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# Class 12 DK Goel Solutions Volume 2 Chapter 5 - Accounting Ratios

Last updated date: 20th Sep 2024
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## Free Download of Class 12 Solutions for Accounting Ratios Available

Accounting Ratios compares two lines of items provided at a financial statement, i.e. income statement, cash flow statement and balance sheet. Accounting Ratios are essential for accountants and business professionals to assess the overall performance of a particular enterprise and required improvement for the future. Download Dk Goel Solutions Class 12 Volume 2 Chapter 5 pdfs to Prepare well for the Examination.

## DK Goel Solutions Class 12 Accountancy Volume 2 Chapter 5 PDF

Students of Commerce who find it challenging to tackle the fifth chapter of Accountancy may take the professional help of DK Goel Solutions Class 12 Chapter 5 Accounting Ratios. These solutions are crafted by experienced Accountancy teachers who have years of experience in their respective fields. Many students have put their trust in the provided answers and found it helpful in several ways. The exercises are strategically in an order rising from easy to tough questions so that students enjoy solving questions and do not lose their confidence while doing so.

### Accounting Ratios Class 12 DK Goel Solutions: An Outline of Chapter 5

Chapter 5 of Class 12 Accountancy extensively focuses on explaining the meaning of accounting Ratios, objectives and advantages of ratio analysis, limitations of ratio analysis. Further stress is given on identifying various types of ratios that are commonly used in accumulating data. The chapter then proceeds to calculate different ratios to measure profitability, efficiency, liquidity and solvency of the enterprise. The last section deals with the interpretation of various ratios evaluated for intra-firm and inter-firm comparisons. Knowledge of these ratios is extremely important as it helps in analyzing the annual financial statements and the financial health of a company.

### DK Goel Accountancy Class 12 Solutions Chapter 5

DK Goel Solutions Class 12 Chapter 5 Accounting Ratios provides an elaborate process to solve each problem. Students are provided with a step-by-step discussion that leaves no further doubt regarding the question. After solving this problem, students will be able to approach questions similar to this type without any trouble.

1. The first question asks the students to find out the Current Ratio from the following data.

 Pointers INR Current Investments 40,000 Non-current Investments 1,00,000 Inventories (including loose tools) 2,80,000 Trade Receivables Bills Receivables 20,000 Sundry Debtors 1,60,000 Trade Payables Sundry Creditors 1,20,000 Long-term Borrowings + Short-term Borrowings 2,00,000 + 50,000 Bills Payables 10,000 Bank and Cash Balance 30,000 Short-term Provision (Provision for Tax) 20,000

Ans: As the question requires the Current Ratio, students need to follow the simple equation,

Current Ratio = Current Assets/ Current Liabilities.

Students have to find out the Current Assets and Current Liabilities differently to get the Current Ratio.

Current Assets = Current Investments + Inventories (excluding loose tools + Trade Receivables (Bills Receivables + Sundry Debtors) + Bank and Cash Balances

= 40000 + 230000 + 160000 + 20000 + 30000 = 480000

Current Liabilities = Trade Payables (Sundry Creditors + Bills Payables)

+ Short Term Borrowings + Short term Provision

= 120000 + 10000 + 50000 + 20000 = 200000

Therefore, Current Ratio= Current Assets/Current Liabilities

= 480000/200000

= 2:4.

2. The second question requires students to find out the Liquidity ratios from given data.

Ans: Liquidity Ratios depend upon two important ratios, namely, Current Ratio and Quick Ratio.

Therefore, the Current Ratio and Quick Ratio need to be calculated separately to gain the ultimate Liquidity Ratio.

Current Ratio = Current Assets/Current Liabilities

Current Assets = Trade Receivables + Marketable Securities + Inventories + Cash and Bank Balance + Income Tax paid in advance.

= 180000 + 40000 + 390000 + 80000 + 30000

= 720000.

Current Liabilities = Rent Payables + Dividend Payables + Provisions for Tax + Bank Overdraft + Trade Payables.

= 10000 + 30000 + 55000 + 25000 + 120000

= 240000.

The next step involves calculating Quick Assets.

Quick Assets = Current Assets - Inventories - Income Tax Paid in Advance

= 720000 - 390000 - 30000

= 300000.

Therefore, Current Ratio = 720000 : 240000

= 3:1.

Quick Ratio = 300000 : 240000

= 5 : 4

DK Goel Solutions Class 12 Chapter 5 Accounting Ratios are excellent study material specially curated for Commerce students. The solutions provide in-depth knowledge regarding the basics of Accounting Ratios and prepare students to approach in a way that guarantees improved scores in Board examinations.

Students can also make their study of Accountancy more compact with DK Goel Accountancy Class 12 Solutions Chapter 5 PDF available online. Online tutoring sites like Vedantu offer DK Goel Solutions Class 12 Chapter 5 Accounting Ratios in PDF format to help students in understanding the chapter.

### Important Topics Links

In the following link, you will get all the important topics and study material of commerce for Classes 11 and 12. Click on the link below to visit the page.

## FAQs on Class 12 DK Goel Solutions Volume 2 Chapter 5 - Accounting Ratios

1. What are the Benefits of Studying Chapter 5 of Class 12 Accountancy?

Students of Commerce can be benefitted in many ways after finishing the chapter. Chapter 5 primarily focuses on techniques of accounting ratios for analyzing the data provided at financial statements for evaluating profitability, solvency and efficiency of a particular agency. After studying this chapter, students will be able to elucidate on the meaning, objective, advantages and limitations of accounting ratios. Also, students will be able to identify the various types of commonly used ratios.

2. How to Avail DK Goel Accountancy Class 12 Solutions Accountancy Ratios?

Students who are actively looking for DK Goel Solutions Class 12 Chapter 5 Accounting Ratios can easily avail the solutions from online tutoring sites like Vedantu. Also, to make the study more interesting, Vedantu has come up with DK Goel Accountancy Class 12 Solutions Chapter 5 in PDF format.

The PDF helps students to get a clear understanding of the chapter. The proper presentation of every detail, including the techniques applied to the solutions along with the justification provided with the answers, make the chapter easier to grasp. To get access to the PDF, students need to download it or simply register with Vedantu.

3. What are the Terms Introduced in Chapter 5 Accountancy Class 12?

Chapter 5 of Class 12 Accountancy mostly deals with the accounting ratios and various attributes associated with it. The chapter gives detailed information on ratio analysis, the objective of ratio analysis, advantages of ratio analysis, limitations of ratio analysis and types of ratios.

Students will be able to learn new terms and apply them in the examinations as the chapter introduces the same. There are 14 new terms incorporating ratio analysis, solvency analysis, liquidity analysis, profitability analysis, quick assets, return on net worth, average collection period, trade receivables, efficiency ratios, activity ratios, dividend payout, turnover ratios, shareholder’s funds (Equity) and return on investment (ROI).

4. What does the term ‘Window Dressing’ mean?

Window Dressing as the name suggests stands for a situation when someone is trying to cover up the real situation, in this case, a business house. Whenever any business house tries to hide their poor financial condition by wrongly altering the annual reports and financial statements, it is said that they are resorting to Window Dressing. For example, a company’s current assets are Rs 3,00,000 and Liabilities are Rs 2,00,000. So the current ratio is 3:2. Now, if it makes a credit purchase of Rs 50,000 both assets and liabilities will increase by 50,000 and the current ratio will be reduced accordingly. The company may choose not to show these kinds of purchases, thus indulging in Window Dressing.

5. What are solvency ratios and what are they used for?

Solvency ratios are used to assess or predict the long term financial health of a company. It is used to determine whether or not the company will be able to pay off its long term debts. It can hint about an upcoming loss and even potential insolvency soon. Business Analysts take note of the red flags shown by solvency ratios quite seriously, especially when the stakes of investment are high. Analyzing solvency ratios like the Debt to Assets Ratio or Equity Ratio can help the business owner or the internal top management to chalk out things for the future in a better and sustainable way.