Free Download of Class 12 Solutions for Accounting Ratios Available
FAQs on DK Goel Solutions Class 12: Chapter 5 Overview
1. What is an accounting ratio in Class 12 Accountancy?
An **accounting ratio** is a mathematical expression that shows the relationship between two or more accounting figures. These ratios are derived from financial statements like the Balance Sheet and Profit & Loss Account, and they are used to analyze a company's financial performance and position. In Class 12 Accountancy, you learn how to calculate and interpret various types of ratios.
2. What key terms are introduced in Class 12 Accountancy Chapter 5 on Accounting Ratios?
Chapter 5 primarily deals with concepts related to **ratio analysis**. Some of the key terms introduced include:
- 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)
- Return on investment (ROI)
3. What does the term ‘Window Dressing’ mean in accounting?
The term **‘Window Dressing’** refers to the practice where a business intentionally manipulates its financial statements to present a more favorable financial picture than the actual situation. This might be done to attract investors, secure loans, or improve public perception. For example, a company might avoid recording certain purchases near the end of a financial period to falsely improve its current ratio, thereby hiding its true financial health.
4. What are solvency ratios and what are they used for in financial analysis?
**Solvency ratios** are financial metrics used to evaluate a company's ability to meet its long-term financial obligations. They indicate whether a business has enough assets and profitability to survive in the long run and cover its debts. These ratios are essential for investors and creditors to assess the risk associated with a company, helping them determine the long-term financial health and stability of the business.
5. Why is studying Accounting Ratios in Class 12 Accountancy essential?
Studying **Accounting Ratios** is crucial for Class 12 students as it provides practical tools to analyze financial data. This chapter equips students with the skills to evaluate a business’s profitability, solvency, and efficiency by interpreting financial statements. Understanding these ratios helps in making informed decisions and is fundamental for further studies in commerce and finance, as well as for real-world business analysis.
6. How do different types of accounting ratios provide insights into a business's performance?
Different types of **accounting ratios** offer specific insights into various aspects of a business’s performance:
- Liquidity Ratios show a company's ability to meet its short-term obligations.
- Solvency Ratios assess a company’s long-term financial stability and capacity to pay long-term debts.
- Activity (or Turnover) Ratios measure how efficiently a company is utilizing its assets to generate sales.
- Profitability Ratios evaluate a company’s ability to generate earnings relative to its revenue, operating costs, balance sheet assets, or shareholder's equity.
7. What is the difference between liquidity and solvency ratios?
The main difference between **liquidity ratios** and **solvency ratios** lies in the time horizon and the type of obligations they assess. **Liquidity ratios** focus on a company’s ability to meet its **short-term financial obligations** (typically within one year), indicating its immediate financial health. Examples include the Current Ratio and Quick Ratio. In contrast, **solvency ratios** measure a company’s capacity to meet its **long-term financial obligations** over an extended period, reflecting its overall financial stability and ability to continue as a going concern. The Debt-to-Equity Ratio and Debt-to-Assets Ratio are common solvency ratios.
8. How can students effectively use DK Goel solutions for Class 12 Accountancy Chapter 5 to prepare for exams?
Students can effectively use **DK Goel solutions** for Class 12 Accountancy Chapter 5 by not just looking at the answers but by understanding the **step-by-step approach** and the **underlying concepts** applied in each solution. It's beneficial to:
- Attempt problems first independently before consulting the solutions.
- Compare your solution steps with the provided ones to identify areas of improvement.
- Pay attention to the **justifications** provided for answers to deepen conceptual clarity.
- Practice similar problems to reinforce learning and ensure all types of **Accounting Ratios** are mastered as per the CBSE 2025-26 syllabus.
