### Financial Accounting Ratio Analysis Solved MCQs | Part Two

**1. Current Ratio is :**

(A) Solvency Ratio

(B) Liquidity Ratio

(C) Activity Ratio

(D) Profitability Ratio

Answer: B

**2. Current Ratio is :**

(A) Liquid Assets/Current Assets

(B) Fixed Assets/Current Assets

(C) Current Assets/Current Liabilities

(D) Liquid Assets/Current Liabilities

Answer: C

**3. Liquid Assets do not include :**

(A) Bills Receivable

(B) Debtors

(C) Inventory

(D) Bank Balance

Answer: C

**4. Ideal Current Ratio is :**

(A) 1 : 1

(B) 1 : 2

(C) 1 : 3

(D) 2 : 1

Answer: D

**
5. Working Capital is the :
**

(A) Cash and Bank Balance

(B) Capital borrowed from the Banks

(C) Difference between Current Assets and Current Liabilities

(D) Difference between Current Assets and Fixed Assets

Answer: C

**
6. Current assets include only those assets which are expected to be realised within
**

(A) 3 months

(B) 6 months

(C) 1 year

(D) 2 years

Answer: C

**
7. The ………………… of a business firm is measured by its ability to satisfy its short-term obligations as they become due.
**

(A) Activity

(B) Liquidity

(C) Debt

(D) Profitability

Answer: A

**8. Liquid Assets include :**

(A) Debtors

(B) Bills Receivable

(C) Bank Balance

(D) All of the Above

Answer: D

**
9. Liquid Ratio is equal to liquid assets divided by :
**

(A) Non-Current Liabilities

(B) Current Liabilities

(C) Total Liabilities

(D) Contingent Liabilities

Answer: B

**
10. Patents and Copyrights fall under the category of:
**

(A) Current Assets

(B) Liquid Assets

(C) Intangible Assets

(D) None of Above

Answer: C

**
11. Cash Balance ₹15,000; Trade Receivables ₹35,000; Inventory ₹40,000; Trade Payables ₹24,000 and Bank Overdraft is ₹6,000. The current Ratio will be :
**

(A) 3.75 : 1

(B) 3 : 1

(C) 1 : 3

(D) 1 : 3.75

Answer: B

**
12. Trade Receivables ?40,000; Trade Payables ₹60,000; Prepaid Expenses ₹10,000; Inventory ₹1,00,000 and Goodwill is ₹15,000. The current Ratio will be :
**

(A) 1 : 2

(B) 2 : 1

(C) 2.33 : 1

(D) 2.5 : 1

Answer: D

**
13. Cash Balance ₹5,000; Trade Payables ₹40,000; Inventory ₹50,000; Trade Receivables ₹65,000 and Prepaid Expenses are ₹10,000. Liquid Ratio will be
**

(A) 1.75 : 1

(B) 2 : 1

(C) 3.25 : 1

(D) 3 : 1

Answer: A

**
14. Current Assets ₹4,00,000; Current Liabilities ₹2,00,000 and Inventory is ₹50,000. Liquid Ratio will be :
**

(A) 2 : 1

(B) 2.25 : 1

(C) 4 : 7

(D) 1.75 : 1

Answer: D

**
15. A company’s Current assets are ₹3,00,000 and its current liabilities are ₹2,00,000. Subsequently, it paid ₹50,000 to its trade payables. The current ratio will be
**

(A) 2 : 1

(B) 1.67 : 1

(C) 1.25 : 1

(D) 1.5 : 1

Answer: B

**
16. The Current Assets of the Company were ? 1,00,000 and its current ratio was 2:1. After this the company paid? 25,000 to a Trade Payable. The Current Ratio after the payment will be :
**

(A) 5 : 1

(B) 2 : 1

(C) 3 : 1

(D) 4 : 1

Answer: C

**
17. Current liabilities of a company were ₹2,00,000 and its current ratio was 2.5 : 1. After this the company paid ₹1,00,000 to a trade payable. The current ratio after the payment will be :
**

(A) 2 : 1

(B) 4 : 1

(C) 5 : 1

(D) None of the above

Answer: B

**
18. A Company’s liquid assets are ₹10,00,000 and its current liabilities are ₹8,00,000. Subsequently, it purchased goods for ₹1,00,000 on credit. The quick ratio will be
**

(A) 1.11 : 1

(B) 1.22 : 1

(C) 1.38 : 1

(D) 1.25 : 1

Answer: A

**
19. A Company’s liquid assets are ₹5,00,000 and its current liabilities are ₹3,00,000. Thereafter, it paid 1,00,000 to its trade payables. The quick ratio will be:
**

(A) 1.33 : 1

(B) 2.5 : 1

(C) 1.67 : 1

(D) 2 : 1

Answer: D

**
20. The is a measure of liquidity which excludes generally the least liquid asset.
**

(A) Current ratio, Accounts receivable

(B) Liquid ratio, Accounts receivable

(C) Current ratio, inventory

(D) Liquid ratio, inventory

Answer: D

**
21. Assuming that the current ratio is 2 : 1, the purchase of goods on credit would:
**

(A) Increase Current ratio

(B) Decrease Current ratio

(C) have no effect on the Current ratio

(D) decrease gross profit ratio

**
22. A Company’s Quick Ratio is 1.5 : 1; Current Liabilities are ₹2,00,000 and Inventory is ₹1,80,000. Current Ratio will be :
**

(A) 0.9 : 1

(B) 1.9 : 1

(C) 1.4 : 1

(D) 2.4 : 1

Answer: D

36. A Company’s Quick Ratio is 1.8 : 1; Liquid Assets are ₹5,40,000 and Inventory is ₹1,50,000. Its Current Ratio will be :

(A) 2 : 1

(B) 2.3 : 1

(C) 1.8 : 1

(D) 1.3 : 1

Answer: B

**23. A Company’s Current Ratio is 2.8 : 1; Current Liabilities are ₹2,00,000; Inventory is ₹1,50,000 and Prepaid Expenses are ₹10,000. Its Liquid Ratio will be :
**

(A) 3.6 : 1

(B) 2.1 : 1

(C) 2 : 1

(D) 2.05 : 1

Answer: C

**
24. A Company’s Current Ratio is 3 : 1; Current Liabilities are ₹2,50,000; Inventory is ₹60,000 and Prepaid Expenses are ₹5,000. Its Liquid Assets will be :
**

(A) ₹6,90,000

(B) ₹6,95,000

(C) ₹6,85,000

(D) ₹8,15,000

Answer: C

**
25. On the basis of the following data, the liquid ratio of a company will be: Current Ratio 5 : 3; Current Liabilities ₹75,000 and Inventory ₹25,000
**

(A) 1 : 1

(B) 2:1.8

(C) 3 : 2

(D) 4 : 3

Answer: D

**
26. The current ratio of a firm is 9 : 4. Its current liabilities are ₹1,20,000. Inventory is ₹30,000. Its liquid ratio will be :
**

(A) 1 : 1

(B) 1.5 : 1

(C) 2 : 1

(D) 1.6 : 1

Answer: C

**
27. A firm’s current ratio is 3.5 : 2. Its current liabilities are 80,000. Its working capital will be :
**

(A) ₹1,20,000

(B) ₹1,60,000

(C) ₹80,000

(D) ₹60,000

Answer: D

**
28. A Company’s Current Assets are ₹6,00,000 and working capital is ₹2,00,000. Its Current Ratio will be :
**

(A) 3 : 1

(B) 1.5 : 1

(C) 2 : 1

(D) 4 : 1

Answer: B

**
29. A Company’s Current Ratio is 2.4 : 1 and its Working Capital is ₹5,60,000. If its Liquid Ratio is 1.5, what will be the value of Inventory?
**

(A) ₹6,00,000

(B) ₹2,00,000

(C) ₹3,60,000

(D) ₹6,40,000

Answer: C

**
30. A Company’s Current Ratio is 2.5 : 1 and its Working Capital is ₹60,000. If its Inventory is ₹52,000, what will be the liquid Ratio?
**

(A) 2.3 : 1

(B) 2.8 : 1

(C) 1.3 : 1

(D) 1.2 : 1

Answer: D

**31. If a Company’s Current Liabilities are ₹80,000; Working Capital is ₹2,40,000 and Inventory is ₹40,000, its quick ratio will be:**

(A) 3.5 : 1

(B) 4 : 1

(C) 4.5 : 1

(D) 3 : 1

Answer: A

**
32. A Company’s Liquid Assets are ₹2,00,000, Inventory is ₹1,00,000, Prepaid Expenses are ₹20,000 and Working Capital is ₹2,40,000. Its Current Ratio will be:
**

(A) 1.33 : 1

(B) 4 : 1

(C) 2.5 : 1

(D) 3 : 1

Answer: B

**
33. Long-term solvency is indicated by :
**

(A) Current Ratio

(B) Quick Ratio

(C) Net Profit Ratio

(D) Debt/Equity Ratio

Answer: D

**
34. Debt Equity Ratio is :
**

(A) Liquidity Ratio

(B) Solvency Ratios

(C) Activity Ratio

(D) Operating Ratio

Answer: B

**
35. If the Debt equity ratio exceeds, it indicates a risky financial position.
**

(A) 1 : 1

(B) 2 : 1

(C) 1 : 2

(D) 3 : 1

Answer: B

**
36. In debt-equity ratio, debt refers to :
**

(A) Short Term Debts

(B) Long Term Debts

(C) Total Debts

(D) Debentures and Current Liabilities

Answer: B

**
37. Proprietary Ratio indicates the relationship between Proprietor’s Funds and
**

(A) Long-Term Debts

(B) Short Term & Long Term Debts

(C) Total Assets

(D) Debentures

Answer: C

**
38. Equity Share Capital ₹20,00,000; Reserve 5,00,000; Debentures ₹10,00,000; Current Liabilities ₹8,00,000. The debt-equity ratio will be :
**

(A) .4 ; 1

(B) .32 : 1

(C) .72 : 1

(D) .5 : 1

Answer: A

**39. Debt equity ratio of a company is 1 : 2. Which of the following transactions will increase it:
**

(A) Issue of new shares for cash

(B) Redemption of Debentures

(C) Issue of Debentures for cash

(D) Goods purchased on credit

Answer: C

**
40. Satisfactory ratio between Long-term Debts and Shareholder’s Funds is :
**

(A) 1 : 1

(B) 3 : 1

(C) 1 : 2

(D) 2 : 1

Answer: D

**41. Based on the following data, a Company’s Total Assets-Debt Ratio will be: Working Capital ₹2,70,000; Current Liabilities ₹30,000; Fixed Assets ₹4,00,000; Debentures ₹2,00,000; Long Term Bank Loan ₹80,000.**

(A) 37%

(B) 40%

(C) 45%

(D) 70%

Hint: Working Capital + Current Liabilities = Current Assets

Answer: B

**
42. Based on the following information received from a firm, its Total Assets-Debt Ratio will be: Working Capital ₹3,20,000; Current Liabilities ₹1,40,000; Fixed Assets ₹2,60,000; Debentures ₹2,10,000; Long Term Bank Debt ₹78,000.
**

(A) 40%

(B) 60%

(C) 30%

(D) 70%

Answer: A

**
43. Inventory Turnover Ratio is:
**

(A) Average Inventory/Revenue from Operations

(B) Average Inventory/Cost of Revenue from Operations

(C) Cost of Revenue from Operations/Average Inventory

(D) G.P./Average Inventory

Answer: C

**
44. Opening Inventory ₹1,00,000; Closing Inventory ₹1,50,000; Purchases ₹6,00,000; Carriage ₹25,000; Wages ₹2,00,000. Inventory Turnover Ratio will be :
**

(A) 6.6 Times

(B) 7.4 Times

(C) 7 Times

(D) 6.2 Times

Answer: D

**
45. Revenue from Operations ₹8,00,000; Gross Profit Ratio 25%; Opening Inventory ₹1,00,000; Closing Inventory ₹60,000. Inventory Turnover Ratio will be :
**

(A) 10 Times

(B) 7.5 Times

(C) 8 Times

(D) 12.5 Times

Answer: B

**
46. On the basis of following data, the cost of revenue from operations by a company will be : Opening Inventory ₹70,000; Closing Inventory ?₹80,000; Inventory Turnover Ratio 6 Times.
**

(A) ₹1,50,000

(B) ₹90,000

(C) ₹4,50,000

(D) ₹4,80,000

Answer: C