Given:

• Gross Profit = ₹30,000
• Net Sales = ₹1,00,000

Formula:

$$\text{Gross Profit Ratio} = \frac{\text{Gross Profit}}{\text{Net Sales}} \times 100$$

$$= \frac{30,000}{1,00,000} \times 100 = \textbf{30\%}$$

Source: Profitability Ratios, Chapter 10

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• The examiner awards 1 mark for the formula and 1 mark for the correct calculation/answer.
• Gross Profit (₹30,000) and Net Sales (₹1,00,000) are directly read from the Trading Account — no further calculation needed.
• Always express Gross Profit Ratio as a percentage; forgetting the "× 100" or the "%" sign can cost a mark.

Reserves and Surplus refers to the accumulated profits and retained earnings of a company that have not been distributed as dividends to shareholders. It includes general reserves, specific reserves, and the balance in the Profit & Loss Account. It appears on the liabilities side of the Balance Sheet and represents the owners' stake beyond the original share capital.

Source: Chapter 10, Balance Sheet illustration

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• Examiners expect a definition + components + position in Balance Sheet for 2 marks.
• Key terms to include: accumulated profits, retained earnings, not distributed as dividends, and liabilities side of Balance Sheet.
• The illustration shows Reserves & Surplus of Rs. 22 crore alongside Share Capital of Rs. 16 crore — use this context if asked for an example.
• Avoid writing a long paragraph; two to three crisp sentences are sufficient.

Long-term solvency of a firm can be judged by using Leverage/Capital Structure Ratios (e.g., Debt-Equity Ratio, Interest Coverage Ratio).

Source: Chapter 10, Leverage/Capital Structure Ratios

The examiner expects you to name the ratio category — Leverage or Capital Structure Ratios — not individual ratios. Mentioning one example is a good habit for a 1-mark answer but not strictly required. Avoid writing about liquidity ratios; those measure short-term solvency.

$$\text{Stock (Inventory) Turnover Ratio} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}$$

Source: Turnover Ratios, Chapter 10

• "Stock Turnover Ratio" and "Inventory Turnover Ratio" are the same; either name is accepted.
• Cost of Goods Sold = Net Sales − Gross Profit; Average Inventory = (Opening Stock + Closing Stock) ÷ 2.
• For 1 mark, writing just the formula is sufficient — no further explanation needed.

Debt-Asset Ratio is a leverage ratio that measures the proportion of a firm's total assets financed by total debt (long-term debt + current liabilities).

$$\text{Debt-Asset Ratio} = \frac{\text{Total Debt}}{\text{Total Assets}}$$

It indicates long-term solvency. A higher ratio means greater financial risk, as more assets are funded by borrowed funds.

Source: Chapter 10, Leverage/Capital Structure Ratios

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• Examiners expect: definition, formula, and a brief interpretation — all three for full 2 marks.
• Remember: Total Debt = Long-term debt + Current liabilities; Total Assets = Permanent capital + Current liabilities.
• Don't confuse this with Debt-Equity Ratio — that compares debt to equity, not to assets.

(a) Market price of a share / Earning per share.

P/E Ratio = Market Price per Share / EPS (Earnings Per Share).

Source: Profitability Ratios, Chapter 10

The P/E Ratio is a stock market-related ratio under Profitability Ratios. Examiners expect you to directly identify option (a) and optionally state the formula. Options (b) gives EPS, (c) gives Return on Capital Employed, and (d) gives Return on Shareholders' Equity — common distractors.

Current Ratio: Current Ratio is a liquidity ratio that measures the ability of a firm to meet its current liabilities using its current assets. A higher current ratio indicates greater short-term solvency.

Formula:

$$\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$$

Source: Liquidity Ratios, Chapter 10

• For 2 marks: one mark is for the definition and one for the formula.
• Always mention that it measures the firm's ability to meet short-term/current liabilities — this is the key phrase examiners look for.
• Writing the formula clearly in fraction form is essential; do not just state it in words.

Applications of Funds (uses):

1. Fixed Assets (purchase of machinery, land, buildings, etc.)
2. Investments (long-term investments made by the firm)

Sources of Funds:

1. Shareholders' Funds (Share Capital contributed by owners)
2. Secured/Unsecured Loans (borrowed funds from creditors/financial institutions)

In Fund Flow analysis, sources of funds are inflows (liabilities side of Balance Sheet — share capital, loans, reserves) and applications/uses of funds are outflows (assets side — fixed assets, investments). The Balance Sheet visual in the question directly shows these heads. Examiners expect you to name specific items from the Balance Sheet, not vague terms. Pairing one from each side is sufficient for 1 mark each.

(A) Total Debt/Total Equity

The formula for Debt-Equity Ratio is: $\text{Debt-Equity Ratio} = \dfrac{\text{Total Debt}}{\text{Total Equity}}$

Source: Leverage/Capital Structure Ratios, Chapter 10

The examiner expects direct identification of the correct option. Debt-Equity Ratio measures relative contributions of creditors and owners. Option (B) is Debt-Asset Ratio, (C) is Fixed Assets Turnover, and (D) is Current Ratio — common distractors students must distinguish.

The ratios described are Leverage/Capital Structure Ratios. They measure a firm's long-term solvency — its ability to pay interest regularly and repay principal on due dates.

Two examples:

1. Debt-Equity Ratio = Total Debt / Total Equity
2. Interest Coverage Ratio = EBIT / Interest

Source: Chapter 10, Leverage/Capital Structure Ratios

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• The question has two parts: identify the ratio type (1 mark) and give two examples (1 mark). Name the category clearly, then list two distinct ratios with their formulas for full credit.
• Examiners accept any two from: Debt-Equity Ratio, Debt-Asset Ratio, Interest Coverage Ratio, DSCR. Formulas are expected for examples in this context.

(A) Earning Per Share (EPS)

EPS measures the profit available to equity shareholders per share — the amount they can get on every share held.

The passage directly states: "EPS measures the profit available to the equity shareholders per share, that is, the amount that they can get on every share held." This is a straight definition-based MCQ; option (A) is the only correct match.