Financial Statement Analysis

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Financial Statement Analysis — solved practice questions

8 Class 12 Accountancy questions with step-by-step solutions. Attempt each, then reveal the answer.

1. Q1easy

   The current assets of a firm are Rs 4,00,000 and its current liabilities are Rs 2,00,000. The current ratio is:

   • A2:1
   • B1:2
   • C4:1
   • D1:1
   Show answer & solution

   Correct answer: (A) 2:1

   Current ratio = Current assets / Current liabilities = 4,00,000 / 2,00,000 = 2:1.

2. Q2hard

   Current assets are Rs 4,00,000 (including inventory Rs 1,50,000 and prepaid expenses Rs 50,000) and current liabilities are Rs 2,00,000. The quick ratio is:

   • A1:1
   • B2:1
   • C1.25:1
   • D1.5:1
   Show answer & solution

   Correct answer: (A) 1:1

   Quick assets = 4,00,000 - 1,50,000 - 50,000 = Rs 2,00,000; Quick ratio = 2,00,000 / 2,00,000 = 1:1.

3. Q3medium

   A company has long-term debt of Rs 6,00,000 and shareholders' funds of Rs 3,00,000. Its debt-equity ratio is:

   • A1:2
   • B2:1
   • C3:1
   • D0.5:1
   Show answer & solution

   Correct answer: (B) 2:1

   Debt-equity ratio = Long-term debt / Shareholders' funds = 6,00,000 / 3,00,000 = 2:1.

4. Q4medium

   Revenue from operations is Rs 8,00,000 and gross profit is Rs 2,00,000. The gross profit ratio is:

   • A40%
   • B20%
   • C25%
   • D4%
   Show answer & solution

   Correct answer: (C) 25%

   Gross profit ratio = (Gross profit / Revenue from operations) x 100 = (2,00,000 / 8,00,000) x 100 = 25%.

5. Q5medium

   The cost of revenue from operations is Rs 6,00,000 and average inventory is Rs 1,00,000. The inventory turnover ratio is:

   • A5 times
   • B3 times
   • C60 times
   • D6 times
   Show answer & solution

   Correct answer: (D) 6 times

   Inventory turnover ratio = Cost of revenue from operations / Average inventory = 6,00,000 / 1,00,000 = 6 times.

6. Q6hard

   Cost of revenue from operations is Rs 5,00,000, operating expenses are Rs 1,00,000 and revenue from operations is Rs 10,00,000. The operating ratio is:

   • A50%
   • B60%
   • C40%
   • D6%
   Show answer & solution

   Correct answer: (B) 60%

   Operating ratio = ((Cost of revenue from operations + Operating expenses) / Revenue from operations) x 100 = (6,00,000 / 10,00,000) x 100 = 60%.

7. Q7easy

   Which of the following is a solvency ratio?

   • ACurrent ratio
   • BInventory turnover ratio
   • CDebt-equity ratio
   • DGross profit ratio
   Show answer & solution

   Correct answer: (C) Debt-equity ratio

   The debt-equity ratio measures the long-term financial soundness of a business, so it is a solvency ratio.

8. Q8easy

   Purchase of machinery for cash is classified under which activity in the Cash Flow Statement?

   • AOperating activities
   • BFinancing activities
   • CCash and cash equivalents
   • DInvesting activities
   Show answer & solution

   Correct answer: (D) Investing activities

   Purchase of a fixed asset such as machinery relates to acquisition of long-term assets, so it is an investing activity.

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