Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Accounting Ratios

Question:

Based on following data related to Ambe limited, Jaipur, Answer question.

 

 Revenue from operations

8,40,000

 Cost of revenue from operations       

4,20,000

 Selling Expenses

80,000

 Administrative Expenses

40,000

 Equity share capital

1,00,000

 8% preference share capital

50,000

 10% debentures

 1,00,000

 Profit after Tax

 1,74,000 

 Tax Rate

 40%

 

Identity the ratio that is computed to analyse cost of operation in relation to revenue from operations.

Options:

Operating Ratio

Operating Profit Ratio

Gross Profit Ratio

Return on Investment

Correct Answer:

Operating Ratio

Explanation:

The correct answer is Option 1 - Operating Ratio.

Operating ratio is computed to analyse cost of operation in relation to revenue from operations. It is calculated as follows: Operating Ratio = (Cost of Revenue from Operations + Operating Expenses)/ Net Revenue from Operations ×100.

Operating expenses include office expenses, administrative expenses, selling expenses, distribution expenses, depreciation and employee benefit expenses etc.
Cost of operation is determined by excluding non-operating incomes and expenses such as loss on sale of assets, interest paid, dividend received, loss by fire, speculation gain and so on.