analysis.
Answer:
Ratios are only means: Ratios are not ended in themselves but they are only means to achieve a particular purpose. Analysis of related items must be done by the management or experts with the help of ratios. Change in price level: Ratio analysis may not reflect price level changes and current values as they are calculated based on historical data given in the financial statement.

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

III Short Answer Questions

Question 1.
Explain the objectives of ratio analysis.
Answer:
Following are the objectives of ratio analysis:

  • To simplify accounting figures
  • To facilitate analysis of financial statements
  • To analysis the operational efficiency of a business
  • To help in budgeting and forecasting
  • To facilitate intra firm and inter-firm comparison of performance

Question 2.
What is the inventory conversion period? How is it calculated?
Answer:
The inventory conversion period is the time taken to sell the inventory. A shorter inventory conversion period indicates more efficiency in the management of inventory. It is computed as follows:
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 3
Question 3.
How is operating profit ascertained?
Answer:
Operating profit = Revenue from operations – Operating cost
Cost of revenue from operations = Purchases of stock – in – trade + Change in inventories of stock in trade + Direct expenses.
Operating expenses = Administrative expenses + Selling and distribution expenses.
Operating cost = Cost of revenue from operations + Operating expenses.

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 4.
State any three advantages of ratio analysis.
Answer:
Following are the advantage of ratio analysis:

  • Measuring operational efficiency: Ratio analysis helps to know the operational efficiency of a business by finding the relationship between operating cost and revenues and also by comparison of present ratios with those of the past ratios.
  • Intra firm comparison: Comparison of the efficiency of different divisions of an organization is possible by comparing the relevant ratios.
  • Inter-firm comparison: Ratio analysis helps the firm to compare its performance with other firms.

Question 5.
Bring out the limitations of ratio analysis:
Answer:

  • Consistency in preparation of financial statements: Inter firm comparisons with the help of ratio analysis will be meaningful only if the firms follow uniform accounting procedures consistently.
  • Non-availability of standards or norms: Ratios will be meaningful only if they are compared with accepted standards or norms. Only few financial ratios have universally recognized standards. For other ratios, comparison with standards is not possible.
  • Change in price level: Ratio analysis may not reflect price level changes and current values as they are calculated based on historical data given in financial statements.

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

IV Exercises

Liquidity ratios

Question 1.
Calculate the current ratio from the following information.

Particulars Particulars
Current investments 40,000 Fixed assets 5,00,000
Inventories 2,00,000 Trade creditors 80,000
Trade debtors 1,20,000 Bills Payable 50,000
Bills receivable 80,000 Expenses payable 20,000
Cash and cash equivalents 10,000 Non-Current liability 3,00,000

Solution:
Current ratio = \(\frac{\text { Current Assets }}{\text { Current liabilities }}\)
Current Assets = Current Investments + Inventories + Trade Dr’s + B/R+Cash & Cash equivalents
= 40,000 + 2,00,000 + 1,20,000 + 80,000 + 10,000
= Rs. 4,50,000

Current Liabilities
= Trade Cr’s + B/P + Exps. Payable.
= 80,000 + 50,000 + 20,000
= Rs. 1,50,000
Cur. Ratio = \(\frac{4,50,000}{1,50,000}\)
= 3:1
Answer:
Current ratio : 3:1

Question 2.
Calculate quick ratio: Total current liabilities ₹ 2,40,000; total current assets ₹ 4,50,000; Inventories ₹ 70,000; Prepaid Expenses ₹ 20,000
Solution:
Quick Ratio = \(\frac{\text { Quick assets }}{\text { Current liabilities }}\)
Quick assets = Current Assets – Inventories & Prepaid exps.
= 4,50,000 – (70,000 + 2000)
= Rs.3,60,000
Quick Ratio = \(\frac{3,60,000}{2,40,000}\)
=1:5:1
Answer:
Quick ration: 1:5:1

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 3.
Following is the balance sheet of Lakshmi Ltd. as of 31st March 2019.
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 4
Calculate: (i) Current ratio (ii) Quick ratio
Solution:
Current ratio = \(\frac{\text { Current Assets }}{\text { Current liabilities }}\)
Current Assets = Inventories + Trade Dr’s + Cash & Cash equivalents + Prepaid Exps
= 1,60,000 +3,20,000 + 80,000 + 40,000
= Rs. 6,00,000
Current Liabilities = Short term borrowings + Trade Payable + Expenses payable + Short term provisions.
= 50,000 + 3,10,000 + 15,000 + 25,000
= Rs. 4,00,000
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 5
Answer:
(i) Current ratio: 1.5:1;
(ii) Quick ratio: 1:1

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 4.
From the following information calculate debt equity ratio.
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 6
Solution:
Debt Equity Ratio = \(\frac{\text { Long term debt }}{\text { Shareholder’s Funds }}\)
Long term debt = Debenture = Rs. 6,00,000
Shareholder’s Fund = Equity share capital + Reserves & Surplus
= 6,00,000 + 2,00,00 = Rs. 8,00,000
Debt Equity Ratio = \(\frac{6,00,000}{8,00,000}\)
= 0.75:1
Answer:
Debt equity ratio: 0.75:1

Question 5.
From the following Balance Sheet of Sundaram Ltd. Calculate proprietary ratio:

Balance Sheet of Sundaram Ltd. as on 31.03.2019
Particulars Amount ₹
I Equity and Liabilities
1. Shareholders’ Fund
a) Share capital
(i) Equity share capital 2,50,000
(ii) Preference share capital 1,50,000
(b) Reserves and surplus 50,000
2. Non – Current Liabilities
Long term borrowings :
3. Current liabilities
Trade Payable 1,50,000
                                                   Total 6,00,000
II Assets
1. Non-Current assets
(a) Fixed Assets 4,60,000
(b) Non-Current investments 1 ,00,000
2. Current assets
Cash and cash equivalents 40,000
                                                   Total 6,00,000

Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 7
Answer:
Proprietary ratio: 0.75:1

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 6.
From the following information calculate the capital gearing ratio:

Balance  Sheet (Extract) as on 31.03.2018
Particulars Amount ₹
I Equity and Liabilities
1. Shareholders Funds
(a) Share capital
Equity share capital 4,00,000
5% Preference share capital 1,00,000
(b) Reserves and surplus
General reserve 2,50,000
Surplus 1,50,000
2. Non-current Liabilities
Long-term borrowings (6% Debentures) 3,00,000
3. Current liabilities
Trade payables 1,20,000
provision for tax 30,000
                                                                Total 13,50,000

Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 8
Answer:
Capital gearing ratio: 0.5:1

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 7.
From the following Balance Sheet of James Ltd. as of 31.03.2019 calculate
(i) Debt- Equity ratio
(ii) Proprietary ratio
(iii) Capital gearing ratio

Balance Sheet (of James Ltd.) as on 31.03.2018
Particulars Amount ₹
I Equity and Liabilities
1. Shareholders Funds
(a) Share capital
Equity share capital 2,50,000
6% Preference share capital 2,00,000
(b) Reserves and surplus 1,50,000
2. Current Liabilities
Long –term borrowings(8% Debentures) 3,00,000
3. Non-current Liabilities
Short -term borrowings_from banks 2,00,000
Trade Payables 1,00,000
                                                                Total 12,00,000

Solution:
Debt Equity Ratio =  \(\frac{\text { Long Term Debt }}{\text { Shareholder’s Fund }}\)|
Shareholder’s Fund
Long term debt = Debentures = Rs. 3,00,000
Shareholder’s Fund = Eq. share capital +Pref. Shares capital + Reserves & surplus
= 2,50,000 ÷ 2,00,000 + 1,50,000
= Rs. 6,00,000
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 9

(3) Capital Gearing ratio

= \(\frac{\text { Funds bearing fixed interest (or) Fixed divided }}{\text { Equity shareholder’s Fund }}\)
Funds bearing fixed interest (or) fixed dividend
= Pref. Share Cap + Debentures
= 2,00,000 + 3,00,000 = Rs. 5,00,000
Equity share holder’s Fund .
= Equity Share cap + Reserves & Surplus
= 2,50,000 + 1,50,000
= Rs. 4,00,000
Capital gearing ratio = \(\frac{5,00,000}{4,00,000}\)
= 1.25:1

Answer:

  • Debt-equity ration; 0.5:1;
  • Proprietary ration; 0.5:1;
  • Capital gearing ratio:1.25:1

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 8.
From the given information calculate the inventory turnover ratio and inventory conversion period (in months) of Devi Ltd.

Particulars Rs.
Revenue from operations 12,00,000
Inventory at the beginning of the year 1,70,000
Inventory at the end of the year 1,30,000
Purchase made during the year 6,90,000
Carriage inwards 20,000

Solution:
Inventory Turnover Ratio = \(\frac{\text { cost of revenue from operations }}{\text { Average Inventory }}\)
Cost of revenue from operations = Purchase of stock + change in inventories of finished goods operations + Direct Exps.
= Rs. 6,90,000
AverageInventory = \(\frac{\text { Opening Inventory + Closing inventory }}{2}\)
= \(\frac{1,70,000+1,30,000}{2}\)
= Rs. 1,50,000
Change in inventory = Opening inventory – Closing inventory
= 1,70,000 – 1,30,000
= Rs. 40,000
Cost of revenue from operation
= 6,90,000 + 40,000 + 20,000
= Rs. 7,50,000
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 10
Answer:
Inventory turnover ratio 5times; Inventory conversion period 2.4 months

Question 9.
The credit revenue from operations of Velavan Ltd, amounted to ₹ 10,00,000. Its debtors and bills receivables at the end of the accounting period amounted to ₹ 1,10,000 and ₹ 1,40,000 respectively. Calculate trade receivables turnover ratio and also.collection period in months.
Solution:
Trade receivable Turnover ratio = \(\frac{\text { Credit revenue from Operations }}{\text { Average trade receivables }}\)
Average trade receivables = \(\frac{\text { Opening trade receivables + Closing trade receivables }}{2}\)
Trade receivable = Trade Drs + B/R
Inventory Turnovers Ratio = \(\frac{10,00,000}{2,50,000}\)
= 4 times
Average Trade receivable
= 1,10,000 + 1,40,000
= Rs. 2,50,000
Debt collection period = \(\frac{\text { Number of months in a year }}{\text { Trade receivable turnover ratio }}\)
= \(\frac{12}{4}\)
= 3 months
Answer:
Trade receivables turnover ratio: 4 time; Debt collection period: 3 months

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 10.
From the following figures obtained from Arjun Ltd, calculate the trade payable turnover ratio and credit payment period (in days)

Particulars Rs.
Credit purchases during 2018 -2019 9,50,000
Trade creditors as on 01.04.2018 60,000
Trade creditors as on 3 1.03.2019 50,000
Bills payable as on 0L04.2018 45,000
BillS payable as on 3 1.03.2019 35000

Solution:
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 11
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 12
Answer:
Trade payable turnover ratio: 10 times; Credit payment period: 36.5 days

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 11.
From the following information of Geetha Ltd., Calculate fixed assets turnover ratio
(i) Revenue from operations during the year was ₹ 55,00,000.
(ii) Fixed assets at the end of the year ₹ 5,00,000
Solution:
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 13
Answer:
Fixed assets turnover ratio: 11 times

Question 12.
Calculate

  • Inventory turnover ratio
  • Trade receivable turnover ratio
  • Trade payables turnover ratio and
  • Fixed assets turnover ratio from the following obtained from Aruna Ltd.
    Particulars As of 31st March 2018 ₹ As of 31st March 2019 ₹
    Inventory 3,60,000 4,40,000
    Trade receivables 7,40,000 6,60,000
    Trade Payable 1,90,000 2,30,000
    Fixed assets 6,00,000 8,00,000

     

Additional information:

  • Revenue from operations for the year ₹ 35,00,000
  • Purchases for the year ₹ 21,00,000
  • Cost of revenue from operation ₹ 16,00,000
    Assume that sales and purchases are for credit.

Solution
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 14
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 15
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 16
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 17
Answer:

  • Inventory turnover ratio; 4 times;
  • Trade receivable turnover ratio; 5 times;
  • Trade payables turnover ratio: 10 times;
  • Fixed assets turnover ratio: 5 times

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 13.
Calculate gross profit ratio form the following: Revenue from operations ₹ 2,50,000, Cost of revenue from operation ₹ 2,10,000 and Purchases ₹ 1,80,000.
Solution:
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 18
Answer:
Gross Profit ratio 16%

Question 14.
Following is the statement of profit and loss of Padma Ltd. for the year ended 31st March, 2018. Calculate the operating cost ratio.
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 19
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 20
Notes to Accounts

Particulars Rs.
I. Other expenses
Office and administrative expenses 50,000
Selling and distribution expenses 90,000
Loss on sale of furniture 30,000
1,70,000

Solution:
Operating cost Ratio = \(\frac{\text { Operating cost }}{\text { Revenue from operation }}\) × 100
Operating cost = Cost of revenue from operations + Operating expenses.
Cost of revenue from operations = Purchase + Change in inventory + Direct Expenses
= 8,60,000 + 40,000 + Nil
= Rs. 9,00,000
Operating Exps = Salaries + Office & Administration Exps + Selling+Distribution Exps
= 1,60,000 + 50,000 + 90,000
= Rs. 3,00,000
Operating cost = 9,00,000 + 3,00,000
= Rs, 12,00,000
Operating cost Ratio = \(\frac {12,00000}{15,00000}\) × 100
= 80%
Answer:
Operating cost ratio 80%

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 15.
Calculate operating profit ratio under the following cases.
Case 1 : Revenue from operations ₹ 8,00,000 Operating Profit ₹ 2,00,000.
Case 2 : Revenue from operations ₹ 20,00,000 Operating Cost ₹ 14,00,000.
Case 3 : Revenue from operations ₹ 10,00,000 Gross profit 25% on revenue from operations, operating expenses ₹ 1,00,000.
Solution:
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 21
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 22
Answer:
Operating profit ratio – Case 1: 25%; Case 2:30%; Case 3:15%

Question 16.
From the following details of a business, concern calculates net profit ratio.

Particulars Amount Rs.
Revenue from operations 9,60,000
Cost of revenue from operations 5,50,000
Office and administrationexpenses 1,45,000
Selling and distribution expenses 25,000

Solution
Net Profit Ratio = \(\frac{\text { Net Profit }}{\text { Revenue from operations }}\)× 100
Gross profit = Revenue from operations – Cost of revenue from operation
= 9,60,000-5,50,000 Rs. 4,10,000
Operating Profit = Gross Profit – Operating Exps
Operating Exps = Office & Administrative Exps + Selling & Distribution Exps
= 1,45,000 + 25,000 = Rs. 1,70,000
Operating Profit = 4,10,000 – 1,70,000
Operating Profit = Rs. 2,40,000
Net Profit ratio = \(\frac{2,40,000}{9,60,000}\)× 100 = 25%
Answer :
Net Profit ratio 25%

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 17.
From the following statement of profit. and loss of Dericston Ltd. Calculate
(i) Gross Profit ratio
(ii) Net Profit ratio.

Statement of Profit and Loss
Particulars
I. Revenue from operations 24,00,000
II. Other income:
Income from investment 70,000
III. Total revenues (I+II) 24,70,000
IV. Expenses:
Purchases of stock-in-trade 18,80,000
Changes in inventories -80,000
Employee benefits expense 2,90,000
Other expenses 1,10,000
Provision for tax 30,000
Total expenses 22,30,000
V. Profit for year 2,40,000

Solution
Gross Profit Ratio = \(\frac{\text { Gross Profit }}{\text { Revenue from operations }}\)×100
Gross profit = Revenue from operations – Cost of revenue from operation
Cost of revenue from operations = Purchase + Change in inventories
= 18,80,000 – 80,000 = Rs. 18,00,000
Gross Profit = 24,00,000 – 18,00, 000 = Rs. 6,00,000
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 23
Answer :

  • Gross profit ratio of 25%
  • net Profit ratio 10%

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 18.
From the following trading activities of Jones Ltd. Calculate

  • Gross profit ratio
  • Net Profit ratio
  • Operating cost ratio
  • Operating profit ratio
Statement of Profit and Loss
Particulars Rs.
I Revenue from operations 4,00,000
II. Other income:
Income from investment 4,000
III. Total revenues (I+II) 4,04,000
IV. Expenses:
Purchases of stock-in-trade 2,10,000
Changes in inventories 30,000
Employee benefits expense 24,000
Other expenses (Administration and selling) 60,000
Total expenses 3,24,000
V. Profit for year 80,000

Solution
(1) Gross Profit Ratio = \(\frac{\text { Gross Profit }}{\text { Revenue from operations }}\)× 100
cost of Revenue from operations = Purchase + Change in inventories
= 2,10,000 + 30,000
= Rs. 2,40,000
Gross profit = Revenue from operations – cost of revenue from operations
= 4,00,000 – 2,40,000
= Rs. 1,60,000
Gross Profit ratio = \(\frac{1,60,000}{4,00,000}\)× 100 = 40%
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 24
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 25
Answer :

  • Gross profit ratio 40%
  • Net Profit ratio 20%
  • Operating cost ratio 75%
  • Operating profit ratio 25%

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 19.
Following is the extract of the balance sheet of Abdul Ltd., as of 31st March 2019

Particulars Rs.
I. Equity and Liabilities
1. Shareholders’ Funds
a) Share capital 2,00,000
b) Reserves and surplus 50,000
2. Non-Current liabilities
Long-term borrowings 1,50,000
3. Current liabilities
(a) Trade Payable 1,30,000
(b) Reserves and surplus 5,000
(c) Short – term provisions 20,000
Total 5,55,000

Net Profit before interest and tax for the year was ₹ 60,000. Calculate the return on capital employed for the year.
Solution:
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 26
Answer :
Return on capital employed: 15%

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

12th Accountancy Guide Ratio Analysis Additional Important Questions and Answers

Other Important question & Answers
Question 1.
All solvency ratios are express in terms of
(a) Proportion
(b) Times
(c) Percentage
Answer:
(b) Times

Question 2.
All activity ratios, (or) Turnover ratios in terms of
(a) Proportion
(b) Times
(c) Percentage
Answer:
(b) Times

Question 3.
All profitability ratios are expressed in terms of ………………
(a) Proportion
(b) Times
(c) Percentage
Answer:
(c) Percentage

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 4.
Shareholders funds include
(a) Equity share capital, preference share capital reserves & Surplus
(b) Loans from banks & financial institutions.
(c) Equity share capital, preference share capital, reserves & surplus, and loans from banks & financial institutions.
Answer:
(a) Equity share capital, preference share capital reserves & Surplus

Question 5.
The current ratio is a
(a) Solvency ratio
(b) Profitability ratio
(c) Liquidity ratio
Answer:
(a) Solvency ratio

Question 6.
The ratio is expressed in ……………… way
(a) 2
(b) 4
(c) 3
Answer:
(c) 3

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 7.
The cost of revenue from the operation is Rs. 4,00,000. Average inventories Rs. 8,00,000 Inventory turnover ratio is
(a) 5 times
(b) 4 times
(c) 7 times
Answer:
(a) 5 times

Question 8.
The operating ratio is equal to
(a) 100-operating profit ratio
(b) 100 +operating profit ratio
(c) Operating profit ratio
Answer:
(a) 100-operating profit ratio

Question 9.
Operating expenses include
(a) Selling & administration expenses
(b) Selling & administration expens
(c) a & b
Answer:
(c) a & b

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 10.
Equity share capital Rs. 2,00,000 Reserves & Surplus Rs. 30,000 Debenture Rs. 40,000 and shareholders fund will be.
(a) Rs. 200,000
(b) 2,70,000
(c) Rs. 2,30,000
Hint:
Share holder fund = Equity share capital + Reserve and surplus
= 2,00,000 + 30,000
= ₹ 2,30,000
Answer:
(c) Rs. 2,30,000

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

III Short Answer Questions

Question 1.
Define Ratio Analysis
Answer:
According to Myers, “Ratio analysis is a study of the relationship among various financial factors in a business”.

Question 2.
What do you mean by ratio Analysis?
Answer:
Ratio analysis is a tool which involves analyzing the financial statements by calculating various. It is a tool of financial statement analysis, in which, inferences are drawn based on the computation and analysis of different ratios.

Question 3.
What are the two ways of classifying the ratios?
Answer:
Ratios may be classified in the following two ways:

  • Traditional classification
  • Functional classification

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 4.
What do you mean by the traditional classification of ratio? Explain
Answer:
The traditional classification of ratios is done on the basis of the financial statements from which the ratios are calculated. Under the traditional classification, the ratio is classified as:

  • Balance sheet ratio: If both items in a ratio are from the balance sheet, it is classified as a balance sheet ratio.
  • Income statement ratio: If the two items in a ratio are from the income statement, it is classified as an income statement ratio.
  • Inter – Statements ratio: If a ratio is computed with a tone item from the income statement and another item from the balance sheet, it is called an inter-statement ratio.

Question 5.
What is the functional classification of ratios?
Answer:
Under the functional classification, the rations are classified as follows:

  • Liquidity ratios
  • Long term solvency ratios
  • Turnover ratios.
  • Profitability ratios.

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 6.
What do you mean by Liquidity ratios?
Answer:
Liquidity means the capability of being converted into cash with ease. Liquidity ratios help to assess the ability of a business concern to meet its short term financial obligations. Short term assets (current assets) are more liquid as compared to long term assets (fixed assets). Liquidity ratios are also called as short term solvency ratios.

Question 7.
What do you mean by the current ratio?
Answer:
Current ratio gives the proportion of current assets to current liabilities of a business concern. It is computed by dividing current assets by current liabilities. The current ratio indicates the ability of an entity to meet its current liabilities as and when they are due for payment.

Question 8.
What do you mean by Long-term solves ratios? what are its types?
Answer:
Long term solvency means the firm’s ability to meet its liabilities in the long run. Long term solvency ratios help to determine the ability of the business to repay its debts in the long run. The following ratios are normally computed for evaluating long term solvency of the business:

  • Debt equity ratio
  • proprietary ratio
  • Capital gearing ratio

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 9.
What do you mean by Turnover Ratios? What are its types?
Answer:
Turnover ratios show how efficiently assets or other items have been used to generate revenue from operations. They are also called as activity ratios or efficiency ratios. They how the speed of movement of various items. They are expressed as number of times in relation to the item compared.
The important turnover ratios are:

  • Inventory turnover ratio
  • Trade receivable turnover ratio
  • Trade payable turnover ratio
  • Fixed assets turnover ratio.

Question 10.
What do you mean by Trade Receivable Turnover ratio?
Answer:
Trade receivable turnover ratio is the comparison of credit revenue from operations with average trade receivables during an accounting period. It gives the velocity of the collection of cash from trade receivables.

Question 11.
What do you mean by Debt collection Period?
Answer:
Debt collection period is the average time taken to collect the amount due from trade receivables. Lesser the debt collection period, grater is the efficiency of management in the collection of cash from trade receivables. It is calculated as follows.
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 27
What do you mean by Trade payable Turnover ratio?
Trade payable turnover ratio is the comparison of net credit purchases with average trade payables during an accounting period. It gives the velocity to payment of cash towards trade payables.

 Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis

Question 12.
What do you mean by credit payment period?
Answer:
It is the average time taken by the business for payment of accounts payable. Lesser the credit payment period, greater is the efficiency of the management in managing accounts payable as it indicated quicker settlement of trade payables. It is calculated as follows:
Samacheer Kalvi 12th Accountancy Guide Chapter 9 Ratio Analysis 28

Question 13.
What do you mean by Fixed Assets Turnover
Answer:
The fixed assets turnover ratio gives the number of times the fixed assets are turned over during the year in relation to the revenue from operations. This ratio indicates the efficiency of utilization of fixed assets.

Question 14.
What do you mean by profitability ratios? What are its types?
Answer:
Profitability ratios help to assess the profitability of a business concern. These rations also help to analyze the earning capacity of the business in terms of utilization of resources employed in the business. Generally, these rations are expressed as a percentage.
The profitability ratios commonly used are:

  1. Gross profit ratio
  2. Operating cost ratio
  3. Operating profit ratio
  4. Net profit ratio
  5. Return on investment.