Test: Accounting Ratios- Assertion & Reason Type Questions


4 Questions MCQ Test Accountancy Class 12 | Test: Accounting Ratios- Assertion & Reason Type Questions


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Attempt Test: Accounting Ratios- Assertion & Reason Type Questions | 4 questions in 8 minutes | Mock test for Commerce preparation | Free important questions MCQ to study Accountancy Class 12 for Commerce Exam | Download free PDF with solutions
QUESTION: 1

Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Higher the Gross Profit ratio, good for the business, lower ratio not good for the business.

Reason (R): It reflects the efficiency with which a firm produces its products. A high gross profit ratio indicates that the organization is able to produce at a relatively lower cost.

Solution: The gross profit should be sufficient to cover all operating expenses and to build up reserves after paying all fixed interest charges and dividends.
QUESTION: 2

Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Debt to Equity Ratio of 2 : 1 is considered satisfactory. Generally a Low Ratio is considered favourable.

Reason (R): This ratio indicates the proportionate claims of owners and outsiders on a firm's assets. High Ratio shows claims of outsiders are greater but Low Ratio shows outsiders claims are less.

Solution: Debt equity ratio is calculated as Total outside liabilities/ Shareholders equity and so it can be said that it is the relationship between outsiders fund and shareholders funds.
QUESTION: 3

Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): The standard ratio of current ratio is 2:1.

Reason (R): A high operating ratio leaves a high margin to meet non-operating expenses.

Solution: Operating Ratio = (Operating Expenses / Net Sales) * 100. The operating ratio is used to measure the operational efficiency of the management.
QUESTION: 4

Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Liquid ratio reveals strength of liquidity of a business unit.

Reason (R): Liquid ratio is the one of the various ratios used to measure the ability of a company to meet its long-term debts.

Solution: Liquid ratio analyses liquid assets and liquid liabilities of a business unit in order to assess the extent of liquidity.
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