Ratio numericals are the most repeated computational segment of the Class 12 Accountancy Part B paper, and the NCERT Class 12 Accountancy Notes Part 2 Chapter 5 Accounting Ratios compress all four ratio families into a 24-page revision file mapped to the 2026-27 NCERT reprint. The chapter converts raw Balance Sheet and Statement of Profit and Loss figures into liquidity, solvency, activity, and profitability indicators that CBSE tests every year, and CUET commerce draws aptitude items from the same formulae.
- CBSE Weightage: 8 marks (Part B, Financial Statement Analysis cluster), one 4-mark numerical plus 1 MCQ in almost every sitting since 2019
- Notes Length: 24-page revision PDF with 30+ ratio formulae, every formula carrying a solved illustration and an interpretation line
These notes are reviewed by Chartered Accountants and senior Commerce educators, mapped to the 2026-27 NCERT Accountancy Part II textbook (Reprint 2026-27), and verified against the last seven years of CBSE Class 12 Board papers.
Ratios are the bridge between Part 2 Chapter 4 (tools of analysis) and Part 2 Chapter 6 (Cash Flow), and a student who can recall the formula, the substitution, and the one-line interpretation for each ratio walks into the exam with eight near-certain marks already secured.
Also Check:
- NCERT Solutions for Class 12 Accountancy Part 2 Chapter 5 Accounting Ratios
- Analysis of Financial Statements Class 12 Notes
Why Accounting Ratios Decide the Class 12th Accountancy Board Result
For most Commerce students the difference between a 90 and a 95 in Accountancy is the ratio question. It is the one large numerical where every step carries a separate mark and a clean answer fits in under eight minutes. Banks and investors also read a company through ratios, so the chapter anchors the CUET commerce aptitude section too. A single sign error in the quick-ratio adjustment can cost the full 4 marks. Treat this as the highest return-per-hour topic in Part B: thirty formulae, all examinable, none of them long.
Class 12 Accountancy Part 2 Chapter 5 Accounting Ratios Notes
Source: Magnet Brains on YouTube
How Will Collegedunia's NCERT Notes Help You Score Full Marks in Accounting Ratios?
The Collegedunia revision PDF is written so that you can recall any ratio under exam pressure without flipping back to the textbook. Every ratio in the file carries a solved illustration, so you revise the formula and a worked answer together. It gives you:
- Formula then substitution then arithmetic on separate lines for every ratio, so your answer matches the CBSE step-marking scheme exactly.
- An interpretation sentence after each computed value, because the marking scheme awards a mark for the "what this number means" comment that students routinely skip.
- A four-family map that tells you which ratio answers which managerial question, so you never misclassify a ratio in a one-mark MCQ.
- The high-frequency traps (double-deducting prepaid expenses, using gross instead of net revenue) flagged inline where they occur.
Important Ratio Derivations You Must Be Able to Reproduce in Accounting Ratios
The marking scheme expects you to reproduce the exact construction of each ratio, including what goes into the numerator and denominator. The PDF builds each of the following from first principles:
- Current Ratio from the full list of current assets and current liabilities, showing why prepaid expenses stay in but stock stays for the quick ratio only.
- Quick (Acid-Test) Ratio as a numerator-only adjustment: Quick Assets = Current Assets minus Inventories minus Prepaid Expenses minus Advance Tax.
- Debt-Equity, Proprietary, and Total Assets to Debt built from Capital Employed so the three cross-check to a single internally consistent set.
- Interest Coverage Ratio reconstructing PBIT from Net Profit after Tax through the tax-rate grossing-up step.
- Inventory and Trade Receivables Turnover with the average-figure rule and the collection-period conversion.
- Gross Profit, Operating, Net Profit Ratios and ROCE showing the net-revenue-from-operations base every profitability ratio shares.
Accounting Ratios Class 12 Topic-by-Topic Summary (2026-27 NCERT)
The chapter runs in four ratio families plus a short objectives-and-limitations opening. Each H3 below states the formula, what it measures, and the benchmark CBSE expects you to compare against.
Meaning, Objectives and Limitations of Ratio Analysis
An accounting ratio is the numerically expressed relationship between two meaningfully correlated figures, presented as a pure number (6 times), a percentage (10%), a fraction, or a proportion (2:1). It helps assess liquidity, solvency, efficiency, and profitability, and makes inter-firm and trend comparison possible. Its limitations are exam favourites: ratios ignore price-level changes, can be window-dressed, and a single ratio in isolation is rarely conclusive.
Liquidity Ratios: Current Ratio and Quick Ratio
Liquidity ratios test short-term solvency, the ability to clear dues falling within twelve months.
Current Ratio = Current AssetsCurrent Liabilities and Quick Ratio = Quick AssetsCurrent Liabilities , where Quick Assets = Current Assets minus Inventories minus Prepaid Expenses minus Advance Tax.
The accepted benchmarks are 2 : 1 for the current ratio and 1 : 1 for the quick ratio. A current ratio of 1.29 : 1, for example, means current assets cover current liabilities only 1.29 times, a thinner safety margin than the textbook ideal. The quick ratio is also called the Acid-Test Ratio.
Solvency Ratios: Debt-Equity, Proprietary, Total Assets to Debt, Interest Coverage
Solvency ratios test long-term stability. Debt-Equity Ratio = Long-term DebtsShareholders' Funds , Proprietary Ratio = Shareholders' FundsCapital Employed , and Total Assets to Debt = Total AssetsLong-term Debts . Interest Coverage = PBIT divided by interest on long-term debt, with PBIT grossed up from Net Profit after Tax for the tax rate. Proprietary and debt-to-capital-employed always sum to 1, the fastest exam cross-check.
Activity (Turnover) Ratios: Inventory and Trade Receivables
Activity ratios measure how efficiently assets generate revenue. Inventory Turnover = Cost of RevenueAverage Inventory and Trade Receivables Turnover = Net Credit RevenueAverage Trade Receivables . The Average Collection Period is days in a year divided by the receivables turnover, so a turnover of 4 times implies about 91 days. Always use cost of revenue, not net revenue, for inventory turnover.
Profitability Ratios: Gross Profit, Operating, Net Profit, ROCE, EPS
Profitability ratios relate earnings to size. Gross Profit Ratio = Gross ProfitNet Revenue × 100 , Operating Ratio = COGS + Operating ExpensesNet Revenue × 100 , and Net Profit Ratio = Net Profit after TaxNet Revenue × 100 . ROCE measures return on total long-term funds; EPS, Dividend Payout, Book Value per Share, and P/E convert profitability into investor-facing numbers. Every profitability ratio shares the net-revenue-from-operations base, so getting that figure right protects several marks at once.
Accounting Ratios Top 7 Formulae for Quick Recall
The seven formulae below are the ones a Class 12 student uses most in CBSE Board and CUET ratio numericals. The complete master table with units, NCERT section references, and a when-to-use decision tree sits on the dedicated Collegedunia Formula Sheet.
| Ratio | Formula |
|---|---|
| Current Ratio | Current Assets / Current Liabilities |
| Quick Ratio | Quick Assets / Current Liabilities |
| Debt-Equity Ratio | Long-term Debts / Shareholders' Funds |
| Inventory Turnover | Cost of Revenue from Operations / Average Inventory |
| Trade Receivables Turnover | Net Credit Revenue / Average Trade Receivables |
| Gross Profit Ratio | (Gross Profit / Net Revenue) × 100 |
| Return on Capital Employed | (PBIT / Capital Employed) × 100 |
Full master table: Accounting Ratios Class 12 Accountancy Formula Sheet
Accounting Ratios Class 12 Glossary: Twelve Terms to Revise Before the Exam
These twelve terms appear in MCQ and one-mark questions almost every year. Reading them the night before the paper closes the easy-mark gap.
| Term | One-line meaning |
|---|---|
| Liquidity | Ability to meet obligations due within twelve months |
| Solvency | Ability to meet long-term contractual obligations |
| Quick Assets | Current assets less inventory, prepaid expenses and advance tax |
| Capital Employed | Shareholders' funds plus long-term debt (or net fixed assets plus working capital) |
| Shareholders' Funds | Share capital plus reserves and surplus |
| Working Capital | Current assets minus current liabilities |
| Cost of Revenue from Operations | Opening stock + net purchases + direct expenses minus closing stock |
| Operating Expenses | Office, selling and distribution expenses, excluding finance cost |
| PBIT | Net profit before interest and tax |
| RONW | Return on net worth, profit available to equity over shareholders' funds |
| EPS | Profit available to equity shareholders divided by number of equity shares |
| Acid-Test Ratio | Alternative name for the quick ratio |
Most Repeated Accountancy Board Questions in Accounting Ratios (CBSE Class 12)
The board recycles the same five question shapes. The PDF works each one in full; the abbreviated versions below show the pattern and the mark split.
Q1 (2024, 3 marks). Compute the current and quick ratios from given assets and liabilities and comment.
Q2 (2023, 1 mark). State the effect of "purchased goods on credit" on the current ratio.
Q3 (2023, 4 marks). Compute debt-equity, proprietary and total-assets-to-debt from a Balance Sheet extract.
Q4 (2022, 4 marks). Calculate inventory turnover and average collection period.
Q5 (2021, 3 marks). Compute gross profit, operating and net profit ratios from a Statement of Profit and Loss.
Where Students Lose Marks in Accounting Ratios (Accountancy Class 12)
The full answer-writing mistake list with marking-scheme commentary is maintained on the NCERT Solutions page. The three errors below cause the most lost marks in board scripts.
- Double-deducting prepaid expenses and advance tax. They are a numerator-only adjustment for quick assets; current liabilities stay unchanged.
- Using net revenue instead of cost of revenue for inventory turnover, which silently inflates the ratio.
- Skipping the interpretation line. The marking scheme awards a mark for the "what this means" comment after the computed value.
In the 2024 evaluation, the missing interpretation sentence alone accounted for roughly one mark lost per script on the 4-mark ratio question.
Full master list: Accounting Ratios Class 12 NCERT Solutions
Accounting Ratios Class 12 Topic-wise Weightage for CBSE Boards
The table maps each ratio family to its observed board priority so you can triage revision. Profitability and liquidity carry the most marks; activity ratios are usually a single targeted numerical.
| Sub-Topic | Typical Marks | Board Priority |
|---|---|---|
| Liquidity (Current, Quick, effect of transactions) | 3 to 4 | High |
| Profitability (GP, Operating, Net Profit, ROCE) | 3 to 4 | High |
| Solvency (Debt-Equity, Proprietary, Interest Coverage) | 3 to 4 | Medium to High |
| Activity (Inventory and Receivables Turnover) | 3 | Medium |
| Meaning, objectives and limitations (theory / MCQ) | 1 | Medium |
Real-World Uses of Accounting Ratios Beyond the Class 12 Exam
The same formulae drive real lending and investment decisions, which is why CUET frames aptitude questions around them.
- Bank credit decisions. Lenders check current, quick, interest-coverage and debt-equity ratios against benchmarks and may price a loan up by 100 to 200 basis points if any is weaker than peers.
- Equity research. Analysts read EPS, P/E, and ROCE to compare companies of different sizes on a like-for-like basis.
- Internal performance review. A falling net profit ratio or rising debt-equity ratio flags trouble before it reaches the bottom line.
Related Resources
- Accounting Ratios Class 12 NCERT Solutions
- Accounting Ratios Class 12 Formula Sheet
- Accounting Ratios Class 12 NCERT Book PDF
- Accounting Ratios Class 12 Handwritten Notes
NCERT Notes for Class 12 Accountancy: All Chapters
Use the chapter-wise notes below to revise the full Class 12 Accountancy syllabus alongside Accounting Ratios.
| Chapter | Notes |
|---|---|
| Chapter 1 | Accounting for Partnership Basic Concepts Notes |
| Chapter 2 | Reconstitution of a Partnership Firm: Admission of a Partner Notes |
| Chapter 3 | Reconstitution of a Partnership Firm: Retirement / Death of a Partner Notes |
| Chapter 4 | Dissolution of Partnership Firm Notes |
| Part 2 Chapter 1 | Accounting for Share Capital Notes |
| Part 2 Chapter 2 | Issue and Redemption of Debentures Notes |
| Part 2 Chapter 3 | Financial Statements of a Company Notes |
| Part 2 Chapter 4 | Analysis of Financial Statements Notes |
| Part 2 Chapter 6 | Cash Flow Statement Notes |
Accounting Ratios Class 12 Notes: Frequently Asked Questions
Ques. What are accounting ratios in Class 12 Accountancy?
Ans.
An accounting ratio is the numerically expressed relationship between two meaningfully correlated figures from the financial statements, shown as a pure number, percentage, fraction, or proportion. Class 12 groups them into liquidity, solvency, activity, and profitability ratios.
Ques. How many marks does Accounting Ratios carry in the CBSE Class 12 board exam?
Ans.
Accounting Ratios carries about 8 marks in the Part B Financial Statement Analysis cluster, typically one 4-mark numerical plus a 1-mark MCQ or one-liner, and it has appeared in every CBSE Class 12 sitting since 2019.
Ques. What is the difference between current ratio and quick ratio?
Ans.
The current ratio compares all current assets with current liabilities (benchmark 2 : 1). The quick ratio uses only quick assets, that is current assets less inventory, prepaid expenses, and advance tax (benchmark 1 : 1), so it is a stricter test of immediate liquidity.
Ques. How are accounting ratios classified in Class 12?
Ans.
They are classified into four families: liquidity ratios (short-term solvency), solvency ratios (long-term stability), activity or turnover ratios (asset efficiency), and profitability ratios (earning capacity relative to size).
Ques. Is Accounting Ratios useful for CUET commerce?
Ans.
Yes. The CUET commerce domain paper and several General Test aptitude items are built around the same ratio formulae and interpretation logic, so the chapter doubles as CUET preparation.
Ques. Are these Accounting Ratios notes based on the 2026-27 NCERT?
Ans.
Yes. The Collegedunia notes are mapped to the 2026-27 NCERT Accountancy Part II reprint and cross-checked against the last seven years of CBSE Class 12 board papers.
Comments