Effect of Transaction on Accounting Ratio
Operating Profit Ratio
Given Operating Profit Ratio = 20%.
Operating Profit Ratio = (Operating Profit/ Revenue from Operations) X 100
- Purchase of Stock-in-Trade ₹20,000 - No Change
- Purchases Return ₹7,000 - No Change
- Sale of Stock-in-Trade of ₹12,000 Costing ₹10,000 - No Change
- Stock-in-Trade costing ₹3,000 withdrawn for personal use - No Change
Effect on Debt Equity Ratio
Given Debt Equity ratio -= 2:1
Debt Equity Ratio = Debt/Equity
- Borrowed Loan from bank for 4 years - Increase
- Repayment of long-term loan - Decrease
- Payment to Creditors - No Change
- Redemption of Debentures in Cash - No Change
- Issue of Equity Shares - Decrease
- Issue of shares to vendor for furniture purchased - Decrease
- Issue of 9% Debentures to vendor for machinery purchased - Increase
- Issue of bonus shares - No Change
- Purchase of a fixed assets by taking loan - Increase
- (Purchase of Fixed Assets on credit or on deferred payment basis would also mean the same)
- Purchase of fixed assets on 3 months credit/ cash / cheque - No Change
- Sale of fixed assets (book value ₹4,000) at loss of ₹1,500 - Increase
- Sale of Machinery (book value ₹9,000) for ₹10,000 - Decrease
- Conversion of Debentures into Equity Shares - Decrease
- Declaration of final dividend - Increase
Effect of Transaction on Accounting Ratio
Effect on Proprietary Ratio
Given Proprietary ratio = 0.80 : 1.
Proprietary Ratio = Proprietor’s Funds/Total Assets
- Borrowed a loan from bank ₹1,00,000 payable after 3 years - Decrease
- Purchased furniture for cash ₹25,000 - No Change
- Purchased Office Equipment by cheque - No Change
- Redeemed 6% redeemable preference shares ₹1,00,000 - Decrease
- Redeemed 9% Debentures ₹2,00,000 - Increase
- Issued equity shares to the vendors of machinery purchased for ₹2,00,000 - Increase
Debt to Capital Employed Ratio
Given Debt to Capital Employed Ratio = 0.4:1
Debt to Capital Employed Ratio = Debt/ Capital Employed
- Sale of Machinery at a loss of ₹20,000 - Increase
- Tax Refund of ₹10,000 during the year - Decrease
- Purchase of Stock-in-Trade on credit of two months for ₹20,000 - No Change
- Purchase of Goods on credit for ₹10,000 on 16 months credit basis, operating cycle is of 18 months - Decrease
- Conversion of Debentures into Equity Shares of ₹1,00,000 - Decrease
- Purchase of Fixed Assets for ₹3,00,000 on credit - Increase
Effect of Transaction on Accounting Ratio
Effect on Return on Investment Ratio
Return on Investment = (Net Profit before Interest and Tax /Capital Employed) X 100
- Purchase of office Equipment of ₹2,00,000 by issue of Equity Shares - Decrease
- Charging depreciation of ₹12,500 on machinery - Decrease
- Redemption of 9% Debentures by cheque ₹2,00,000 - No Change
- Conversion of ₹3,00,000, 9% Debentures into Equity Shares - Decrease
The question of this form can also be there in MCQs, like:
Which of the following transaction will improve the quick ratio?
(a) Purchase of inventory for cash
(b) Cash collected from debtors
(c) Sale of goods (costing ₹4,000 for ₹5,000)
(d) None of the above
Answer:
(c) Sale of goods (costing ₹4,000 for ₹5,000)
Learning Games and Activities in Business Studies Class 12