Question by CA (Dr.) G.S.Grewal – Series 60
- The Current Ratio of a Company is 2 : 1. Bills Payable ₹ 5,000 discharged will result in increase in Current Ratio.
- Price Earning (P/E) Ratio = ? / Earning Per Share (EPS)
- Quick Assets = ?
(a) Current Assets – Prepaid Expenses
(b) Current Assets – Inventory – Prepaid Expenses
(c) Current Assets + Inventory – Prepaid Expenses
(d) Current Assets – Inventory + Prepaid Expenses
Answer – Series 60
Reason: Discharge of Bills Payable ₹ 5,000 will increase Current Ratio because both Current Assets (Cash) and Current Liabilities (Bills Payable) reduce by the same amount.
- Market Value of Equity Share
Reason: Quick Assets = Current Assets – Inventory – Prepaid Expenses
Quick Assets are those Current Assets of an enterprise which are either in the form of Cash and Bank Balance or can be converted into Cash and Bank Balance within a short period.
Question – Series 66
- Loose Tools is a part of Inventory while calculating Current Ratio.
- Solvency of business is assessed through ___________________.
3.Fixed assets of a company are increased from ₹ 3,00,000 to ₹ 4,00,000. What is the percentage change?
Answer – Series 66
Reason: Loose tools is a part of Inventory while calculating Current Ratio.
- Solvency Ratio
Reason: Percentage Change = ₹ 1,00,000/₹ 3,00,000 X 100 = 33.3%.
Question – Series 89
- Current Ratio is the example of Long term Solvency Ratio.
- Short-term Loans and Advances are included in ____________________.
- If current ratio is 2:1 current assets are ₹ 82,000. Current liabilities will be:
(a) ₹ 41,000
(b) ₹ 38,000
(c) ₹ 15,000
(d) ₹ 20,000
Answer – Series 89
Reason: Current Ratio is calculated to assess whether the firm will be able to meet its short-term liabilities hence it is short term solvency ratio.
- Current Assets
Reason: Current Ratio = Current Assets/Current Liabilities
2/1 = ₹ 82,000/Current Liabilities
Current Liabilities = ₹ 41,000.
Question – Series 100
- Debtors and Bills Receivable are included in Trade Receivable..
- Financial performance of a firm is assessed through ____________ ratio.
- Opening Inventory is ₹ 20,000; closing inventory is ₹ 60,000 purchases ₹ 1,60,000. Stock Turnover Ratio is
(a) 4 Times
(b) 6 Times
(c) 3 Times
(d) 2 Times
Answer – Series 100
Reason: Debtors are the person who gives the credit to enterprises for normal course of business. i.e., credit sale made by the enterprise.
Reason: : Stock Turnover Ratio = Cost of Revenue from Operations/Average Inventory
Cost of Revenue from Operations = Opening Inventory + Purchases – Closing Stock
= ₹ 20,000 + ₹ 1,60,000 – ₹ 60,000 = ₹ 1,20,000
Average Inventory = Opening Inventory + Closing Inventory/2
= (₹ 20,000 + ₹ 60,000)/2
= ₹ 40,000
Inventory Turnover Ratio = ₹ 1,20,000/₹ 40,000 = 3 Times
Question – Series 101
- High Working Capital Turnover Ratio shows efficient use of working capital.
- Solvency of business is assessed by _______________.
- _________ provides an assessment of average time that it takes to collect debtors.
(a) Trade Receivables Turnover Ratio
(b) Trade Payables Turnover Ratio
(c) Debt Collection Period
(d) Gross Profit Ratio
Answer – Series 101
Reason: High Working Capital Turnover Ratio shows the number of times Working Capital has been turned over in generating revenue. Higher revenue means higher profit. Thus, high Working Capital Turnover Ratio means efficient use of working capital.
- solvency ratios
Reason: Debt Collection Period shows an average period for which the credit revenue from operations remains outstanding.