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Accountancy - Company Accounts and Analysis of Financial Statements
Accounting Ratios
What are liquidity ratios? Discuss the importance of current and liqui...

What are liquidity ratios? Discuss the i | Class 12 Accountancy - Company Accounts and Analysis of Financial Statements Chapter Accounting Ratios, Accounting Ratios NCERT Solutions

Welcome to the NCERT Solutions for Class 12 Accountancy - Company Accounts and Analysis of Financial Statements - Chapter Accounting Ratios. This page offers a step-by-step solution to the specific question from Exercise 2, Question 1: . With detailed answers and explanations for each chapter, students can strengthen their understanding and prepare confidently for exams. Ideal for CBSE and other board students, this resource will simplify your study experience.

Question 1:

What are liquidity ratios? Discuss the importance of current and liquid ratio.

Answer:

Liquidity ratios are calculated to determine the short-term solvency of a business, i.e. the ability of the business to pay back its current dues. Liquidity means easy conversion of assets into cash without any significant loss and delay. Short-term creditors are interested in ascertaining liquidity ratios for timely payment of their debts.

Liquidity ratio includes:

Current Ratio: It explains the relationship between current assets and current
liabilities. It is calculated as:

Current Ratio = Current Assets/Current Liabilities

Liquid Ratio or Quick Ratio: It explains the relationship between liquid assets and current liabilities. It indicates whether a firm has sufficient funds to pay its current liabilities immediately. It is calculated as:

Liquid Ratio = Liquid Asset/Current LiabilitiesLiquid

Liquids Assets = Current Assets – Stock – Prepaid Expenses.

Other Questions of Chapter Accounting Ratios

The average age of inventory is viewed as the average length of time inventory is held by the firm or as the average number of days’ sales in inventory. Why?

How would you study the Solvency position of the firm?

The liquidity of a business firm is measured by its ability to satisfy itslong-
term obligations as they become due. What are the ratios used forthis purpose?

What relationships will be established to study?
(a) Inventory Turnover (b) Debtor Turnover
(c) Payables Turnover (d) Working Capital Turnover

What do you mean by Ratio Analysis?

What are various types of ratios?

What are important profitability ratios? How are these worked out?

The current ratio provides a better measure of overall liquidity only when a
firm’s inventory cannot easily be converted into cash. If inventory is liquid, the
quick ratio is a preferred measure of overall liquidity. Explain.

Popular questions of class 12 Accountancy - Company Accounts and Analysis of Financial Statements

How will you disclose the following items in the Balance Sheet of a company;
(i) Loose tools
(ii) Uncalled liability on partly paid-up shares
(iii) Debentures redemption reserve
(iv) Mastheads and publishing titles (v) 10% debentures
(vi) Proposed dividend
(vii) Share forfeited account
(viii) Capital redemtion reserve
(ix) Mining rights
(x) Work-in-progress

Explain the usefulness of trend percentages in interpretation of financial performance of a company.

Describe the different techniques of financial analysis and explain the limitations of financial analysis.

What do you understand by analysis and interpretation of financial statements? Discuss its importance.

State the importance of financial statements to
(i) shareholders
(ii) creditors
(iii) government
(iv) investors

Explain how common size statements are prepared giving an example.

Prepare the format of balance sheet and explain the various elements of balance sheet.

What is the importance of comparative statements? Illustrate youranswer with particular reference to comparative income statement.

State the meaning of Analysis and Interpretation.

Explain the process of preparing income statement and balance sheet.

Recently Viewed Questions of Class 12 Accountancy - Company Accounts and Analysis of Financial Statements

How would you deal with ‘Premium on Redemption of Debentures?

State the meaning of Analysis and Interpretation.

What is meant by ‘Premium on Redemption of Debentures’?

Can the company purchase its own debentures?

What does a Bearer Debenture mean?

Describe the different techniques of financial analysis and explain the limitations of financial analysis.

What is a ‘Convertible Debenture’?

What is meant by redemption of debentures by ‘Purchase in the Open Market’?

Explain the usefulness of trend percentages in interpretation of financial performance of a company.

Study Tips for Answering NCERT Questions:

NCERT questions are designed to test your understanding of the concepts and theories discussed in the chapter. Here are some tips to help you answer NCERT questions effectively:

Read the question carefully and focus on the core concept being asked.
Reference examples and data from the chapter when answering questions about Accounting Ratios.
Review previous year question papers to get an idea of how such questions may be framed in exams.
Practice answering questions within the time limit to improve your speed and accuracy.
Discuss your answers with your teachers or peers to get feedback and improve your understanding.

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