NCERT Class 12 Accountancy Part 2 Chapter 5 Accounting Ratios Extra Questions and Answers
Class 12 Accountancy Part 2 Chapter 5 Extra Questions and Answers – Accounting Ratios. Here in this Page Class XII Students can Learn Extra Questions & Answer 5th Chapter Accountancy Part 2 fully Inside.
We Provided Here Accounting Ratios Accountancy Part 2 Chapter 5 Very Short Type Questions and Short Type Questions.
Board |
NCERT |
Class |
12 |
Book Title |
Accountancy Part II |
Chapter |
5 |
Chapter Name |
Accounting Ratios |
Topic |
Extra Questions |
(1) Mention any two objectives of ratio analysis.
Ans: (a) To identify the flaws of the business.
(b) To provide detail analysis of its profitability position.
(2) Define “Liquidity of business”
Ans: It refers to the ability of business to meet its current liabilities.
(3) Mention any two uses of ratio analysis?
Ans: (a) It helps to judge the liquidity of business.
(b) It helps in determining the profitability of business.
(4) Mention any two limitations of ratio analysis.
Ans: (a) Ratio analysis becomes less effective due to change in price level.
(b) Limited use of a single ratio.
(5) What does trade receivables turnover ratio indicate?
Ans: It indicates the speed with which the amount can be collected from trade debtors or trade receivables.
(6) What is the relevance of average collection period?
Ans: It indicates the average time in which customers are paying for credit revenue from operations.
(7) Define working capital ratio.
Ans: This ratio reveals how efficiently working capital is used in creating revenue from operations.
(8) Name two activity ratio
Ans: Two activity ratio are – inventory turnover ratio and trade receivables turnover ratio.
(9) Define proprietary ratio.
Ans: This ratio defines the relationship between equity and total assets. I.e. equity or shareholder’s fund/Total asset.
(10) Define operating profit. How is it calculated?
Ans: Operating profit is the excess of revenue over cost of revenue from operation less operating expenses.
It is calculated ass – operating profit = revenue from operations – cost of revenue from sales – operating expenses.
(11) Define non-operating expenses.
Ans: These expenses are those expenses which are not related to normal business activities like loss due to fire, interest on long-term loans etc.
In case you are missed :- Previous Chapter Extra Questions
(12) What is the importance of operating ratio?
Ans: This ratio measures the extent to which revenue from operation can be covered by the cost of revenue from operation and operating expenses.
(13) Mention two ratios in which one figure is derived from profit & loss A/c and the other from balance sheet.
Ans: (a) Working capital turnover ratio and (b) trade receivables turnover ratio.
(14) Why liquid ratio is more reliable than current ratio?
Ans: Liquid ratio is more reliable than current ratio because it includes only those assets that can be instantly converted into cash.
(15) How is current ratio different from quick ratio?
Ans: Current ratio indicates relationship between current asset and current liabilities whereas quick indicates relationship between quick and current liabilities.
(16) Mention two ratios in which both the figures are from balance sheet.
Ans: (a) Current ratio and (b) Quick ratio are two ratios in which both the figures are from balance sheet.
(17) Why is stock excluded from liquid asset?
Ans: Stock is excluded from liquid asset because it takes some time for it to be converted into cash, and involves uncertainty.
(18) Why is book over draft included in current liabilities?
Ans: It is so because this facility can be availed by the firm for a period of 1 year or less than it.
(19) State the impact of “Bills payable given to trade payables” on a liquid ratio of 1:1.
Ans: Liquid ratio will not after because neither the liquid asset nor the current liabilities are affected.
(20) How does “issue of shares against the purchase of fixed asset” affect the debt equity ratio of 1:1?
Ans: There will be an effect on debt-equity ratio i.e – it will decrease because the long-term loans remain unchanged and shareholders fund increases due to issue of shares.
Also see: Accounting Ratios mcq question answers
(21) What is the effect of conversion of debentures into preference shares on Debt-equity ratio of 1:2?
Ans: Debt-equity will decrease because conversion of debentures into preference shares reduces the debt and increases the equity.
(22) What does a law proprietary ratio indicate?
Ans: It indicates use of more long-term loans in financing total assets of the firm.
(23) What does a high trade receivables turnover ratio indicate?
Ans: It indicates that amount from trade receivables is collected quickly or faster.
(24) State the impact of “payment to trade payables” on trade payable turnover ratio.
Ans: Trade payable turnover ratio will increase because trade payable decreases.
(25) What is the impact on working capital ratio with increase in current liabilities?
Ans: Working capital turnover ratio will increase due to increase in current liability as it decreases the working capital.
(26) How can you differentiate operating profit and net profit?
Ans: Operating profit is achieved after deducting operating expenses from gross profit whereas net profit is received after deducting operating and non-operating expenses from gross profit.
In case you are missed :- Next Chapter Extra Questions
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