Books of Accounts of a Joint Stock Company

Q1. Which of the following three definitions is right for a joint stock company?
A. An unincorporated business that has just one owner with no separation between the
business and the owner.
B. An arrangement between two or more people to oversee business operations and share its
profits and liabilities.
C. A business formed into an association and endowed by law with the rights and liabilities
of an individual.

Q2. Which of the following financial statements is not included in annual report of a public
company:
A. Profit and loss statement
B. Balance sheet
C. Cash flow statement
D. Work sheet

Q3 Which of the following is not current asset of a company?

A. Cash in hand
B. Cash at bank
C. Marketable securities (investments that can easily be bought, sold or traded on public
exchanges)
D. Accounts receivable
E. Prepayments
F. Supplies
G. Inventory
H. Sundry debtors
I. Equipment

Q4 Which of the following is current asset of a company?

A. Plant & Machinery
B. Land & Building
C. Furniture & fixture
D. Automobiles
E. Equipment
F. Inventory
G. Patent
H. Trade mark
I. Copy right
J. Goodwill
K. Work in progress

Q5. Which of the following is not included in owner’s equity of a company:

A. Paid up capital of common stock
B. Premium on issue of common stock
C. Paid up capital of preferred stock
D. Premium on issue of preferred stock
E. Bonds payable
F. Reserves
G. Retained earnings

Q6. Which of the following is not a current liability?

A. Accounts payable
B. Commercial paper
C. Treasury bills
D. Sundry creditors
E. Current maturities of long term debt
 F. Dividend payable
G. Notes payable
H. Short term loans
I. Mortgage payable

Q7. Which of the following is not non-current liability/long term liability?

A. Sundry creditors
B. Bonds payable
C. Mortgage loans
D. Long term loans
E. Capital lease

Q8.
In a business total current assets are of Rs. 2000 and total current liabilities are of Rs. 1000, find
current ratio?
Q9:
In ABC Company, total current assets include Cash in hand Rs. 2000, cash at bank Rs. 4000,
Marketable securities Rs. 6000, Accounts receivable Rs. 8000, Sundry debtors Rs. 10000,
inventory Rs. 12000 and prepayments Rs. 8000, find quick assets of this company?
Q10.
Take question number 9 above, if total current liabilities of ABC company are of Rs.10000, find
current ratio.
Q11.
If industry average of current ratio is 2:1, comment on current ratio calculated in Q10 above.
Q12.
Take question number 9 and Q10 above and find Acid-Test ratio/quick ratio.
Q13.
If industry norm of quick ratio is 1:1, comment on quick ratio of ABC Company.
Q 14.
Find net working capital from Q9 & Q10 above.
Q15
If industry norm of net working capital is Rs. 10000, comment on net working capital of ABC
Company.
Q16
Which ratios are included in Liquidity Ratios division?
Q17
Is following statement True or False?
A liquidity ratio is a type of financial ratio used to determine a company’s ability to pay its
short-term debt obligations.
Q18. Is following statement True or False?

Liquidity ratios are important to investors and creditors to determine if a company can cover
their short-term obligations, and to what degree. A ratio of 1 is better than a ratio of less than 1,
but it isn't ideal. Creditors and investors like to see higher liquidity ratios, such as 2 or 3.
Q19 Is following statement True or False?

Debtors such as banks and financial institutions, rely on liquidity ratios to evaluate the
creditworthiness of potential borrowers. By analyzing a company's liquidity position, creditors
can assess the likelihood of timely repayment of loans or credit facilities.
Q 20
Which of the following ratio is not included in solvency ratios:
A. Current ratio
B. Debt ratio
C. Debt-equity ratio
D. Times-interest-earned ratio
E. Fixed payment coverage ratio

Q21
In XYZ Company. Total assets are of Rs. 100000 while total liabilities are of Rs. 80000. What is
debt ratio of this company?
Q22
If industry average of debt ratio is 90%, comment on debt ratio of XYZ
Q23
If long term debt of XYZ is Rs. 30000 while owners’ equity of XYZ is Rs.20000, what will be
the Debt-Equity ratio of XYZ Company?
Q24
If industry norm of debt-equity ratio is 60:40, comment on debt-equity ratio of XYZ.
Q25
Is the following statement True or False
Solvency ratios measure long term debt and its interest paying position of a company.
Q26
1Q27
If industry norm of Times interest earned ratio is 4X, comment on this ratio calculated in Q26
above,
Q28
Which of the following ratios is not included in efficiency ratios:
A. Inventory turnover
B. Accounts receivable turnover
C. Debt-equity ratio
D. Accounts payable turnover
E. Total assets turnover

Q29
In MNO Company there is Cost of Goods Sold of Rs.20000 in year 2023 and its ending
inventory in this year is Rs. 2000. Find its inventory turnover.
Q30…..
Is it true for Q29 that:
“10 Times goods costing Rs. 2000 have been sold in MNO Company in year 2023”.
Q31
Find the age of inventory in Q30 assuming 360 days in one year.
Q32
How is Accounts Receivable turnover calculated?
Q33
Is the following formula for age of accounts receivable ( Average collection period) correct:
Age of accounts receivable = ( 360/Accounts receivable turnover)
Q34
Which of the following ratios is not included in Activity/efficiency ratios:
A. Quick ratio
B. Inventory turnover
C. Accounts receivable turnover ratio
D. Total assets turnover
E. Accounts payable turnover

Q35
If in a business, total assets are of worth Rs. 100000, while sales in this business of same year is
Rs. 200000, what will be total assets turnover?

Q36.
If industry average of total assets turnover is 5X, comment on industry average calculated in Q35

Q37
How is fixed assets turnover calculated?
Q38
Is following statement True or False?
“ There is inverse relationship between Inventory turnover ratio and age of inventory”.
Q39
How is Accounts payable turnover calculated?
Q40
Following are certain ratios. The names of certain divisions of ratios are given in front of them
while in some cases names of divisions are missing. You are to write those names:
Serial No. Name of ratio Division
1 current ratio Liquidity
2 Debt ratio Solvency
3. Acid-test ratio ?
4. Inventory turnover ?
5. Total assets turnover ?
6. Net working capital ?
7. Times interest earned ratio ?
8. Accounts payable turnover ?
9. Average age of inventory ?
10. Debt-equity ratio ?
11. Fixed assets turnover Activity/efficiency ratios

Q41
Following are calculated ratios and their industry averages. You are just to indicate whether the
particular ratio is good or bad for lenders/bankers:

S No. Name of ratio Level of ratio Industry norm Status

1 Current ratio 8:1 2:1 Good
2 Acid test ratio 1:1 1:1 ?
3 Debt ratio 90% 70% ?
4 Debt equity ratio 70:30 60:40 ?
5 Inventory turnover 5X 10X ?
Q42
Following are profitability/investment ratios with their formulas:

1. Gross profit margin (Gross profit/sales)*100

2. Operating profit margin (Operating profit/sales)*100
3. Net profit margin (Net profit/sales)*100
4. Earnings per share basic (Earnings available for common shareholders/number of
common shares outstanding)
5. Earnings per share diluted (Earnings available for common shareholders/weighted
average number of common shares outstanding)
6. Price/earnings ratio (Market price per share/EPS)
7. Dividend payout ratio (Dividend per share/EPS)*100
8. Dividend yield ration (Dividend per share/market price per share)
9. Return on investment ( Profit after tax/total assets)*100
10. Market to book ratio (Market price per share/book value per share)
11. Tobin’s Q ( Market value of common shares/total assets)

Are all ratios increasing beneficial both for owner and outsider?
Q43
Suppose following income statement of PQR company in year 2022 with outstanding share of
1000 at market price of Rs. 50/share and volume of its total assets is Rs. 40000:
Sales 200000
Less CGS 50000
Gross profit 150000
Less operating expenses 80000
EBIT 70000
Less Interest 20000
EBT 50000
Less Tax 30000
Profit after tax 20000
Find:
1. Gross profit margin
2. Operating profit margin
3. Net profit margin
4. Earnings per share
5. Price/earnings ratio
 Industry Norm are as under:

1. Gross profit margin 50%

2. Operating profit margin 30%
3. Net profit margin 10%
4. Earnings per share Rs.2
5. Price/earnings ratio 4X

Also comment on the same both for owners and outsiders point of view

Q44
If the same PQR Company:
 Paid dividend per share Rs. 10
 Book value per share Rs. 20

Find its:
1. Dividend payout ratio
2. Dividend yield ration
3. Return on investment
4. Market to book ratio
5. Tobin’s Q

Q45
Comment on ratios calculated in Q44 if industry averages of these ratios are as under:

1. Dividend payout ratio 20%

2. Dividend yield ration 10%
3. Return on investment 12%
4. Market to book ratio 2X
5. Tobin’s Q 4X

Q46

Following are certain ratios. The names of certain divisions of ratios are given in front of them
while in some cases names of divisions are missing. You are to write those names:
Serial No. Name of ratio Division
1 Acid test ratio Liquidity
2 Debt ratio Solvency
3. Gross profit margin ?
4. Inventory turnover ?
5. Total assets turnover ?
6. Tobin’s Q ?
7. Times interest earned ratio ?
8. Accounts payable turnover ?
9. Average age of accounts payable ?
10. Debt-equity ratio ?
11. Fixed assets turnover Activity/efficiency ratios

Q47
An incomplete balance sheet with some ratios is given. Annual sales of this company is Rs.
100000. You are to find missing amount:

Assets Rs. Equity+Liabilities Rs.

Non-current assets 20000 Paid up capital 30000

Inventory ? Retained earnings 10000
Prepayments 10000 Non-current liabilities 20000
Accounts receivable ? Current liabilities 40000
Cash ?
Ratios Given as as follows:
1. Current ratio = 2
 2. Acid test ratio = 1
3. Accounts receivable turnover = 5X

Q48

An incomplete balance sheet with some ratios is given. You are to find missing amount:

Assets Rs. Equity+Liabilities Rs.

Non-current assets 60000 Authorized capital 80000

Inventory 20000 Paid up capital 40000
Prepayments 10000 Non-current liabilities 60000
Accounts receivable 40000 Current liabilities 40000
Cash 10000
Total 140000 Total 140000
Ratios Given as as follows:
1. Current ratio = 2
2. Debt ratio = 71.42857%

Q 49
Who are the users of accounting ratios?
Company
Banker
Brokers
State bank
Chamber of commerce \ and industry
Ratio agency

Q50
What are four major divisions of accounting ratios?
Liquidity
Solvency
Activity
Profitability/investment