NCERT Solution (Part - 3) - Accounting Ratios

# NCERT Solution (Part - 3) - Accounting Ratios | Additional Study Material for Commerce PDF Download

Page No. : 241
Numerical Questions :
Question 1 : Calculate Inventory Turnover Ratio from the data given below:

*Since the very first item is Inventory in the beginning, so this item should be Inventory at the end.

Question 2 : A trading firm’s average inventory is Rs 20,000 (cost). If the inventory turnover ratio is 8 times and the firm sells goods at a profit of 20% on sale, ascertain the profit of the firm.

Let Sale Price be Rs 100
Then Profit is Rs 20
Hence, the Cost of Revenue from Operations = Rs 100 − Rs 20 = Rs 80
If the Cost of Revenue from Operations is Rs 80, then Revenue from Operations = 100
If the Cost of Revenue from Operations is Rs 1, then Revenue from Operations = 100/80

Question 3 : You are able to collect the following information about a company for two years:

Calculate Inventory Turnover Ratio and Trade Receivables Turnover Ratio if in the year 2015-16 stock in trade increased by Rs 2,00,000.

Note: It has been assumed that all sales are credit sales
Page no. 242
Numericals Questions
Question 1 : The following Balance Sheet and other information, calculate following ratios:
(i) Debt-Equity Ratio
(ii) Working Capital Turnover Ratio

Additional Information: Revenue from Operations Rs. 18,00,000 Calculate:
i) Debt-Equity Ratio
ii) Working Capital Turnover Ratio
(Debt-Equity Ratio 0.63:1; Working Capital Turnover Ratio 1.39 times; Trade
Receivables Turnover Ratio 2 times)

Debt = Long Term Borrowings = Rs 12,00,0000
Equity = Share Capital + Reserve and Surplus
= 10,00,000 + 9,00,000
= Rs 19,00,000
2. Working Capital Turnover Ratio

Revenue from Operations = Rs 18, 00,000
Working Capital = Current Assets – Current Liabilities
= 18,00,000 – 5,00,000
= Rs 13,00,000

Net Credit Sales = Rs 18,00,000
Average Trade Receivables = Rs 9,00,000
Notes:
1. Revenue from Operations are assumed to be revenue generated from credit sales.

2. The amount of trade receivables given in the Balance Sheet is assumed to be Average Trade Receivables.

Question 2 : From the following information, calculate the following ratios:
i) Quick Ratio
ii) Inventory Turnover Ratio
iii) Return on Investment

(Balance in the Statement of Profit & Loss A/c)

Page no. 243
Numerical Questions :
Question 3 : From the following, calculate
(a) Debt Equity Ratio (b) Total Assets to Debt Ratio (c) Proprietary Ratio.

Question 4 : Cost of Revenue from Operations is Rs 1,50,000. Operating expenses are Rs 60,000. Revenue from Operations is Rs 2,50,000. Calculate Operating Ratio.

Question 5 : The following is the summerised transactions and Statement of Profit and Loss Account for the year ending March 31, 2007 and the Balance Sheet as on the basis of following information, calculate:
(i) Gross Profit Ratio (ii) Current Ratio (iii) Acid Test Ratio (iv) Inventory Turnover Ratio (v) Fixed Assets Turnover Ratio

Average Inventory = 15,000*
*Note: Since values for inventory in the beginning and inventory at the end is not given, the amount of inventory is assumed to be average inventory.

Question 6 : From the following information calculate Gross Profit Ratio, Inventory Turnover Ratio and Trade Receivables Turnover Ratio.

Note: In the solution, Trade Receivables are assumed as the Average Trade Receivables.

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## FAQs on NCERT Solution (Part - 3) - Accounting Ratios - Additional Study Material for Commerce

 1. What are accounting ratios and why are they important in commerce?
Ans. Accounting ratios are mathematical calculations that are used to evaluate the financial performance and position of a company. They help in analyzing the profitability, liquidity, solvency, and efficiency of a business. These ratios are important in commerce as they provide insights into the financial health of a company, aid in decision-making, and assist in comparing the company's performance with industry standards or competitors.
 2. How are accounting ratios calculated?
Ans. Accounting ratios are calculated by using financial data from a company's financial statements. The most commonly used ratios include profitability ratios (such as gross profit ratio and net profit ratio), liquidity ratios (such as current ratio and quick ratio), solvency ratios (such as debt to equity ratio and interest coverage ratio), and efficiency ratios (such as inventory turnover ratio and receivables turnover ratio). These ratios are computed by dividing one financial figure by another and are expressed in the form of a percentage, ratio, or times.
 3. What is the significance of profitability ratios in analyzing a company's financial performance?
Ans. Profitability ratios are essential in analyzing a company's financial performance as they measure the profitability or earning capacity of a business. These ratios provide insights into the company's ability to generate profits from its operations, control expenses, and manage its resources effectively. Profitability ratios help in assessing the company's overall financial health, its ability to generate returns for shareholders, and aid in making informed investment decisions.
 4. How do liquidity ratios help in assessing a company's short-term financial position?
Ans. Liquidity ratios are used to assess a company's short-term financial position and its ability to meet its short-term obligations. These ratios measure the company's ability to convert its current assets into cash quickly to meet its current liabilities. Liquidity ratios such as the current ratio and quick ratio help in evaluating whether a company has sufficient liquid assets to cover its short-term debts. These ratios are important indicators of a company's liquidity and its ability to meet its day-to-day operational requirements.
 5. What is the role of solvency ratios in determining a company's long-term financial stability?
Ans. Solvency ratios play a crucial role in determining a company's long-term financial stability and its ability to meet its long-term obligations. These ratios assess the company's ability to repay its long-term debts and obligations. Solvency ratios such as the debt to equity ratio and interest coverage ratio help in evaluating the company's capital structure, financial leverage, and its ability to generate sufficient earnings to cover interest expenses. These ratios help investors and creditors assess the company's financial risk and make decisions regarding long-term investments or lending.

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