Accountancy Test

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Accountancy Test - 24

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Weekly Quiz Competition

Question 1
5 / -1

Debt-equity ratio expresses the relationship between short-term debt and equity share capital of an enterprise.

A
True

B
True

C
Can't say

D
Partially true

Solution

Debt-equity ratio = Long-term debt/Shareholder’s funds
Question 2
5 / -1

A rise in operating ratio will indicate a rise in efficiency.

A
True

B
False

C
Can't say

D
Partially true

Solution

A higher operating ratio indicates a decline in efficiency. It is a cost ratio. Higher operating ratio will mean there is a greater component of cost in price and hence lesser profits.
Question 3
5 / -1

Which ratio indicates the speed with which amount is being paid to the creditors?

A
Trade payables turnover ratio

B
Trade receivables ratio

C
Inventory turnover ratio

D
None of the above

Solution

Trade payables turnover ratio indicates the speed with which amount is being paid to creditors.
Question 4
5 / -1

XYZ Ltd. extends credit terms of 45 days to its customers. Its credit collection would be considered poor if its average collection period was.

A
30 days

B
36 days

C
47 days

D
37 days

Solution

If the average collection period exceeds the credit terms its credit collection would be considered poor.
Question 5
5 / -1

Which of the following groups of ratios primarily measure risk?

A
Liquidity, activity and profitability

B
Liquidity, activity and common stock

C
Liquidity, debt and profitabilty

D
Activity, debt and profitability

Solution

By considering liquidity, debt, and profitability ratios together, stakeholders can gain a comprehensive understanding of a company's financial risk. Liquidity ratios indicate short-term risk, debt ratios assess financial risk, and profitability ratios provide insight into the company's ability to manage risk and generate returns.
Question 6
5 / -1

What will be the effect of purchase of goods for cash ₹ 3,000 on gross profit ratio?

A
It will increase

B
No change

C
Either (a) or (b)

D
It will decrease

Solution

Gross profit ratio is unaffected because cash purchases increase inventory (an asset) but do not impact COGS or sales until the goods are sold. The ratio depends on sales and COGS, not purchases.
Question 7
5 / -1

What will be the current ratio of a company whose net working capital is zero?

A
1:1

B
0

C
1.5

D
Can't say

Solution

Net working capital = 0

Current assets - Current liabilities = 0

So, Current assets = Current liabilities ....(i)

Current ratio = Current assets/Current liabilities

Using Eq.(i); Current ratio = Current liabilities/Current liabilities = 1
Question 8
5 / -1

There are two statements marked as Assertion (A) and Reason (R). Read the statements and choose the appropriate option from the options given below.

Assertion (A): The debt to equity ratio will increase at the time of issue of equity shares for cash.

Reason (R): Issue of equity shares will increase the shareholders’ funds but the long-term debts will remain the same.

A
Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

B
Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)

C
Assertion (A) is false, but Reason (R) is true

D
Assertion (A) is true, but Reason (R) is false

Solution

The debt-to-equity ratio = Total Debt / Shareholders’ Funds. Issuing equity shares for cash increases Shareholders’ Funds without affecting Total Debt, which decreases the ratio. Thus, Assertion (A) is false. Reason (R) is true, as issuing equity shares increases Shareholders’ Funds while long-term debts remain unchanged, explaining the decrease.

Therefore, the correct option is 3 (C).
Question 9
5 / -1

There are two statements marked as Assertion (A) and Reason (R). Read the statements and choose the appropriate option from the options given below.

Assertion (A): Inventories and prepaid expenses are not considered as quick assets.

Reason (R): Inventories take some time before it is converted into cash while prepaid expenses can be converted into cash.

A
Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

B
Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)

C
Assertion (A) is false, but Reason (R) is true

D
Assertion (A) is true, but Reason (R) is false
Solution
- Assertion (A) is true because quick assets exclude inventories and prepaid expenses (Quick assets = Current assets - Inventories - Prepaid expenses).
- Reason (R) is false. Inventories take time to convert into cash, which is correct, but prepaid expenses, being payments made in advance (e.g., prepaid rent), cannot be converted into cash, contradicting the original statement.
- Thus, the correct option is option (D), as Assertion (A) is true and Reason (R) is false
Question 10
5 / -1

Directions For Questions

Read the following case study and answer questions on the basis of the same.

Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows

‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transaction

• Assets ₹ 8,000

• Creditors ₹ 1,000

• Normal rate of return 10%

• Goodwill of the firm ₹1,000

...view full instructions

What is the average profit of business?

A
₹ 850

B
₹ 800

C
₹ 750

D
₹ 700

Solution

Normal Profit = Capital Employed x Normal Rate of Return / 100

= 8,000−1,000 = 7,000

Normal Profit = 7,000 × 10/100 = 700

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Re-Attempt Weekly Quiz Competition

Accountancy Test - 24

Result

Accountancy Test - 24

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SHARING IS CARING

Question 1

True

True

Can't say

Partially true

Solution

Question 2

True

False

Can't say

Partially true

Solution

Question 3

Trade payables turnover ratio

Trade receivables ratio

Inventory turnover ratio

None of the above

Solution

Question 4

30 days

36 days

47 days

37 days

Solution

Question 5

Liquidity, activity and profitability

Liquidity, activity and common stock

Liquidity, debt and profitabilty

Activity, debt and profitability

Solution

Question 6

It will increase

No change

Either (a) or (b)

It will decrease

Solution

Question 7

1:1

0

1.5

Can't say

Solution

Question 8

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)

Assertion (A) is false, but Reason (R) is true

Assertion (A) is true, but Reason (R) is false

Solution

Question 9

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)

Assertion (A) is false, but Reason (R) is true

Assertion (A) is true, but Reason (R) is false

Solution

Question 10

₹ 850

₹ 800

₹ 750

₹ 700

Solution

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