NCERT Solution (Part - 2) - Accounting Ratios

Page No.: 239

Numericals Questions:
Question 1: Current Ratio is 3.5:1 Working Capital is Rs 9,00,000. Calculate the amount of Current Assets and Current Liabilities.

or, Current Assets = 3.5 Current Liabilities (1)
Working Capital = Current Assets - Current Liabilities
Working Capital = 90,000
or, Current Assets - Current Liabilities = 90,000
or, 3.5 Current Liabilities - Current Liabilities = 90,000 (from 1)
or, 2.5 Current Liabilities = 90,000

Question 2: Shine Limited has a current ratio 4.5:1 and quick ratio 3:1; if the stock is 36,000, calculate current liabilities and current assets.

or, 4.5 Current Liabilities = Current Assets

or, 3 Current Liabilities = Quick Assets
Quick Assets = Current Assets- Inventory  = Current Assets - 36,000
Current Assets − Quick Assets = 36,000
or, 4.5 Current Liabilities − 3 Current Liabilities = 36,000
or, 1.5 Current Liabilities = 36,000
or, Current Liabilities = 24,000
Current Assets = 4.5 Current Liabilities
or, Current Assets = 4.5 x 24,000
= 1,08,000

Note: The solution given in the book is incorrect as it from the given figures Current Assets is ascertained to be Rs 1,08,000 and Current Liabilities Rs 24,000.

Question 3: Current liabilities of a company are Rs 75,000. If current ratio is 4:1 and liquid ratio is 1:1, calculate value of current assets, liquid assets and inventory
Answer: Current Ratio = Current Assets /Current Liabilities
or, 4 = Current Assets / 75,000
or, 4 × 75,000 = Current Assets
or, Current Assets = 3,00,000
Liquid Ratio = Liquid Assets / Current Liabilities
or, 1 = Liquid Assets / 75,000
Liquid Assets = 75,000
Inventory = Current Assets − Liquid Assets
= 3,00,000 − 75,000
= 2,25,000

Page No.: 240
Numericals Questions:

Question 1: Handa Ltd.has stock of Rs 20,000. Total liquid assets are Rs 1,00,000 and quick ratio is 2:1. Calculate current ratio.
Answer: Quick Ratio = Quick Assets / Current Liabilities
or, 2 =  1,00,000 / Current Liabilities
or, Current Liabilities =  1,00,000 / 2
= 50,000
Current Assets = Liquid Assets + Inventory
= 1,00,000 + 20,000
= 1,20,000
Current Ratio = Current Assets / Current Liabilities
=1,20,000/ 50,000
=2.4/1= 2.4:1

Question 2: Calculate debt equity ratio from the following information:

 Rs Total Assets 15,00,000 Current Liabilities 6,00,000 Total Debts 12,00,000

Long Term Depts = Total Depts - Current Liabilities

Question 3: Calculate Current Ratio if:
Inventory is Rs 6,00,000; Liquid Assets Rs 24,00,000; Quick Ratio 2:1.

Question 4: Compute Stock Turnover Ratio from the following information:

Question 5: Calculate following ratios from the following information:
(i) Current ratio (ii) Acid test ratio (iii) Operating Ratio (iv) Gross Profit Ratio

Question 6: From the following information calculate:
(i) Gross Profit Ratio (ii) Inventory Turnover Ratio (iii) Current Ratio (iv) Liquid Ratio (v) Net Profit Ratio (vi) Working capital Ratio:

NoteThere is a misprint in the question given in the textbook. The figure of Rs '760,000' represents the value of 'Liquid Assets' and not 'Current Assets'. The above solution has been worked out accordingly and the answer given as per the textbook is same as per the above solution.

Page No.: 241
Numericals Questions:
Question 1: Compute Gross Profit Ratio, Working Capital Turnover Ratio, Debt Equity Ratio and Proprietary Ratio from the following information:

Question 2: Calculate Inventory Turnover Ratio if:
Inventory in the beginning is Rs 76,250, Inventory at the end is 98,500, Gross Revenue from Operations is Rs 5,20,000, Return Inwards is Rs 20,000, Purchases is Rs 3,22,250.

The document NCERT Solution (Part - 2) - Accounting Ratios | Additional Study Material for Commerce is a part of the Commerce Course Additional Study Material for Commerce.
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FAQs on NCERT Solution (Part - 2) - Accounting Ratios - Additional Study Material for Commerce

 1. What are accounting ratios and why are they important in commerce?
Ans. Accounting ratios are mathematical tools used to analyze financial statements and assess the financial performance and position of a company. They help in measuring the profitability, liquidity, efficiency, and solvency of a business. Accounting ratios are important in commerce as they provide valuable insights into a company's financial health and assist in making informed business decisions.
 2. How are accounting ratios calculated?
Ans. Accounting ratios are calculated by dividing one financial figure by another in order to establish a relationship between them. For example, the current ratio is calculated by dividing current assets by current liabilities. Similarly, the gross profit ratio is calculated by dividing gross profit by net sales. Different accounting ratios have different formulas, and each ratio provides a unique perspective on a company's financial performance.
 3. What are the different types of accounting ratios?
Ans. There are various types of accounting ratios, including liquidity ratios (e.g., current ratio, quick ratio), profitability ratios (e.g., gross profit ratio, net profit ratio), activity ratios (e.g., inventory turnover ratio, receivables turnover ratio), and solvency ratios (e.g., debt-equity ratio, interest coverage ratio). Each type of ratio focuses on a specific aspect of a company's financial performance and helps in evaluating its efficiency, profitability, liquidity, and financial stability.
 4. How can accounting ratios be used for financial analysis?
Ans. Accounting ratios play a crucial role in financial analysis as they provide a comprehensive view of a company's financial performance. By comparing the ratios of a company with industry benchmarks or historical data, financial analysts can identify trends, strengths, weaknesses, and areas for improvement. Ratios also help in evaluating the effectiveness of management decisions, assessing the risk and return associated with investments, and determining the overall financial health and stability of a company.
 5. What are the limitations of accounting ratios?
Ans. While accounting ratios are useful tools for financial analysis, they have certain limitations. Firstly, ratios are based on historical financial data and may not accurately reflect the current or future performance of a company. Additionally, ratios can be manipulated by creative accounting practices, making them less reliable in some cases. Moreover, ratios are best used for comparison purposes within the same industry or against industry benchmarks, as different industries may have different financial characteristics. Lastly, ratios do not consider external factors such as changes in the economy or market conditions, which can impact a company's financial performance.

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