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Accountancy Test - 23
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Accountancy Test - 23
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  • Question 1/10
    5 / -1

    Ratios are comparable even if different accounting policies and procedures are followed by different firms.

    Solutions

    There are differing accounting policies for valuation of inventory, calculation of depreciation, etc., available for various aspects of business transactions. As there are variations in accounting practices followed by different business enterprises, ratios may not be comparable.

  • Question 2/10
    5 / -1

    Which of the following ratios measure the long-term solvency of an organisation?

    Solutions

    Liquid Ratio measures short-term solvency, indicating a firm’s ability to pay current liabilities immediately. Debt-equity Ratio and Proprietary Ratio measure long-term solvency, assessing the firm’s capital structure and ownership funding.

  • Question 3/10
    5 / -1

    Which of the following is/are not the component(s) of quick assets?

    Solutions

    Quick assets = Current assets - Inventories - Prepaid expenses

  • Question 4/10
    5 / -1

    The Current Assets of APE Ltd. are ₹ 6,00,000; Current Liabilities are ₹ 2,00,000; Inventories are ₹ 1,50,000; Prepaid Expenses are ₹ 50,000 and Cash and Cash Equivalents are ₹ 1,00,000. What is its quick ratio?

    Solutions

    Quick assets = Current assets - Inventories - Prepaid expenses

    = 6,00,000 - 1,50,000 - 50,000 = ₹ 4,00,000 

    Quick ratio = Quick assets/Current liabilities = 4,00,000/2,00,000 = 2

  • Question 5/10
    5 / -1

    Generally, a lower current ratio is considered better.

    Solutions

    Generally, higher the current ratio the better it is because it indicates that the firm will be able to meet its current liabilities.

  • Question 6/10
    5 / -1

    Purchase of machinery for cash will _____ the quick ratio.

    Solutions

    The purchase of machinery for cash will reduce current assets without affecting current liabilities, thus decreasing the quick ratio.

  • Question 7/10
    5 / -1

    What is the debt to equity ratio when the following information is available Total Assets ₹ 35,00,000; Total Debts ₹ 25,00,000; Current Liabilities ₹ 8,00,000

    Solutions

    Debt to equity ratio = Debt/Equity

    Debt = Total debt - Current liabilities = 25,00,000 - 8,00,000 = ₹ 17,00,000

    Equity = Total assets - Total debts = 35,00,000 - 25,00,000 = ₹ 10,00,000

    Debt to equity ratio = 17,00,000/10,00,000 = 1.7 : 1

  • Question 8/10
    5 / -1

    ARYA Ltd has a term Loan of ₹ 10,00,000. Interest on Loan for the year is ₹ 1,25,000 and its PBIT is ₹ 5,00,000. Its interest coverage ratio is

    Solutions

    Interest coverage ratio = PBIT/Interest on long-term debt = 5,00,000/1,25,000 = 4 times.

  • Question 9/10
    5 / -1

    If P Ltd obtains a Bank Loan of ₹ 30,00,000 payable after 5 years, then its proprietary ratio will

    Solutions

    Total assets will increase by the amount of loan but Shareholders’ funds will remain the same so proprietary ratio will decrease.

  • Question 10/10
    5 / -1

    Purchase returns amounting to ₹ 20,000 will deteriorate the inventory turnover ratio

    Solutions

    It will improve the ratio as COGS remains unchanged but average stock decreases.

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