Easy2Siksha Sample Papers
GNDU Most Repeated (Important) Quesons
B.Com 5th Semester
Cost & Management Accounng
(Based on 4-Year GNDU Queson Paper Trend Analysis: 2021–2024)
Must-Prepare Quesons (80–100% Probability)
SECTION–A (Rao Analysis & Financial Interpretaon)
1. Current Rao & Quick (Liquid) Rao (4 Times)
2021 (Q1), 2022 (Q1), 2023 (Q1), 2024 (Q1)
100% Repeon – Guaranteed for 2025
2. Inventory Turnover Rao / Average Collecon Period / Proprietor’s Fund to
Liabilies (4 Times)
2021 (Q1–b), 2022 (Q1–b), 2023 (Q1–b), 2024 (Q1–b)
100% Probability
2025 Smart Predicon Table
(Based on 4-Year GNDU Paper Trend: 2021–2024)
Secon
Queson Topic
Years
Appeared
Priority
A
Current Rao & Quick (Liquid) Rao
2021–24
Very High
(100%)
A
Inventory Turnover / Average Collecon Period /
Proprietor’s Fund
2021–24
Very High
(100%)
B
Fund Flow Statement – Meaning, Preparaon &
Uses
2021–24
Very High
(100%)
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2025 GUARANTEED QUESTIONS (100% Appearance Trend)
Top 5 Must-Prepare Quesons (Appeared All 4 Years):
1. Calculate Current Rao and Quick Rao for a given dataset.
2. Prepare Fund Flow Statement and explain its uses and dierence from Cash
Flow Statement.
BONUS HIGH-PRIORITY QUESTIONS (80–90%)
6. Dene and explain Acvity-Based Cosng.
7. Explain Responsibility Centres and their types.
GNDU Most Repeated (Important) Answers
B.Com 5th Semester
Cost & Management Accounng
(Based on 4-Year GNDU Queson Paper Trend Analysis: 2021–2024)
Must-Prepare Quesons (80–100% Probability)
SECTION–A (Rao Analysis & Financial Interpretaon)
Current Rao & Quick (Liquid) Rao (4 Times)
2021 (Q1), 2022 (Q1), 2023 (Q1), 2024 (Q1)
100% Repeon – Guaranteed for 2025
Ans: The Story of Two Financial Guards: Current Ratio and Quick Ratio
Imagine a company — let’s call it Sunrise Traders. It’s a business that buys and sells
goods every day. The owner, Mr. Rohan, is smart, hardworking, and full of energy. But
like every business owner, he has one big question that keeps him awake at night:
“If something goes wrong tomorrow, do I have enough money and assets to pay all my
short-term debts?”
This is the heart of what we call liquidity — the ability of a business to pay its short-term
obligations on time. And to measure this liquidity, accountants and financial analysts use
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two powerful indicators — the Current Ratio and the Quick Ratio (also called Liquid
Ratio).
Let’s slowly unfold both in the simplest and most human way possible.
The Concept of Liquidity – The Starting Point
Before we jump into ratios, let’s understand what liquidity really means.
Think of your wallet and your belongings.
• The cash in your wallet? You can use it immediately — it’s very liquid.
• Your mobile phone? You could sell it, but it’ll take some time — it’s less liquid.
• Your house? You can sell it too, but it may take months — it’s not liquid at all.
Businesses are the same. They also have assets — some are quickly convertible into cash
(like cash itself or money owed by customers), and others take longer (like stock or
machinery). Liquidity tells us how easily and quickly a business can turn its assets into
cash to pay its immediate debts.
Part 1: The Current Ratio — The General Liquidity Test
Meaning
The Current Ratio is the most common and traditional test of liquidity.
It compares the company’s Current Assets with its Current Liabilities.
In simple words, it answers this question:
“Do I have enough short-term assets to pay off my short-term liabilities?”
Formula
Current Ratio =
Current Assets
Current Liabilities
What Are Current Assets?
Current assets are those which can be converted into cash within a year. Examples
include:
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• Cash in hand and at bank
• Bills receivable
• Debtors (customers who owe money)
• Stock (inventory)
• Short-term investments
• Prepaid expenses
What Are Current Liabilities?
These are the obligations that must be paid within a year. Examples include:
• Creditors (suppliers to whom the business owes money)
• Bills payable
• Outstanding expenses
• Short-term loans
• Bank overdrafts
Example of Current Ratio
Let’s return to our hero, Mr. Rohan of Sunrise Traders.
He has the following information for the year:
Particulars
Amount (₹)
Cash in hand
50,000
Debtors
1,50,000
Bills Receivable
30,000
Stock
1,70,000
Prepaid expenses
10,000
Creditors
1,00,000
Bills Payable
50,000
Bank Overdraft
40,000
Step 1: Find total current assets:
= 50,000 + 1,50,000 + 30,000 + 1,70,000 + 10,000 = ₹4,10,000
Step 2: Find total current liabilities:
= 1,00,000 + 50,000 + 40,000 = ₹1,90,000
Step 3: Apply formula:
Current Ratio =
4,10,000
1,90,000
= 2.16: 1
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So, the Current Ratio is 2.16:1.
Interpretation
This means that for every ₹1 of current liability, Sunrise Traders has ₹2.16 worth of
current assets.
It’s a good sign — the company seems capable of paying its short-term obligations
comfortably.
Ideal Current Ratio
Generally, an ideal current ratio is considered to be 2:1.
That means —
The company should have twice as many current assets as current liabilities.
It shows a good balance — not too high (which would mean too much idle cash) and not
too low (which would mean liquidity problems).
When the Current Ratio Misleads
But wait! There’s a twist in our story.
What if Rohan’s stock of ₹1,70,000 consists of unsold or obsolete items that nobody
wants to buy?
Then, even though the ratio looks healthy, it’s not actually useful — because those
goods can’t be easily converted into cash.
That’s where our second hero comes in — the Quick (Liquid) Ratio.
Part 2: The Quick Ratio – The True Test of Liquidity
Meaning
The Quick Ratio is a more refined and stricter measure of liquidity.
It eliminates all the items that cannot be quickly turned into cash — especially inventory
and prepaid expenses.
In simple terms, it asks:
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“If tomorrow morning all my short-term debts have to be paid immediately, do I have
enough cash or near-cash assets to pay them?”
Formula
Quick Ratio =
Quick Assets
Current Liabilities
What Are Quick (Liquid) Assets?
Quick Assets are those current assets that can be converted into cash within a very
short time, usually immediately or within a few days.
They include:
• Cash in hand and bank
• Bills receivable
• Debtors (after deducting doubtful debts)
• Short-term marketable securities
Excludes:
• Stock (because it takes time to sell)
• Prepaid expenses (because they can’t be converted into cash)
Example of Quick Ratio
Using the same data of Sunrise Traders, let’s calculate the Quick Ratio.
Particulars
Amount (₹)
Cash in hand
50,000
Debtors
1,50,000
Bills Receivable
30,000
Stock
1,70,000
Prepaid Expenses
10,000
Total Current Liabilities
1,90,000
Now, Quick Assets = Current Assets – (Stock + Prepaid Expenses)
= 4,10,000 – (1,70,000 + 10,000) = ₹2,30,000
Now apply the formula:
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Quick Ratio =
2,30,000
1,90,000
= 1.21: 1
So, the Quick Ratio = 1.21:1
Interpretation
This means that for every ₹1 of short-term liability, the company has ₹1.21 in liquid
assets.
It shows the company is in a sound position — it can pay off its debts easily even if it
cannot sell any stock immediately.
Ideal Quick Ratio
An ideal quick ratio is considered 1:1.
This indicates that the firm has just enough liquid assets to meet its current liabilities
without depending on selling its stock.
If the ratio is:
• More than 1: The company is highly liquid, which is good.
• Less than 1: The company may face short-term payment problems.
Comparison Between Current Ratio and Quick Ratio
Basis
Current Ratio
Quick Ratio
Meaning
Measures overall short-term
liquidity
Measures immediate liquidity
Formula
Current Assets ÷ Current Liabilities
Quick Assets ÷ Current Liabilities
Includes
Stock and Prepaid Expenses
Excludes Stock and Prepaid
Expenses
Nature
Broader measure
Stricter measure
Ideal Ratio
2:1
1:1
Usefulness
General measure of solvency
Test of true financial strength
Why Both Ratios Are Important
1. Together, they tell the full story.
o Current Ratio shows overall ability to pay short-term debts.
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o Quick Ratio shows how quickly the firm can meet obligations without
selling inventory.
2. They reveal management efficiency.
o A very high current ratio may mean poor asset utilization (too much
money blocked in stock or debtors).
o A very low ratio may indicate danger of insolvency.
3. They help investors and creditors decide.
o Creditors want to know if the firm can pay back.
o Investors want to know if the firm manages its working capital efficiently.
Real-Life Understanding
Let’s imagine two businesses:
A. FastMart Ltd. (A supermarket chain)
They sell daily use items that move fast. Their stock turnover is high. For them, even a
current ratio of 1.5:1 might be fine because their goods sell daily, bringing in constant
cash.
B. HeavyTech Machines Ltd. (A machinery manufacturer)
Their products take months to sell. For them, a current ratio of 2.5:1 or even higher is
safer because their cash flow is slower.
So, the “ideal” ratio actually depends on the nature of business.
In Simple Words
Think of the Current Ratio as a wide umbrella — it checks if the company has enough
short-term assets to pay debts.
And the Quick Ratio as a raincoat — it checks if the company can survive even when the
rain starts suddenly (no time to sell stock).
Both protect the business from financial storms, just in different ways.
Final Words
In the financial journey of any company, Current Ratio and Quick Ratio act as early
warning signals.
They tell whether a business is just surviving or comfortably sailing.
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• A healthy Current Ratio ensures peace of mind that the business can pay its bills.
• A strong Quick Ratio ensures immediate safety in case of sudden cash demands.
Mr. Rohan of Sunrise Traders now sleeps peacefully — because he not only knows these
numbers but understands what they mean.
He knows that the true success of a business isn’t just in earning profits but also in
maintaining enough liquidity to stay alive and trustworthy.
Summary at a Glance
Concept
Key Idea
Ideal
Ratio
Current
Ratio
Measures overall ability to pay short-term liabilities
2:1
Quick Ratio
Measures immediate ability to pay short-term liabilities
using quick assets
1:1
So, in short —
Current Ratio tells how safe your business is for the next few months,
Quick Ratio tells how safe it is for the next few days.
Both are the watchful guards standing at the gate of your business, protecting it from
financial troubles.
2. Inventory Turnover Rao / Average Collecon Period / Proprietor’s Fund to
Liabilies (4 Times)
2021 (Q1–b), 2022 (Q1–b), 2023 (Q1–b), 2024 (Q1–b)
100% Probability
Ans: A young entrepreneur, Ananya, starts a small garments business in Ludhiana. She
invests her savings, buys stock, and begins selling. At the end of the year, her mentor
asks: “Ananya, do you know how efficiently you used your stock? How quickly your
customers paid you? And how much of your business is really yours versus borrowed?”
Ananya looks puzzled. The mentor smiles: “That’s where financial ratios like Inventory
Turnover Ratio, Average Collection Period, and Proprietor’s Fund to Liabilities come in.
They tell the hidden story of your business health.”
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Let’s walk through this story step by step, in a way that’s simple, engaging, and
examiner-friendly.
1. Inventory Turnover Ratio
Meaning
• The Inventory Turnover Ratio shows how many times a company sells and
replaces its inventory during a year.
• Formula:
Inventory Turnover Ratio =
Cost of Goods Sold (COGS)
Average Inventory
• Average Inventory = (Opening Stock + Closing Stock) ÷ 2.
Interpretation
• High ratio → stock is sold quickly, less money tied up.
• Low ratio → slow sales, risk of obsolete stock.
Story Note: Ananya had stock worth ₹10 lakh on average. Her cost of goods sold was
₹50 lakh.
Inventory Turnover =
50,00,000
10,00,000
= 5
This means she sold and replenished her stock 5 times in a year.
Importance
• Measures efficiency of inventory management.
• Helps avoid over-stocking or under-stocking.
• Indicates liquidity of stock.
2. Average Collection Period
Meaning
• The Average Collection Period (ACP) shows how many days, on average, a
business takes to collect payments from debtors.
• Formula:
ACP =
Debtors (Accounts Receivable)
Credit Sales
× 365
Interpretation
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• Shorter ACP → customers pay quickly, better cash flow.
• Longer ACP → money stuck with customers, liquidity issues.
Story Note: Ananya had debtors worth ₹8 lakh. Her annual credit sales were ₹48 lakh.
ACP =
8,00,000
48,00,000
× 365 = 61 days
This means her customers take about 2 months to pay.
Importance
• Helps assess credit policy effectiveness.
• Indicates liquidity and working capital cycle.
• Guides decisions on offering or tightening credit.
3. Proprietor’s Fund to Liabilities Ratio
Meaning
• Also called the Proprietary Ratio.
• Shows the proportion of total assets financed by the owner’s funds (equity)
versus outsiders (liabilities).
• Formula:
Proprietor’s Fund to Liabilities =
Proprietor’s Fund (Equity + Reserves)
Total Liabilities
Interpretation
• High ratio → business is financially strong, less dependent on debt.
• Low ratio → risky, heavy reliance on outsiders.
Story Note: Ananya’s balance sheet shows:
• Proprietor’s Fund = ₹30 lakh
• Total Liabilities = ₹50 lakh
Ratio =
30,00,000
50,00,000
= 0.6
This means 60% of her business is financed by her own funds and 40% by outsiders.
Importance
• Indicates long-term financial stability.
• Higher ratio builds investor and creditor confidence.
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• Lower ratio signals risk of insolvency.
Interconnection of the Three Ratios
• Inventory Turnover Ratio tells how fast stock is moving.
• Average Collection Period tells how fast cash is coming in.
• Proprietor’s Fund to Liabilities tells how strong the financial foundation is.
Together, they form a 360-degree view of efficiency, liquidity, and stability.
Story Note: Ananya realizes:
• Her stock moves 5 times a year (good).
• Customers take 61 days to pay (needs improvement).
• 60% of her business is self-financed (fairly strong).
Real-Life Examples
1. Retail Chains (like Big Bazaar) → High inventory turnover because goods sell fast.
2. Luxury Car Dealers → Low inventory turnover, as cars take longer to sell.
3. Banks → Monitor ACP closely, since delayed collections affect liquidity.
4. Start-ups → Often have low Proprietor’s Fund ratio, relying heavily on loans or
investors.
Recap in a Narrative Table
Ratio
Formula
Interpretation
Example
(Ananya)
Inventory Turnover
COGS ÷ Avg. Inventory
Efficiency of stock
use
5 times a year
Average Collection
Period
(Debtors ÷ Credit Sales)
× 365
Speed of
collections
61 days
Proprietor’s Fund to
Liabilities
Proprietor’s Fund ÷
Total Liabilities
Financial strength
0.6 (60%)
Wrapping the Story
So, the story of Inventory Turnover Ratio, Average Collection Period, and Proprietor’s
Fund to Liabilities is really the story of how a business breathes.
• Inventory Turnover is the heartbeat—showing how fast goods move.
• Average Collection Period is the blood flow—showing how quickly cash
circulates.
• Proprietor’s Fund Ratio is the backbone—showing how strong the business
stands.
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Final Analogy: If a business is like a human body, inventory turnover is its metabolism,
average collection period is its circulation, and proprietor’s fund ratio is its skeleton.
Only when all three are healthy does the business thrive.
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