CBSE Class 12 Accountancy: Accounting Ratios NCERT Solutions

Solution: False. The primary purpose of financial reporting is to provide useful information to a wide range of external stakeholders, including investors, creditors, and other interested parties, to help them make informed economic decisions. While managers also use this information, it is not the sole purpose.

Solution: True. Financial analysis involves examining the data presented in financial statements to understand a company's performance, financial position, and cash flows, which aids in decision-making.

Solution: True. Long-term creditors are primarily interested in the company's long-term solvency and its capacity to meet its debt obligations, including timely payment of interest and repayment of the principal amount of loans.

Solution: False. While ratios are often expressed as a quotient (e.g., 2:1 or 2/1), they can also be expressed as a percentage (e.g., 50%) or a rate (e.g., 3 times per year). The core idea is a relationship between two numbers.

Solution: True. Ratio analysis is a powerful tool for trend analysis (comparing performance over multiple accounting periods) and for benchmarking (comparing performance against competitors or industry averages).

Solution: False. Accounting ratios primarily reflect the quantitative aspects of a firm's financial performance and position. While they can provide insights that hint at qualitative factors, they do not directly measure them. Qualitative aspects include management quality, employee morale, and brand reputation.

Solution:

Given:

Current Ratio = 4.5:1

Quick Ratio = 3:1

Inventory = ₹ 36,000

Let Current Liabilities (CL) be represented by the variable 'x'.

From the Current Ratio formula:

Current \ Ratio = \frac{Current \ Assets}{Current \ Liabilities}

4.5 = \frac{Current \ Assets}{x}

Current \ Assets = 4.5x

From the Quick Ratio formula:

Quick \ Ratio = \frac{Quick \ Assets}{Current \ Liabilities}

3 = \frac{Quick \ Assets}{x}

Quick \ Assets = 3x

We know that Inventory is the difference between Current Assets and Quick Assets:

Inventory = Current \ Assets - Quick \ Assets

Substitute the given value and the expressions in terms of 'x':

36,000 = 4.5x - 3x

Simplify the equation:

36,000 = 1.5x

Solve for 'x' (Current Liabilities):

x = \frac{36,000}{1.5}

x = 24,000

Therefore, Current Liabilities (CL) = ₹ 24,000.

Now, calculate Current Assets:

Current \ Assets = 4.5x = 4.5 \times 24,000

Current \ Assets = 1,08,000

Answer: Current Assets = ₹ 1,08,000 and Current Liabilities = ₹ 24,000.

Solution:

Given:

Current Liabilities (CL) = ₹ 5,60,000

Current Ratio (CR) = 5:2

Quick Ratio (QR) = 2:1

Step 1: Calculate Current Assets (CA) using the Current Ratio.

CR = \frac{Current \ Assets}{Current \ Liabilities}

\frac{5}{2} = \frac{CA}{5,60,000}

2 \times CA = 5 \times 5,60,000

CA = \frac{28,00,000}{2}

CA = 14,00,000

So, Current Assets = ₹ 14,00,000.

Step 2: Calculate Quick Assets (QA) using the Quick Ratio.

QR = \frac{Quick \ Assets}{Current \ Liabilities}

\frac{2}{1} = \frac{QA}{5,60,000}

QA = 2 \times 5,60,000

QA = 11,20,000

So, Quick Assets = ₹ 11,20,000.

Step 3: Calculate Stock (Inventory) using the relationship between Current Assets and Quick Assets.

Stock (Inventory) = Current Assets - Quick Assets

Stock = 14,00,000 - 11,20,000

Stock = 2,80,000

Answer: The value of the stock is ₹ 2,80,000.

Solution:

Given:

Current Assets (CA) = ₹ 5,00,000

Current Ratio (CR) = 2.5:1

Quick Ratio (QR) = 1:1

Step 1: Calculate Current Liabilities (CL) using the Current Ratio.

CR = \frac{Current \ Assets}{Current \ Liabilities}

\frac{2.5}{1} = \frac{5,00,000}{CL}

2.5 \times CL = 5,00,000

CL = \frac{5,00,000}{2.5}

CL = 2,00,000

So, Current Liabilities = ₹ 2,00,000.

Step 2: Calculate Liquid Assets (Quick Assets - QA) using the Quick Ratio.

QR = \frac{Quick \ Assets}{Current \ Liabilities}

\frac{1}{1} = \frac{QA}{2,00,000}

QA = 1 \times 2,00,000

QA = 2,00,000

So, Liquid Assets (Quick Assets) = ₹ 2,00,000.

Step 3: Calculate Stock (Inventory) using the relationship between Current Assets and Quick Assets.

Stock = Current Assets - Quick Assets

Stock = 5,00,000 - 2,00,000

Stock = 3,00,000

Answer: Current Liabilities = ₹ 2,00,000, Liquid Assets = ₹ 2,00,000, and Stock = ₹ 3,00,000.

Solution: (c) Liquidity, activity and debt. Liquidity ratios assess short-term solvency risk, activity ratios measure operational efficiency (which impacts risk), and debt ratios evaluate financial leverage risk. Profitability ratios measure performance, not primarily risk. Common stock is a balance sheet item, not a group of ratios measuring risk.