Ratio - 1

Current ratio of Vidur Pvt. Ltd. is 3:2. Accountant wants to maintain it at 2: 1. Following options are available:

(i) He can repay bills payable

(ii) He can purchase goods on credit

(iii) He can take short-term loan

Choose the correct option:

• (A) Only (i) is correct.

• (B) Only (ii) is correct.

• (C) Only (i) and (iii) are correct.

• (D) Only (ii) and (iii) are correct.

Answer explanation

Explanation: In order to increase the Current ratio, the current liabilities needs to be decreased, thus, he can only replay Bills Payable. If he purchases goods on credit or takes short term loans it will increase the current liabilities.

Which of the following is not an activity ratio ?

• (A) Inventory turnover ratio

• (B) Interest coverage ratio

• (C) Working capital turnover ratio

• (D) Trade receivables turnover ratio

Answer explanation

ICR is a solvency ratio

Assertion (A): Debt to Equity Ratio of 2: 1 is considered satisfactory. Generally a Low Ratio is considered favourable.

Reason (R): This ratio indicates the proportionate claims of owners and outsiders on firm's assets. High Ratio shows claims of outsiders are greater but Low Ratio shows outsiders claims are less.

• (A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

• (B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

• (C) Assertion (A) is true, but Reason (R) is false.

• (D) Assertion (A) is false, but Reason (R) is true.

Assertion (A): Liquid ratio reveals strength of liquidity of a business unit.

Reason (R): Liquid ratio is the one of the various ratios used to measure the ability of a company to meet its long-term debts.

• (A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

• (B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

• (C) Assertion (A) is true, but Reason (R) is false.

• (D) Assertion (A) is false, but Reason (R) is true.

Bajaj Hindustan Sugar, one of the largest sugar and ethanol producers, in order to revive the company, has offered to invest ₹ 2,500 crore as fresh equity of which ₹ 1,000 crore has already been infused. (Source (edited): Economic Times, Mumbai Edition 08, August, 2023) What will be the effect of this decision of Bajaj Hindustan Sugar on its Debt Equity Ratio?

• The ratio will decline

• The ratio will increase

• No change

• The question itself is wrong

Calculate Interest Coverage Ratio of Criss Cross Ltd. (up-to two decimal places) from the following information:

Particulars

Net Profit after Interest and Tax - ₹ 80,000

Tax Rate - 50 %

12% Debentures - ₹ 3,00,000

9% Bank Loan - ₹ 1,00,000

• 4.33

• 4.56

• 3.56

• 4.11

A company had Current Assets of ₹ 3,00,000 and Current Liabilities of ₹ 1,50,000, having a current Ratio of 2:1. What will be its revised Current Ratio after it endorses a bills receivable of ₹ 40,000 to one of its creditors?

• 1.78

• 1.73

• 2.26

• 2.36