Question bank

CLASS 12
SUBJECT- ACCOUNTANCY
CHAPTER-5 ACCOUNTING RATIOS

I. Multiple Choice Questions (MCQs)

1. What is the primary purpose of accounting ratios?

a) To prepare financial statements
b) To analyze and interpret financial data
c) To allocate resources
d) To maintain books of accounts
Answer: b) To analyze and interpret financial data
2. Which of the following is a liquidity ratio?
a) Debt to equity ratio
b) Current ratio
c) Return on equity
d) Gross profit ratio
Answer: b) Current ratio
3. The formula for inventory turnover ratio is:
a) Net sales / Average inventory
b) Cost of goods sold / Average inventory
c) Net profit / Inventory
d) Average inventory / Net sales
Answer: b) Cost of goods sold / Average inventory
4. What does a high debt-equity ratio indicate?
a) Low financial risk
b) High financial risk
c) High profitability
d) High liquidity
Answer: b) High financial risk
 5. Which ratio is calculated to assess a company’s profitability?
a) Quick ratio
b) Gross profit ratio
c) Current ratio
d) Debt-equity ratio
Answer: b) Gross profit ratio

II. Fill in the Blanks

1. ________ ratios measure the ability of a company to meet its short-term obligations.
Answer: Liquidity
2. The formula for operating profit ratio is ________.
Answer: Operating profit / Net sales × 100
3. ________ is used to analyze the relationship between net profit and net sales.
Answer: Net profit ratio
4. A company’s financial leverage is analyzed using the ________ ratio.
Answer: Debt-equity
5. ________ ratio is also known as acid test ratio.
Answer: Quick

III. Very Short Answer Questions

1. What are accounting ratios?

Answer: Accounting ratios are mathematical expressions used to evaluate the
financial performance and position of a company.
2. State the formula for quick ratio.
Answer: Quick ratio = (Current assets - Inventory - Prepaid expenses) / Current
liabilities
3. What does a low inventory turnover ratio indicate?
Answer: It indicates slow-moving inventory or overstocking.
4. What is the formula for debt-equity ratio?
Answer: Debt-equity ratio = Total debt / Shareholders' equity
 5. Name two profitability ratios.
Answer: Gross profit ratio and Net profit ratio.

IV. Short Answer Questions

1. Explain the importance of liquidity ratios.

Answer: Liquidity ratios, such as current and quick ratios, assess a company’s ability
to meet short-term obligations, ensuring financial stability and smooth operations.
2. What is the significance of the gross profit ratio? How is it calculated?
Answer:
o Significance: It indicates the efficiency of production and pricing policies.
o Formula: Gross profit / Net sales × 100.
3. What is the purpose of solvency ratios? Provide an example.
Answer: Solvency ratios evaluate a company's long-term financial stability and ability
to meet long-term obligations. Example: Debt-equity ratio.
4. Distinguish between current ratio and quick ratio.
Answer:
o Current ratio includes all current assets and liabilities.
o Quick ratio excludes inventory and prepaid expenses, focusing on highly
liquid assets.
5. Explain the relevance of return on capital employed (ROCE).
Answer: ROCE measures the efficiency of a company in generating profits from its
capital employed, indicating overall profitability.

V. Long Answer Questions

1. Explain the classification of accounting ratios with examples.

Answer:
Accounting ratios are classified into:
o Liquidity Ratios: Assess short-term solvency (e.g., Current ratio).
o Solvency Ratios: Evaluate long-term financial stability (e.g., Debt-equity
ratio).
o Profitability Ratios: Measure profitability (e.g., Gross profit ratio).
 o Turnover Ratios: Analyze efficiency in asset utilization (e.g., Inventory
turnover ratio).
2. Discuss the limitations of accounting ratios.
Answer:
o Historical Data: Ratios are based on past financial statements.
o Lack of Standardization: Differences in accounting policies may lead to
inconsistency.
o No Qualitative Analysis: Ratios do not reflect non-financial factors like
employee satisfaction.
o Impact of Inflation: Financial data may not be adjusted for inflation.
3. What is the current ratio? How is it calculated and interpreted?
Answer:
o Definition: It measures a company’s ability to meet short-term liabilities
using current assets.
o Formula: Current assets / Current liabilities.
o Interpretation: A ratio above 1 indicates sufficient liquidity, while a ratio
below 1 suggests potential liquidity issues.
4. Calculate and interpret gross profit ratio and net profit ratio from the following
information:
o Net sales: ₹5,00,000
o Gross profit: ₹1,50,000
o Net profit: ₹50,000
Answer:
o Gross profit ratio = (1,50,000 / 5,00,000) × 100 = 30%.
Interpretation: 30% of sales are retained as gross profit.
o Net profit ratio = (50,000 / 5,00,000) × 100 = 10%.
Interpretation: 10% of sales are retained as net profit.
5. Prepare a detailed note on turnover ratios and their significance.
Answer:
o Definition: Turnover ratios evaluate the efficiency of a company in utilizing its
assets to generate revenue.
o Types:
  Inventory Turnover Ratio = Cost of goods sold / Average inventory.
 Debtors Turnover Ratio = Net credit sales / Average trade receivables.
o Significance: High turnover ratios indicate efficient utilization of resources,
whereas low ratios suggest inefficiency or overstocking.
Dear Teachers and Students,

Join School of Educators' exclusive WhatsApp, Telegram, and Signal groups for FREE access
to a vast range of educational resources designed to help you achieve 100/100 in exams!
Separate groups for teachers and students are available, packed with valuable content to
boost your performance.

Additionally, benefit from expert tips, practical advice, and study hacks designed to enhance
performance in both CBSE exams and competitive entrance tests.

Don’t miss out—join today and take the first step toward academic excellence!

Join the Teachers and Students

Group by Clicking the Link Below
JOIN OUR
WHATSAPP
GROUPS
FOR FREE EDUCATIONAL
RESOURCES
JOIN SCHOOL OF EDUCATORS WHATSAPP GROUPS
FOR FREE EDUCATIONAL RESOURCES
We are thrilled to introduce the School of Educators WhatsApp Group, a
platform designed exclusively for educators to enhance your teaching & Learning
experience and learning outcomes. Here are some of the key benefits you can
expect from joining our group:

BENEFITS OF SOE WHATSAPP GROUPS

Abundance of Content: Members gain access to an extensive repository of

educational materials tailored to their class level. This includes various formats such
as PDFs, Word files, PowerPoint presentations, lesson plans, worksheets, practical
tips, viva questions, reference books, smart content, curriculum details, syllabus,
marking schemes, exam patterns, and blueprints. This rich assortment of resources
enhances teaching and learning experiences.

Immediate Doubt Resolution: The group facilitates quick clarification of doubts.

Members can seek assistance by sending messages, and experts promptly respond
to queries. This real-time interaction fosters a supportive learning environment
where educators and students can exchange knowledge and address concerns
effectively.

Access to Previous Years' Question Papers and Topper Answers: The group
provides access to previous years' question papers (PYQ) and exemplary answer
scripts of toppers. This resource is invaluable for exam preparation, allowing
individuals to familiarize themselves with the exam format, gain insights into scoring
techniques, and enhance their performance in assessments.
 Free and Unlimited Resources: Members enjoy the benefit of accessing an array of
educational resources without any cost restrictions. Whether its study materials,
teaching aids, or assessment tools, the group offers an abundance of resources
tailored to individual needs. This accessibility ensures that educators and students
have ample support in their academic endeavors without financial constraints.

Instant Access to Educational Content: SOE WhatsApp groups are a platform where
teachers can access a wide range of educational content instantly. This includes study
materials, notes, sample papers, reference materials, and relevant links shared by
group members and moderators.

Timely Updates and Reminders: SOE WhatsApp groups serve as a source of timely
updates and reminders about important dates, exam schedules, syllabus changes, and
academic events. Teachers can stay informed and well-prepared for upcoming
assessments and activities.

Interactive Learning Environment: Teachers can engage in discussions, ask questions,

and seek clarifications within the group, creating an interactive learning environment.
This fosters collaboration, peer learning, and knowledge sharing among group
members, enhancing understanding and retention of concepts.

Access to Expert Guidance: SOE WhatsApp groups are moderated by subject matter
experts, teachers, or experienced educators can benefit from their guidance,
expertise, and insights on various academic topics, exam strategies, and study
techniques.

Join the School of Educators WhatsApp Group today and unlock a world of resources,
support, and collaboration to take your teaching to new heights. To join, simply click
on the group links provided below or send a message to +91-95208-77777 expressing
your interest.

Together, let's empower ourselves & Our Students and

inspire the next generation of learners.

Best Regards,
Team
School of Educators
 Join School of Educators WhatsApp Groups

You will get Pre- Board Papers PDF, Word file, PPT, Lesson Plan, Worksheet, practical
tips and Viva questions, reference books, smart content, curriculum, syllabus,
marking scheme, toppers answer scripts, revised exam pattern, revised syllabus,
Blue Print etc. here . Join Your Subject / Class WhatsApp Group.

Kindergarten to Class XII (For Teachers Only)

Class 1 Class 2 Class 3

Class 4 Class 5 Class 6

Class 7 Class 8 Class 9

Class 10 Class 11 (Science) Class 11 (Humanities)

Class 11 (Commerce) Class 12 (Science) Class 12 (Humanities)

Class 12 (Commerce) Kindergarten

Subject Wise Secondary and Senior Secondary Groups
(IX & X For Teachers Only)
Secondary Groups (IX & X)

SST Mathematics Science

English Hindi-A IT Code-402

Hindi-B Artificial Intelligence

Senior Secondary Groups (XI & XII For Teachers Only)

Physics Chemistry English

Mathematics Biology Accountancy

Economics BST History

 Geography Sociology Hindi Elective

Hindi Core Home Science Sanskrit

Psychology Political Science Painting

Vocal Music Comp. Science IP

Physical Education APP. Mathematics Legal Studies

Entrepreneurship French IT

Artificial Intelligence

Other Important Groups (For Teachers & Principal’s)

Principal’s Group Teachers Jobs IIT/NEET

 Join School of Educators WhatsApp Groups

You will get Pre- Board Papers PDF, Word file, PPT, Lesson Plan, Worksheet, practical
tips and Viva questions, reference books, smart content, curriculum, syllabus,
marking scheme, toppers answer scripts, revised exam pattern, revised syllabus,
Blue Print etc. here . Join Your Subject / Class WhatsApp Group.

Kindergarten to Class XII (For Students Only)

Class 1 Class 2 Class 3

Class 4 Class 5 Class 6

Class 7 Class 8 Class 9

Class 10 Class 11 (Science) Class 11 (Humanities)

Class 11 (Commerce) Class 12 (Science) Class 12 (Humanities)

Class 12 (Commerce) Artificial Intelligence

(VI TO VIII)
Subject Wise Secondary and Senior Secondary Groups
(IX & X For Students Only)
Secondary Groups (IX & X)

SST Mathematics Science

English Hindi IT Code

Artificial Intelligence

Senior Secondary Groups (XI & XII For Students Only)

Physics Chemistry English

Mathematics Biology Accountancy

Economics BST History

 Geography Sociology Hindi Elective

Hindi Core Home Science Sanskrit

Psychology Political Science Painting

Music Comp. Science IP

Physical Education APP. Mathematics Legal Studies

Entrepreneurship French IT

AI IIT/NEET CUET
Groups Rules & Regulations:
To maximize the benefits of these WhatsApp groups, follow these guidelines:

1. Share your valuable resources with the group.

2. Help your fellow educators by answering their queries.
3. Watch and engage with shared videos in the group.
4. Distribute WhatsApp group resources among your students.
5. Encourage your colleagues to join these groups.

Additional notes:
1. Avoid posting messages between 9 PM and 7 AM.
2. After sharing resources with students, consider deleting outdated data if necessary.
3. It's a NO Nuisance groups, single nuisance and you will be removed.
No introductions.
No greetings or wish messages.
No personal chats or messages.
No spam. Or voice calls
Share and seek learning resources only.

Please only share and request learning resources. For assistance,

contact the helpline via WhatsApp: +91-95208-77777.
 Join Premium WhatsApp Groups
Ultimate Educational Resources!!

Join our premium groups and just Rs. 1000 and gain access to all our exclusive
materials for the entire academic year. Whether you're a student in Class IX, X, XI, or
XII, or a teacher for these grades, Artham Resources provides the ultimate tools to
enhance learning. Pay now to delve into a world of premium educational content!

Click here for more details

Class 9 Class 10 Class 11

Class 12

📣 Don't Miss Out! Elevate your academic journey with top-notch study materials and secure
your path to top scores! Revolutionize your study routine and reach your academic goals with
our comprehensive resources. Join now and set yourself up for success! 📚🌟

Best Wishes,

Team
School of Educators & Artham Resources
 SKILL MODULES BEING OFFERED IN
MIDDLE SCHOOL

Artificial Intelligence Beauty & Wellness Design Thinking & Financial Literacy
Innovation

Handicrafts Information Technology Marketing/Commercial Mass Media - Being Media

Application Literate

Data Science (Class VIII Augmented Reality /

Travel & Tourism Coding
only) Virtual Reality

Digital Citizenship Life Cycle of Medicine & Things you should know What to do when Doctor
Vaccine about keeping Medicines is not around
at home

Humanity & Covid-19 Blue Pottery Pottery Block Printing

 Food Food Preservation Baking Herbal Heritage

Khadi Mask Making Mass Media Making of a Graphic

Novel

Kashmiri Embroidery Satellites

Rockets
Embroidery

Application of Photography
Satellites
SKILL SUBJECTS AT SECONDARY LEVEL (CLASSES IX – X)

Retail Information Technology Automotive

Security

Introduction To Financial Introduction To Tourism Beauty & Wellness Agriculture

Markets

Food Production Front Office Operations Banking & Insurance Marketing & Sales

Health Care Apparel Multi Media Multi Skill Foundation

Course

Artificial Intelligence
Physical Activity Trainer Electronics & Hardware
Data Science
(NEW)

Foundation Skills For Sciences Design Thinking & Innovation (NEW)

(Pharmaceutical & Biotechnology)(NEW)
 SKILL SUBJECTS AT SR. SEC. LEVEL
(CLASSES XI – XII)

Retail InformationTechnology Web Application Automotive

Financial Markets Management Tourism Beauty & Wellness Agriculture

Food Production Front Office Operations Banking Marketing

Health Care Insurance Horticulture Typography & Comp.

Application

Geospatial Technology Electrical Technology Electronic Technology Multi-Media

 Taxation Cost Accounting Office Procedures & Shorthand (English)
Practices

Shorthand (Hindi) Air-Conditioning & Medical Diagnostics Textile Design

Refrigeration

Salesmanship Business Food Nutrition &

Design
Administration Dietetics

Mass Media Studies Library & Information Fashion Studies Applied Mathematics
Science

Yoga Early Childhood Care & Artificial Intelligence Data Science

Education

Physical Activity Land Transportation Electronics & Design Thinking &

Trainer(new) Associate (NEW) Hardware (NEW) Innovation (NEW)
 Join School of Educators Signal Groups

You will get Pre- Board Papers PDF, Word file, PPT, Lesson Plan, Worksheet, practical
tips and Viva questions, reference books, smart content, curriculum, syllabus,
marking scheme, toppers answer scripts, revised exam pattern, revised syllabus,
Blue Print etc. here . Join Your Subject / Class signal Group.

Kindergarten to Class XII

Class 2 Class 3
Class 1

Class 5 Class 6
Class 4

Class 7 Class 8 Class 9

Class 10 Class 11 (Science) Class 11 (Humanities)

Class 11 (Commerce) Class 12 (Science) Class 12 (Humanities)

Class 12 (Commerce) Kindergarten Artifical intelligence

 Subject Wise Secondary and Senior Secondary
Groups IX & X

Secondary Groups (IX & X)

SST Mathematics Science

Hindi-B
English Hindi-A

IT Artifical intelligence
IT Code-402

Senior Secondary Groups XI & XII

Physics Chemistry English

Biology Accountancy
Mathematics

BST History
Economics
 Geography Sociology Hindi Elective

Hindi Core Home Science Sanskrit

Psychology Political Science Painting

IP
Vocal Music Comp. Science

Physical Education APP. Mathematics Legal Studies

IIT/NEET
Entrepreneurship French

Artifical intelligence CUET

 Join School of Educators CBSE Telegram Groups

Kindergarten

All classes Class 1 Class 2

Class 3 Class 4 Class 5

Class 6 Class 7 Class 8

Class 9 Class 10 Class 11 (Sci)

Class 11 (Com) Class 11 (Hum) Class 12 (Sci)

Class 12 (Com) Class 12 (Hum) JEE/NEET

CUET NDA, OLYMPIAD, NTSE Principal Professional Group

Teachers Professional Group Project File Group

Join School of Educators ICSE Telegram Groups

Kindergarten Class 1 Class 2

Class 3 Class 4 Class 5

Class 6 Class 7 Class 8

Class 9 Class 10 Class 11 (Sci)

Class 11 (Com) Class 11 (Hum) Class 12 (Sci)

Class 12 (Com) Class 12 (Hum)