12th2025-2026

State with reason whether the following transactions will increase, decrease or not change the 'Return on Investment' Ratio:
(i) Purchase of machinery worth ₹10,00,000 by issue of equity shares.
(ii) Charging depreciation of ₹25,000 on machinery.
(iii) Redemption of debentures by cheque ₹2,00,000.
(iv) Conversion of 9% Debentures of ₹1,00,000 into equity shares.

Answer:

Transaction	Impact
Purchase of machinery worth ₹10,00,000 by issue of equity shares.	Issue of shares will lead to an increase in the capital employed by ₹10,00,000.But profit remains intact and so there will be a decline in the return on investment ratio.
Charging depreciation of ₹25,000 on machinery.	Simultaneous decrease in profits and capital employed by ₹25,000 will lead to a decline in return on investment ratio.
Redemption of debentures by cheque ₹2,00,000.	Redemption of debentures will lead to a decrease in the capital employed by ₹2,00,000. Butprofit remains intact and so there will be an increase in the return on investment ratio.
Conversion of 9% Debentures of ₹1,00,000 into equity shares.	Decrease in debentures and increase in share capital causing a simultaneous increase and decrease in capital employed will leave the return on investment ratio unchanged.

Miscellaneous

Calculate Quick Ratio' and 'Debt-Equity Ratio' from the following information:

Particulars	₹	Particulars	₹
Total Debt	8,00,000	Working Capital	2,40,000
Inventory	2,20,000	Shareholders' Funds	12,00,000
Long-term Debts	6,00,000

(CBSE 2024)

Answer:

Calculation of Quick Ration:

Quick Ratio = Quick Assets ÷ Current Liabilities

Quick Ratio = 2,20,000÷ 2,00,000 = 1.1: 1

 

Current Assets = Current Liabilities + Working Capital

Current Assets = 2,00,000 + 2,40,000 =4,40,000

Quick Assets = 4,40,000 -2,20,000(Inventories)= 2,20,000

 

Current Liabilities = Total Debt - Long-term Debts

Current Liabilities = 8,00,000 – 6,00,000 =2,00,000

 

Calculate Revenue from Operations of BN Ltd. from the following information:

Current Assets 8,00,000

Quick Ratio is 1.5:1

Current Ratio is 2:1.

Inventory Turnover Ratio is 6 times.

Goods were sold at a profit of 25% on cost.

(CBSE 2019)

 

Answer:

 

Current Ratio = Current Assets/ Current Liabilities

2:1 = 8,00,000/ Current Liabilities

Current Liabilities= 8,00,000/2=4,00,000

 

Quick Assets= 4,00,000×1.5=6,00,000

Working Capital = Current Assets - Current Liabilities

Working Capital = 8,00,000 – 4,00,000

Working Capital = 4,00,000

Inventory= Current Assets – Quick Assets

Inventory= 8,00,000 – 6,00,000

Inventory= 2,00,000

Inventory Turnover Ratio= Cost of Revenue from operation/Average Inventory

Cost of Revenue from operation = Inventory× Inventory Turnover Ratio

Cost of Revenue from operation = 2,00,000× 6

Cost of Revenue from operation = 12,00,000

 

Profit of 25% on cost

therefore,

it is assumed that

Cost is equal to 100%

Revenue	=	Cost	+ Profit
125	=	100	+25

 

Hence,

Revenue= 12,00,000×125/100=15,00,000

Opening Inventory ₹80,000; Purchases ₹4,30,900; Direct Expenses ₹4,000; Closing Inventory ₹1,60,000; Administrative Expenses ₹21,100; Selling and Distribution Expenses ₹40,000; Revenue from Operations, i.e., Net Sales ₹10,00,000. Calculate Inventory Turnover Ratio; Gross Profit Ratio; and Opening Ratio.

Answer:

(i)

Opening Inventory = 80,000

Closing Inventory = 1,60,000

Cost of Goods Sold = Opening Inventory + Purchases + Direct Expenses − Closing Inventory

= 80,000 + 4,30,900 + 4,000 − 1,60,000

= 3,54,900

Average Inventory= Opening Inventory+ Closing Inventory/2

                   =80,000+90,000/2

                   =1,20,000

Inventory Turnover Ratio= Cost of Goods Sold/ Average Inventory

                                      =3,54,000/1,20,000

=2.96 Times

(ii)

Sales = 10,00,000

Gross Profit = Net Sales − Cost of Goods Sold

= 10,00,000 − 3,54,900 = 6,45,100

Gross Profit Ratio= Gross profit ×100/Net Sales

                   = 645000×100/10,00,000

                   =64.51%

(iii)

Operating Expenses = Administration Expenses + Selling and Distribution Expenses

= 21,100 + 40,000 = 61,100

Operating Cost = Cost of Goods Sold+ Operating Expenses 

                   =3,54,900+61,100=4,16,000

Operating Ratio= Operating Cost/ Net Sales ×100

                   =4,16,000/10,00,000× 100

Operating Ratio = 41.6%

From the given information, calculate:

(a) Trade Receivables Turnover Ratio,

(b) Current Ratio.

Credit Revenue from Operations	80,00,000	10% Debentures	12,00,000
Debtors	25,00,000	Creditors	13,00,000
Bills Receivables	15,00,000	Bills Payable	7,00,000
Total Assets	50,00,000

 

 (CBSE 2024)

Answer:

(a) Trade Receivables Turnover Ratio;

Trade Receivables Turnover Ratio= Credit Revenue from Operations ÷ Average Trade Receivable

Trade Receivables Turnover Ratio= 80,00,000 ÷ 40,00,000 = 2: 1

 

Average Trade Receivable = Debtors + Bills Receivables

Average Trade Receivable = 15,00,000 + 25,00,000 = 40,00,000

 

 

(b) Current Ratio;

Current Ratio= Current Assets ÷ Current Liabilities

Current Ratio= 40,00,000 ÷ 20,00,000

Current Ratio= 40,00,000 ÷ 20,00,000 = 2:1