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M.404 An Aid to Accountancy—CBSE XII

PART B
18. No, he is incorrect because proposed dividend for the current year is not to be accounted
in the books of account but is to be shown in the Notes to Accounts as contingent liability.
19. Operating Activity is the principal revenue producing activity of the enterprise.
Whereas, Investing Activity includes the acquisition and disposal of long-term assets
and other investments not included in Cash and Cash Equivalents.
20. (a)
Items Major Head Sub-head
1. Debentures Redemption Reserve Shareholders’ Funds Reserves and Surplus
2. Outstanding Expenses Current Liabilities Other Current Liabilities
3. Capital Advances Non-current Assets Long-term Loans and Advances
(b) To have steady income with higher return, an investor prefers to invest partly in
the shares and partly in the debentures of a company.
` 20,00,000 100¥
21. (a) Capital Employed = = ` 1,00,00,000.
20
(b) Return on Investment (ROI).
Cost of Revenue from Operations
+ Operating Expenses
(c) (i) Operating Ratio = ¥ 100
Revenue from Operations
` 13,20,000 + ` 2,20,000
= ¥ 100 = 70%.
` 22,00,000
Note: Revenue from Operations = Cash Revenue from Operations
+ Credit Revenue from Operations
= ` 10,00,000 + ` 12,00,000 = ` 22,00,000
Gross Profit = 40% of ` 22,00,000 = ` 8,80,000
Cost of Revenue from Operations = Revenue from Operations – Gross Profit
= ` 22,00,000 – ` 8,80,000 = ` 13,20,000
Operating Expenses = 10% of ` 22,00,000 = ` 2,20,000.
Cost of Revenue from Operations
(ii) Inventory Turnover Ratio =
Average Inventory
` 13,20,000
= = 8.25 Times.
` 1,60,000
OpeningInventory + ClosingInventory
Note: Average Inventory =
2
` 1,50,000 `
+ 1,70,000
`
= = 1,60,000.
2
Shareholders’ Funds
(iii) Proprietary Ratio =
Total Assets
` 6,00,000 (Share Capital)
= = 0.75 : 1 or 75%.
` 8,00,000
Note: Total Assets = Current Assets + Non-Current Assets (Fixed Assets)
= ` 3,00,000 + ` 5,00,000 = ` 8,00,000.