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Accountancy · 2023 · 3 marks
CBSE 2023 · Region 4 · Set 2 · Q32
'These ratios are calculated to determine the ability of the business to service its debt in the long run.' (i) Identify the types of ratios…
'These ratios are calculated to determine the ability of the business to service its debt in the long run.' (i) Identify the types of ratios discussed above. (ii) Explain any two ratios of the types of ratios identified in (i) above
Marking-scheme solution
(a)
Solvency Ratios
(b)
Any two of the following:
1.Debt-Equity Ratio
• Debt-Equity Ratio measures the relationship between long-term debt and equity.
• Debt-Equity Ratio =Lon g term Debts /Shareholders’ Funds
2. Debt to Capital Employed Ratio
• The Debt to capital employed ratio refers to the ratio of long-term debt to the total of
external and internal funds (capital employed or net assets).
• Debt to Capital Employed Ratio = Long-term Debt/Capital Employed (or Net Assets)
3.Proprietory Ratio
• Proprietary ratio expresses relationship of proprietor’s (shareholders) funds to net
assets.
• Proprietary Ratio = Shareholders’, Funds/Capital employed (or net assets)
4.Total Assets to Debt Ratio
• This ratio measures the extent of the coverage of long-term debts by assets.
• Total assets to Debt Ratio = Total assets/Long-term debts
5.Interest Coverage Ratio
• It is a ratio which deals with the servicing of interest on loan. It reveals the number of
times interest on long-term debts is covered by the profits available for interest.
• Interest Coverage Ratio
= Net Profit before Interest and Tax/ Interest on long-term debts
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CBSE Class 12 Accountancy past-paper question from the 2023 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.