Tag: elements of accounts

Questions Related to elements of accounts

Stock Turnover ratio is a                    .

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

  1. Liquidity ratio

  2. Profitability ratio

  3. Solvency ratio

  4. Activity ratio

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Correct Option: D
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                       

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

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

  1. increase

  2. decrease

  3. remain unchanged

  4. none of these

Show answer
Correct Option: A
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.

The turnover ratio helps management for                        .

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

  1. Managing resources

  2. Managing debt

  3. Evaluating performance

  4. None of these

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Correct Option: C
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.

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

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

  1. Finished goods turnover ratio

  2. Work in progress turnover ratio

  3. Net profit ratio

  4. Gross profit ratio

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Correct Option: A

Capacity ratio  X  Efficiency ratio =                             .

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

  1. Activity Ratio

  2. Capacity Ratio

  3. Efficiency Ratio

  4. None of these

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Correct Option: A
Explanation:

Capacity ratio X Efficiency ratio = Activity ratio

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

Large inventory accumulation is anticipation of price rise in future.

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

  1. Inventory turnover ratio

  2. Fixed charge coverage ratio

  3. Debt to Equity ratio

  4. None of these

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Correct Option: A

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

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

  1. $33.33\%$

  2. $20\%$

  3. $25\%$

  4. $50\%$

Show answer
Correct Option: B
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 $100$
                                                              = $20\%$.

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

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

  1. Current assets to fixed assets ratio

  2. Current ratio

  3. Fixed assets turnover ratio

  4. Inventory turnover ratio

Show answer
Correct Option: A

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

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

  1. $33.33\%$

  2. $20\%$

  3. $25\%$

  4. $50\%$

Show answer
Correct Option: D
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 $100$
                                               = $50\%$.                                        

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

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

  1. $33.33\%$

  2. $20\%$

  3. $25\%$

  4. $50\%$

Show answer
Correct Option: A
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 $100$
                                               = $33.33\%$.