Tag: elements of accounts

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Questions Related to elements of accounts

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

Stock Turnover ratio is a                    .

  1. Liquidity ratio

  2. Profitability ratio

  3. Solvency ratio

  4. Activity ratio
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Stock (Inventory) Turnover ratio is a activity ratio as it shows how much times the stock is being used or sold with respect to the turnover or cost of goods sold.
Let Cost of goods sold = $Rs. 100000$ , Opening inventory = $Rs. 55000$ and Closing Inventory = $Rs. 45000$
Stock turnover ratio = Cost of goods sold/ Average Inventory
Average Inventory = [Opening Inventory + Closing Inventory] /$2$
                                 =[ $55000 + 45000$]/$2$
                                  =$Rs. 50000$
Stock turnover ratio = $100000/ 50000$
                                   = $2$ times                       
Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

Sale of inventory on account will cause the inventory turnover ratio to                    .

  1. increase

  2. decrease

  3. remain unchanged

  4. none of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Inventory turnover ratio = Cost of goods sold(COGS) / Average inventory

Let Cost of goods sold be $Rs. 80000$ , Opening inventory = $Rs. 20000$ and Closing Inventory = $Rs.30000$
Average Inventory = [Opening Inventory + Closing Inventory] / 2
                                = $[20000 + 30000] / 2 $
                                 $Rs. 25000$
Inventory turnover ratio = $80000/ 25000$
                                         = $3.2 $ times
If inventory of $Rs. 10000$ is sold on credit then COGS = $Rs. 90000$ and the Closing Inventory = $Rs. 20000$
Revised Average Inventory = $[20000 +20000] /2$
                                               = $Rs. 20000$

Revised Inventory turnover ratio = 90000/2000080000/25000
                                         = 4.53.2 times

So sale of Inventory on account will cause the inventory turnover ratio to Increase.

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

The turnover ratio helps management for                        .

  1. Managing resources

  2. Managing debt

  3. Evaluating performance

  4. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Turnover ratios are used by management to evaluate the efficiency with which the firm manages and utilizes its assets. For example Fixed asset turnover ratio measures how efficiently the assets are used to generate sales.

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

Falling demand for the product in the market indicated by ________________.

  1. Finished goods turnover ratio

  2. Work in progress turnover ratio

  3. Net profit ratio

  4. Gross profit ratio
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A falling finished goods turnover ratio indicates that goods are not being sold as quickly as they are produced, which suggests a decline in market demand for the product.

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

Capacity ratio  X  Efficiency ratio =                             .

  1. Activity Ratio

  2. Capacity Ratio

  3. Efficiency Ratio

  4. None of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Capacity ratio X Efficiency ratio = Activity ratio

If Capacity ratio = $90\%$ , Efficiency ratio = $85\%$ , then
Activity ratio = $90/100$ x $85/100$
                      = $76.5\%$

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

Large inventory accumulation is anticipation of price rise in future.

  1. Inventory turnover ratio

  2. Fixed charge coverage ratio

  3. Debt to Equity ratio

  4. None of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Inventory turnover ratio = Cost of goods sold / Average inventory. Large inventory accumulation in anticipation of price rise means high inventory levels relative to sales, resulting in a low turnover ratio. This indicates goods are being stockpiled rather than sold.

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

If gross profit ratio is $25\%$ on cost, it is _________ $\%$ on sales.

  1. $33.33\%$

  2. $20\%$

  3. $25\%$

  4. $50\%$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Cost + Gross profit = Sales

Let cost = $100$ and Gross profit ratio = $25\%$ on cost
Therefore Gross profit = $25\%$ x $100$ = $25$
So, $100 + 25$ = Sales
Sales = $125$
Gross profit as percentage on sales = [Gross profit/Sales] x $100$
                                                             = [$25/125$] x $100$
                                                              = $20\%$.

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

Borrowing from short term and investing in long term assets indicated by _________________.

  1. Current assets to fixed assets ratio

  2. Current ratio

  3. Fixed assets turnover ratio

  4. Inventory turnover ratio
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The current assets to fixed assets ratio helps analyze the composition of assets. A shift toward short-term financing for long-term investments is often analyzed through asset structure ratios.

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

If gross profit ratio is $33.33\%$ sales, it is ____________$\%$ on cost.

  1. $33.33\%$

  2. $20\%$

  3. $25\%$

  4. $50\%$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Assume Sale = $300$ and Gross profit = $33.33\% $ on sales = $100$

Cost + Gross profit = Sales
Cost + $100$ = $300$
Cost = $200$
Now, Gross profit % on Cost = Gross Profit  x $100$ 
                                                      Cost
                                               = [$100/200$ ] x $100$
                                               = $50\%$.                                        

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

If gross profit ratio is $25\%$ sales, it is __________$\%$ on cost.

  1. $33.33\%$

  2. $20\%$

  3. $25\%$

  4. $50\%$
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Assume Sale = $200$ and Gross profit = $25\% $ on sales = $50$

Cost + Gross profit = Sales
Cost + $50$ = $200$
Cost = $150$
Now, Gross profit % on Cost = Gross Profit  x $100$ 
                                                      Cost
                                               = [$50/150$ ] x $100$
                                               = $33.33\%$.