Subject: 12th Accountancy

Topic: Book 3 Full Test

Date of Test: 18.4.24
Total Marks: 50 marks
Time Limit: 2hrs Confidence Holds Our Heads High

QUESTIONS

1. If the total sales is Rs. 2,50,000 and credit sales is 25% of cash sales, the amount of credit sales is:
(a) Rs. 50,000 (b) 2,50,000 (c) Rs. 16,000 (d) Rs. 3,00,000

2. What will be the amount of gross profit of a firm if its average inventory is Rs. 80,000, inventory turnover
ratio is 6 times, and the selling price is 25% above cost?
(a) Rs. 1,20,000 (b) Rs. 1,60,000 (c) Rs. 2,00,000 (d) None of the above.

3. Which of the following statements are false?

I. When all the comparative figures in a balance sheet are stated as percentage of the total, it is termed as
horizontal analysis.
II. When financial statements of several years are analysed, it is termed as vertical analysis.
III. Vertical Analysis is also termed as time series analysis.
(a) Both I and II (b) Both I and III (c) Both II and III (d) All three I, II, III

4. Given below are two statements, one labelled as Assertion (A) and the other labelled as Reason (R):
Assertion (A): Increasing the value of closing inventory increases profit.
Reason (R): Increasing the value of closing inventory reduces cost of goods sold.
In the context of the above two statements, which of the following is correct?
(a) Both (A) and (R) are correct and (R) is the correct reason of (A).
(b) Both (A) and (R) are correct but (R) is not the correct reason of (A).
(c) Only (R) is correct.
(d) Both (A) and (R) are wrong.

5. Given below are two statements, one labelled as Assertion (A) and the other labelled as Reason (R):
Assertion (A): A high operating ratio indicates a favourable position.
Reasoning (R): A high operating ratio leaves a high margin to meet non-operating expenses.
In the context of the above two statements, which of the following is correct?
(a) (A) and (R) both are correct and (R) correctly explains (A).
(b) Both (A) and (R) are correct but (R) does not explain (A).
(c) Both (A) and (R) are incorrect.
(d) (A) is correct but (R) is incorrect.

6. Current ratio of Adaar Ltd. is 2.5:1. 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) Only (ii) and (iii) are correct

7. A company has an operating cycle of eight months. It has accounts receivables amounting to Rs. 1,00,000
out of which Rs. 60,000 have a maturity period of 11 months. How would this information be presented
in the balance sheet?
 (a) Rs. 40,000 as current assets and Rs. 60,000 as non-current assets.
(b) Rs. 60,000 as current assets and Rs. 40,000 as non-current assets.
(c) Rs.1,00,000 as non-current assets.
(d) Rs. 1,00,000 as current assets.

8. Given below are two statements, one labelled as Assertion (A) and the other labelled as Reason (R):
Assertion (A): The focus of calculation of working capital revolves around managing the operating cycle
of the business.
Reason (R): It is because the concept of operating cycle is required to ascertain the liquidity of assets and
urgency of payments to liabilities.
In the context of the above two statements, which of the following is correct?
(a) Both (A) and (R) are true, but (R) is not the explanation of (A).
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.

9. Which of the following are included in traditional classification of ratios?

(i) Liquidity Ratios (ii) Statement of Profit and Loss Ratios (iii) Balance Sheet Ratios.
(iv) Profitability Ratios (v) Composite Ratios (vi) Solvency Ratios
(a) (ii), (iii) and (v) (b) (i), (iv) and (vi) (c) (i), (ii) and (vi) (d) All

10. The following groups of ratios primarily measure risk:

(a) solvency, activity, and profitability (b) liquidity, efficiency, and solvency
(c) liquidity, activity, and profitability (d) liquidity, solvency, and profitability

11. Which of the following is/are correct?

(i) A ratio is an arithmetical relationship of one number to another number.
(ii) Liquid ratio is also known as acid test ratio.
(iii) Ideally accepted current ratio is 1: 1.
(iv) Debt equity ratio is the relationship between outsider's funds and shareholders' funds.
(a) All (i), (ii), (iii) and (iv) are correct (b) Only (i), (ii) and (iv) are correct
(c) Only (ii), (iii) and (iv) are correct (d) Only (ii) and (iv) are correct

12. Which of the following are the tools of Vertical Analysis?

(i) Ratio Analysis (ii) Comparative Statements (iii) Common Size Statements.
(a) Only (i) (b) Both (i) and (iii)
(c) Both (i) and (ii) (d) Only (iii)

13. Match the items given in Column I with the headings/sub-headings (Balance Sheet) as defined in Schedule
III of Companies Act 2013.
Column I Column II
(I) Loose Tools (A) Intangible fixed assets
(II) Patents (B) Other current assets
(III) Prepaid Insurance (C) Long term Borrowings
(IV) Debentures (D) Inventories
(V) Machinery (E) Tangible fixed assets
Choose the correct options:
(a) (I) – (A), (II) – (B), (III) – (D), (IV)- (C), (V) – (E)
 (b) (I) – (D), (II) – (A), (III) – (B), (IV)- (C), (V) – (E)
(c) (I) – (D), (II) – (A), (III) – (B), (IV)- (E), (V) – (C)
(d) (I) – (E), (II) – (D), (III) – (A), (IV)- (B), (V) – (B)

14. Which ratio indicates the proportion of assets financed out of shareholder’s funds?
(a) Debt-equity ratio (b) Fixed asset turnover ratio
(c) Proprietary ratio (d) Total Asset to Debt ratio

15. Balance Sheet (Extract)

Equity and liabilities 31-3-2019 31-3-2020

12% Debentures 2,00,000 1,60,000

Additional Information:
Interest on debentures is paid on half yearly basis on 30th September and 31st March each year.
Debentures were redeemed on 30th September 2019.
How much amount (related to above information) will be shown in Financing Activity for Cash Flow
Statement prepared on 31st March 2020?
(a) Outflow Rs. 40,000 (b) Inflow Rs. 42,600
(c) Outflow Rs. 61,600 (d) Outflow Rs. 64,000

16. What will be the Current ratio of a company whose Net Working Capital is Zero?
(a) 1:1 (b) 0:1
(c) 2:1 (d) Cannot be determined.

17. Which of the following is not a part of Finance Cost (in statement of profit and loss)?
(a) Bank Charges (b) Interest Paid on Debentures
(c) Interest Paid on Public Deposits (d) Loss on Issue of Debentures

18. Which of the following is not an investing cash flow?

(a) Purchase of marketable securities for Rs. 25,000 cash.
(b) Sale of land for Rs. 28,000 cash.
(c) Sale of 2,500 shares (held as investment) for Rs. 15 each.
(d) Purchase of equipment for Rs. 500 cash

19. The ___________ may indicate that the firm is experiencing stock outs and lost sales.
(a) Average payment period (b) Inventory turnover ratio
(c) Average collection period (d) Quick ratio

20. 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

21. State whether the following transactions will result in inflow, outflow or no flow of cash while preparing
cash flow statement: [2]
(i) Decrease in outstanding employees benefits by ₹3000 - OUTFLOW
(ii) Increase in Current Investment by ₹ 6,000. – NO FLOW
22. Calculate proprietary ratio, if Total assets to Debt ratio is 2:1. Debt is Rs. 5,00,000. Equity shares capital
is 0.5 times of debt. Preference Shares capital is 25% of equity share capital. Net profit before tax is Rs.
10,00,000 and rate of tax is 40%. [3]
Solution:
Proprietary Ratio = Proprietor's Fund /Total Assets (1/2)

Total Assets = Debts × 2 = Rs.5,00,000 × 2 = Rs.10,00,000 (1)

Proprietor’s Funds = Equity Share Capital + Preference Share Capital + Surplus

= (5,00,000 × 0.5) + (5,00,000 × 0.5 × 25%) + (10,00,000 – 40% of 10,00,000)
= 2,50,000 + 62,500 + 6,00,000 (1)
= Rs.9,12,500

Proprietary Ratio = 9,12,500 / 10,00,000

= 0.912 : 1 (1/2)

23. From the following information, calculate ‘Interest Coverage Ratio. Profit after interest and tax Rs.
7,50,000. Rate of income tax 25% 9 % Debentures Rs. 8,00,000. [3]
Solution:
Interest coverage Ratio = Profit before Interest and Tax / Interest on Long term Debts (1/2)

Profit after Interest and Tax = Rs. 7,50,000

+ Tax = Rs. 2,50,000
Profit before Tax = Rs. 10,00,000 (1)
+ Interest on debenture = Rs. 72,000
= Rs. 10,72,000 (1)

Interest coverage Ratio = 10,72,000 /72,000 = 14.89 times (1/2)

24. rom the following data, calculate Current ratio and Liquid Ratio [3]
Liquid Assets ₹ 75,000
Inventories (Includes Loose Tools of ₹20,000) ₹ 35,000
Prepaid expenses ₹10,000
Working Capital ₹ 60,000

Solution
Current Assets = Liquid Assets + Inventories (excluding loose tools) +Prepaid Expenses
= ₹ 75,000+ ₹ 15,000 + ₹ 10,000 = ₹ 1,00,000 (1/2)
Working Capital = Current Assets – Current Liabilities
Current Liabilities = Current Assets – Working Capital (1/2)
= ₹ 1,00,000 - ₹ 60,000 = ₹ 40,000
Current Ratio = Current Assets / Current Liabilities
= ₹ 1,00,000 / ₹ 40,000
= 2.5 : 1 (1)
Liquid Ratio = Liquid Assets / Current Liabilities
= ₹ 75,000 / ₹ 40,000
= 1.875 : 1 (1)
25. Calculate amount of Opening Trade Receivables and Closing Trade Receivables from the following
figures: [3]
Trade Receivable Turnover ratio 5 times
Cost of Revenue from Operations ₹ 8,00,000
Gross Profit ratio 20%
Closing Trade Receivables were ₹ 40,000 more than in the beginning
Cash sales being ¼ times of Credit sales

SOLUTION
Sales = Cost of Revenue from Operations + Profit
If Sales is 100; Gross Profit = ₹ 20
Cost of Revenue from Operations = ₹ 100 - ₹ 20 = ₹80

Applying Unitary Method

If Cost of Revenue of Operation is ₹ 80, then Revenue from Operations = ₹ 100
If Cost of Revenue of Operation is ₹ 8,00,000
Then, Revenue from Operations = ( ₹ 8,00,000 X 100) /80 = ₹ 10,00,000 (1/2)

Revenue from Operations = Cash Revenue from Operations + Credit Revenue from Operations
(i) Let Cash Revenue from Operations be x; Credit Revenue from Operations = 4x
Substituting in (i)
₹ 10,00,000 = x +4x
x = ₹ 10,00,000 /5 = ₹ 2,00,000
Credit Revenue from Operations = ₹ 8,00,000 (1/2)

Trade Receivable Turnover ratio = Credit Revenue from Operations / Average Trade Receivables
(ii) Average Trade Receivables = ( Opening Trade Receivables + Closing Trade Receivables ) /2

Let Opening Trade Receivables be y; Closing Trade Receivables = y + ₹ 40,000

Substituting in (ii)
5 = ₹ 8,00,000 / (y + y + ₹ 40,000)/2
5 = ₹ 8,00,000 / ( y + ₹ 20,000)
5y + ₹ 1,00,000 = ₹ 8,00,000
y= ₹ 7,00,000/5 y= ₹1,40,000 (Opening Trade Receivables) (1)
Opening Trade Receivables = ₹ 1,40,000
Closing Trade Receivables = Opening Trade Receivables + ₹ 40,000
= ₹1,40,000 +₹ 40,000
Closing Trade Receivables = ₹1,80,000 (1)
26. From the following Balance Sheet of R Ltd., Prepare a Common Size Statement. [4]
27. Prepare Cash Flow Statement on the basis of information given in the Balance Sheets of Relga Ltd. as at
31st March, 2019 and 31st March, 2020: [6]

Additional Information:
1. During the year a piece of machinery with a book value of Rs. 30,000; provision for depreciation on it Rs.
10,000 was sold at a loss of 50% on book value.
2. Debentures were redeemed on 31st March 2020.
Solution
28. Prepare a Cash Flow Statement from the following Balance Sheets of Arya Ltd.:

Additional Information:
1. Tax provided during the year is ₹17,000.
2. Depreciation charged on plant and Machinery during the year amounted to ₹1,20,000.
3. Non-current Investments costing ₹ 30,000 were sold for ₹ 40,000 during the year. Gain on sale of
Investments was credited to Capital Reserve.
4. Additional Debentures were issued on 31.03.2023. [6]
ANSWER
***END OF EXAMINATION***