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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 $100$
                                               = $33.33\%$.                                      

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

If gross profit ratio is $50\%$ on cost, it is __________$\%$ on sales.

  1. $33.33\%$

  2. $20\%$

  3. $25\%$

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

Assume Cost = $200$ and Gross profit = $50\% $ on cost = $100$

Cost + Gross profit = Sales
$200$ + $100$ = Sales
Sales = $300$
Now, Gross profit % on Sales = Gross Profit  x $100$ 
                                                      Sales
                                               = [$100/300$ ] x $100$
                                               = $33.33\%$.                                    

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

The stock turnover ratio is a/an _______ ratio.

  1. Insolvency

  2. Activity Ratio

  3. Liquidity

  4. Total Investment
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
Stock turnover ratio indicates how efficiently the firm’s investment in inventories is converted to sales and thus depicts the inventory management skills of the organization. It is considered an activity ratio as it measures the efficiency of the company in using its resources. So, the correct option is 'Activity ratio'.
Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

From the following data, calculate Inventory Turnover Ratio:
Total Sales Rs. 5,00,000; Sales Return Rs. 50,000; 
Gross Profit Rs. 90,000; Closing Inventory Rs. 1,00,000; Excess of Closing Inventory over opening inventory Rs. 20,000.

  1. 6 times

  2. 3 times

  3. 4 times

  4. 5 times
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
Inventory turnover ratio = Cost of goods sold ( WN 1)
                                          ----------------------------------------
                                               Average inventory (WN 2)
                                          = 3,60,000
                                           -----------------
                                             90,000 
                                         = 4 Times

Working notes:-
1) Cost of goods sold = Gross sales - (Sales return + gross profit)
                                    = 5,00,000 - (50,000 + 90,000)
                                    = 3,60,000.
2) Average Inventory = 1,00,000 + 80,000
                                      -------------------------------
                                                      2
                                    = 90,000. 
Closing inventory is 20,000 more than opening inventory hence opening inventory is 1,00,000 - 20,000 = 80,000.
                                         
Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

Credit Revenue from Operations, i.e.,
Net credit sales for the year - 1,20,000
Debtors - 12,000
Bills Receivable - 8,000
Calculate Trade Receivable or Debtors' Turnover Ratio.

  1. 4 times

  2. 3 times

  3. 6 times

  4. 5 times
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
Debtor's turnover ratio =             Credit sales
                                               -------------------------------
                                               Average receivables 
                                    
                                       =         1,20,000
                                                -----------------
                                                    20,000                              
                                       =       6 times.
Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

There is deterioration in the management of working capital of XYZ Ltd. What does it refer to?

  1. That the capital employed has reduced

  2. That the profitability has gone up

  3. That debtors collection period has increased

  4. That sales has decreased
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Debtor collection period is the time that it takes to convert balances from account receivables back into cash flow. This can apply to an individual transaction or to the business's overall transaction history for a period of time. The lower the debtor collection period the more efficient is the company in collecting payment from its customers.