Choose the right answer:

(i) The _________ is useful in evaluating credit and collection policies.
A. average payment period B. current ratio C. average collection period D. current asset turnover

(ii) The _________ measures the activity of a fi

Question

Choose the right answer:

(i) The _________ is useful in evaluating credit and collection policies.
  A. average payment period   B. current ratio   C. average collection period   D. current asset turnover

(ii) The _________ measures the activity of a firm's inventory.
  A. average collection period   B. inventory turnover   C. liquid ratio   D. current ratio

(iii) The _________ may indicate that the firm is experiencing stockouts and lost sales.
  A. average payment period   B. inventory turnover ratio   C. average collection period   D. quick ratio

(iv) ABC Co. extends credit terms of 45 days to its customers. Its credit collection would be considered poor if its average collection period was.
  A. 30 days   B. 36 days   C. 47 days   D. 37 days

(v) _________ are especially interested in the average payment period, since it provides them with a sense of the bill-paying patterns of the firm.
  A. Customers   B. Stockholders   C. Lenders and suppliers   D. Borrowers and buyers

(vi) The _________ ratios provide the information critical to the long run operation of the firm.
  A. liquidity   B. activity   C. solvency   D. profitability

Accepted Answer

**(i) C — average collection period.** It shows how long, on average, customers take to pay, which is exactly what is needed to judge credit and collection policies.

**(ii) B — inventory turnover.** This ratio measures the activity of a firm's inventory — how quickly stock moves.

**(iii) B — inventory turnover ratio.** An unusually high inventory turnover ratio can mean the firm holds too little stock, leading to stockouts and lost sales.

**(iv) C — 47 days.** The firm allows 45 days' credit; an average collection period of 47 days exceeds this term, so collection would be considered poor. …

Particulars	Note No.	Previous Year (₹)	Current Year (₹)	Absolute Change (₹)	Percentage Change (%)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital
(b) Reserves and Surplus
2. Non-Current Liabilities
(a) Long-term Borrowings
3. Current Liabilities
(a) Trade Payables
(b) Short-term Provisions
Total
II. ASSETS
1. Non-Current Assets
(a) Fixed Assets
(b) Non-Current Investments
2. Current Assets
(a) Inventories
(b) Trade Receivables
(c) Cash and Cash Equivalents
Total

Q.Choose the right answer:

Concept understanding — Ratio Analysis

What the NCERT textbook says

Why does it matter?

Accounting treatment: No debit/credit

Where a format/proforma is given

#	Answer	Why
(i)	C	The average collection period reflects how well credit and collection policies work.
(ii)	B	Inventory turnover measures the activity (movement) of a firm's inventory.
(iii)	B	A very high inventory turnover ratio can signal stockouts and lost sales.
(iv)	C	47 days exceeds the 45-day credit term, so collection is poor.

Q.Choose the right answer:

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