Explore topic-wise InterviewSolutions in Current Affairs.

True.

Explanation: Interest on drawings is a kind of fee charged from the partner on the amount withdrawn by him/her from the firm’s money for his/her personal use. So, it is an expense for the partner and accordingly, an income for the firm. Hence, the given statement is correct.

Maximum twenty persons are required to form a partnership having trading business.

Explanation: As per the Companies Act of 1956, a maximum of twenty persons can form a partnership having trading business. The Act also prohibits a firm with more than 10 partners in case of banking business.

Comparative statements are the form of horizontal analysis. 

True

Through analysis of comparative statements we can get the information about development trend of a business entity.

Full form of:

CAS – Computerized Accounting System.

MIS – Management Information System. 

GAAP – Generally Accepted Accounting Principles.

Electronic equipment like computers, hard disks, monitors, printers, and the network that connects with them, etc. are included in Hardware.

Ready to use, Customized, Tailored and Free, and open source are the different names of Accounting Packages.

If dates of drawings are not given, interest on drawings is charged for six months.

Explanation: When the date of drawings is not given, interest on drawings is charged for an average period of six months. In such cases, it is assumed that a fixed amount is withdrawn as drawings in the middle of every month.

(b) Horizontal analysis

(c) Shareholders

Following are the various voucher types:

1. F4 Contra voucher – For cash deposited in the bank and cash withdrawn from the bank, Transfer from one cash A/c to another Cash A/c and Bank to Bank transfer.

2. F5 Payment voucher – For all types of payments are recorded through this voucher type (Cash and Bank) Cash or Bank.

3. F6 Receipt voucher – For Cash and Bank receipts

4. F7 Journal voucher – For non-cash transactions

5. F8 Sales voucher – For cash as well as credit sales

6. F9 Purchase voucher – For cash as well as a credit purchase

Following are the steps to create a company:

1. After entering into Accounting software Tally, double click on the option, create a company, under company information. Then follow the navigation path. Gateway of Tally > Company Info > Create Company

2. Fill in the detailed information in the company creation form, displayed on the screen – Company creation window.

Analysis of financial statement

Explanation: It is the process of analysing the business results and the efficiency of the business via various tools. Analysis of financial statement provides an insight into the efficiency with which a business is operating, what is the profitability and what is the present financial position of the business. It facilitates comparison of business results of different firms and over the years.

i. (b) six

ii. (a) assets

iii. (c) Capital

iv. (b) Partner’s Current

v. (a) Partner’s Current

(a) At a Point of time

(d) All the above

Following are the stages of analysis of finanacial statements :

• New structural Arrangement of financial statement
• Comparison
• Analysis and Interpretation.

False

Explanation: Net profit depicts the overall performance of the business and the efficiency with which business is operating. On the other hand, quick ratio is an indicator of a firm’s short-term liquidity.

Steps to create a ledger account in the tally are as follows:

• From Gateway of Tally Screen, click on accounts info.
• Path gateway to Tally – Accounts Info – Ledgers – Single ledger – Choses create.

This statement is False.

In Tally, the F6 Function key is useful for receipt vouchers.

i. (a) Balance Sheet

ii. (a) Machinery

iii. (c) Profit and Loss

iv. (a) Purchase

v. (b) Gross Loss

i. Comparative Income Statement

ii. Gross Profit Ratio

iii. Analysis of Financial Statement

iv. Ratio

v. Liquid Asset

This statement is False.

Financial statements include Balance Sheet and Profit and Loss A/c. This is because financial statements are prepared by business organisations to find out the efficiency, solvency, profitability, growth, strength, and status of the business. For this, they need information from the balance sheet as well as from Profit and Loss A/c.

Accounting Ratio

Explanation: Accounting ratio expresses the relationship between two accounting variables. It is one amongst the various tools available for financial analysis. Financial ratios are calculated from the financial statements to derive conclusions regarding liquidity, profitability and solvency of a business. They are used to measure the efficiency and profitability of a company based on the financial reports prepared by the business. They facilitate the decision-making task of the management.

It is a process by which financial statements, i.e. Balance Sheet and Income Statement, are analysed to study the business results and the efficiency of the business operations. Also, it helps in the comparison of profitability and financial position of the business over the years or with different firms. Such analysis also facilitates decision-making.

False

Explanation: ROI, i.e. return on investment, is calculated on total capital employed which is total of ownership capital and debt capital.

Capital Employed = Share Capital + Reserves & Surplus + Long-Term Loans + Debentures – Preliminary Expenses Alternatively,

Capital Employed = Net Fixed Assets + Long-Term Investments + Working Capital.

The relationship between net profit before Tax, interest and dividend and capital employed is known from ROI.

Explanation: Return on investment, i.e. ROI, is based on capital employed, i.e. net profit before tax, interest and dividend divided by capital employed, where capital employed reflects the total amount invested in the business.

While quick ratio and current ratio reflect the liquidity of the business, ROI reflects the profitability.

True

Explanation: Gross profit is ascertained by preparing a Trading Account. In this account, all the direct costs incurred are deducted from the net sales (sales less sales return), i.e. revenue, to arrive at gross profit. Hence, it is correct to say that gross profit depends on net sales.

i. (c) Voucher

ii. (d) Daybook

iii. (a) Investments

Liquid asset

Explanation: Those assets of the business that can be converted into cash immediately are known as liquid assets. They are highly liquid in nature and are also known as quick assets.

ROCE

Explanation: Return on capital employed reflects the company's profitability and the efficiency with which its capital is employed.

Algebraically,

ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed

A higher ROCE indicates more efficient use of capital. ROCE should be higher than a company’s capital cost. Lower ROCE indicates that the company is not employing its capital effectively and is not adding to the shareholder value.

i. ROCE

ii. Comparative Balance Sheet

iii. Cash Flow Statement

iv. Financing Activities

v. Liquid Ratio

Correct answer is (b) 100

Gross profit ratio

Explanation: It is the ratio based on net sales and gross profit earned. It is used to assess the profitability of the core business. It reflects the efficiency with which a firm produces its products. Higher the gross profit, better is its financial performance.

Current assets = Current liabilities + Working capital

= 3,00,000 + 8,00,000

= ₹ 11,00,000

Quick assets = Current assets – Inventory

= 11,00,000 – 2,00,000

= ₹ 9,00,000

Quick liability = Current liabilities – Bank O/D = ₹ 3,00,000

Quick ratio = \(\frac{Quick\,assets}{Quick\,liabilities}\)

= \(\frac{9,00,000}{3,00,000}\)

= \(\frac{3}{1}\)

= 3 : 1

Current ratio = \(\frac{Current\,assets}{Current\,liabilities}\)

= \(\frac{3,00,000}{1,00,000}\)

= \(\frac{3}{1}\)

= 3 : 1

(c) absolute and relative

This statement is True.

The gross profit ratio discloses the relation between gross profit and total net sales. The gross profit ratio is an income-based ratio, where gross profit is an income. There is a direct relation between net sales and gross profit. Higher the net sales higher the gross profit.

Current ratio = \(\frac{Current\,assets}{Current\,liabilities}\)

\(\frac{2}{1}=\frac{6,00,000}{Current\,liabilities}\)

2 × Current liabilities = 6,00,000 × 1

Current liabilities = \(\frac{6,00,000}{2}\) = ₹ 3,00,000

(b) Opening stock of material + Purchase of material + Direct expenses – Closing stock of material

Sales = ₹ 3,80,000

Less: Cost of goods sold = ₹ 2,60,000

Gross profit = ₹ 1,20,000

Less: Indirect expense = ₹ 60,000

Net profit = ₹ 60,000

Net profit ratio = \(\frac{Net\,profit}{Sales}\times100\)

= \(\frac{60,000}{3,80,000}\times100\)

= 15.79%

Cost of goods sold = Net sales – Gross profit

= 7,70,000 – 3,90,000

= ₹ 3,80,000

Operating expenses = Adm. exp. + Selling and Distribution expenses

= 50,000 + 60,000

= ₹ 1,10,000

Operating ratio = \(\frac{Cost\,of\,goods\,sold\,+\,Operating\,expense}{Net\,sales}\times100\)

= \(\frac{3,80,000\,+\,1,10,000}{7,70,000}\times100\)

= \(\frac{4,90,000}{7,70,000}\times100\)

= 63.64%

Correct option is (A) ₹ 1,20,000

Correct option is (C) ₹ 6,40,000

Gross profit = Sales – Cost of goods sold

= 10,00,000 – 4,20,000

= ₹ 5,80,000

Net profit = Gross profit – Administrative expenses – Selling and Distribution expenses – Indirect expenses – Interest on debentures

= 5,80,000 – 1,00,000 – 80,000 – 30,000 – 40,000

= ₹ 3,30,000

Net profit ratio = \(\frac{Net\,profit}{Sales}\times100\)

= \(\frac{3,30,000}{10,00,000}\times100\)

= 33%

Gross profit is 20% on cost.

Goods costing ₹ 100 must have been sold for ₹ 120.

Hence, if sales is ₹ 120, gross profit is ₹ 20.

If sales is ₹ 9,00,000 then Gross profit =?

Gross profit = 9,00,000 × \(\frac{20}{100}\) = ₹ 1,50,000

Gross profit ratio = \(\frac{Gross\,profit}{Net\,sales}\times100\)

= \(\frac{1,50,000}{9,00,000}\times100\)

= 16.67%

Correct option is (B) ₹ 4,77,500