Which of the following ratios is a measure of long-term solvency? MCQ with Answer and Explanation

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Which of the following ratios is a measure of long-term solvency?

A. Quick ratio

B. Debt-equity ratio

C. Inventory turnover ratio

D. Current ratio

Answer: Option B

Solution (By JKSSB Mock Tests)

Debt-equity ratio indicates financial leverage and long-term solvency.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

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Question #1

Which of the following transactions will not affect the total of the Balance Sheet?

A. Purchase of machinery on credit

B. Sale of goods on credit at a profit

C. Cash deposited into bank

D. Payment to a creditor

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Correct Answer: Option C

Explanation:
Cash to bank is just a change in composition of assets; total assets unchanged. Other transactions change total assets/liabilities.

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Question #2

The 'Financial Management' decision relating to the mix of debt and equity is called:

A. Investment decision

B. Dividend decision

C. Liquidity decision

D. Financing decision

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Correct Answer: Option D

Explanation:
Financing decision concerns how to raise funds, i.e., capital structure.

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Question #3

According to AS-2 (Valuation of Inventories), which cost formula is widely accepted for measuring historical cost of inventory?

A. Next-In-First-Out (NIFO)

B. FIFO or Weighted Average Cost

C. LIFO (Last In First Out)

D. Replacement Cost

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Correct Answer: Option B

Explanation:
AS-2 recommends FIFO or Weighted Average Cost. LIFO is generally not permitted under Indian Accounting Standards.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

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