Class 12 Accounting Ratio Questions:

Class 12 Accounting Ratio Questions: Comprehensive Guide with Solutions

Class 12th accountancy accounting ratio


Master accounting ratios to ace your Class 12 Accountancy exams with step-by-step solutions for important problems.

Understanding the Question

The given question requires calculating:

  • Debt-to-Equity Ratio
  • Working Capital Turnover Ratio

Information Provided:

  • Revenue from Operations:
    • Cash Sales = ₹40,00,000
    • Credit Sales = ₹20,00,000
  • Cost of Goods Sold (COGS): ₹35,00,000
  • Other Current Assets: ₹8,00,000
  • Current Liabilities: ₹4,00,000
  • Paid-up Share Capital: ₹17,00,000
  • 6% Debentures: ₹3,00,000
  • 9% Loan from Bank: ₹7,00,000
  • Debenture Redemption Reserve: ₹3,00,000
  • Closing Inventory: ₹1,00,000

Step-by-Step Solution

(i) Debt-to-Equity Ratio

Formula:

Debt-to-Equity Ratio = Total Debt / Total Equity

Step 1: Calculate Total Debt

Total Debt includes 6% Debentures and 9% Loan from Bank:

Total Debt = ₹3,00,000 + ₹7,00,000 = ₹10,00,000

Step 2: Calculate Total Equity

Total Equity includes Paid-up Share Capital:

Total Equity = ₹17,00,000

Step 3: Apply the Formula

Debt-to-Equity Ratio = ₹10,00,000 / ₹17,00,000 = 0.59 : 1

(ii) Working Capital Turnover Ratio

Formula:

Working Capital Turnover Ratio = Revenue from Operations / Working Capital

Step 1: Calculate Revenue from Operations

Revenue from Operations = ₹40,00,000 + ₹20,00,000 = ₹60,00,000

Step 2: Calculate Working Capital

Working Capital = Other Current Assets - Current Liabilities

Working Capital = ₹8,00,000 - ₹4,00,000 = ₹4,00,000

Step 3: Apply the Formula

Working Capital Turnover Ratio = ₹60,00,000 / ₹4,00,000 = 15 times

Final Answer

  • Debt-to-Equity Ratio = 0.59: 1
  • Working Capital Turnover Ratio = 15 times

Key Concepts Explained

1. Debt-to-Equity Ratio

This ratio measures the proportion of a company's debt to its equity. A lower ratio indicates financial stability.

2. Working Capital Turnover Ratio

This ratio shows how efficiently a business uses its capital to generate revenue. A higher ratio indicates better efficiency.

FAQs on Class 12 Accounting Ratios

  • Q1: What is the ideal Debt-to-Equity Ratio for a company? A: Ideally, it should be less than 1:1.
  • Q2: How is Working Capital calculated? A: Working Capital = Current Assets - Current Liabilities.
  • Q3: Can the Working Capital Turnover Ratio be negative? A: No, it cannot be negative.

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