Question

Match List-I with List-II.

List-I	List-II
(A) Test of Activity	(I) Acid Test Ratio
(B) Test of Liquidity	(II) Debt Equity Ratio
(C) Test of Solvency	(III) Debtor Turnover Ratio
(D) Test of Profitability	(IV) Return on Investment Ratio

• A. (A)-(III), (B) - (I), (C)- (II), (D) - (IV)
• B. (A)-(I), (B)-(II), (C)-(III), (D) - (IV)
• C. (A)-(IV), (B) - (III), (C)- (II), (D) - (I)
• D. (A)-(I), (B) - (IV), (C) - (III), (D) - (II)

Answer 1

The Correct Option is A

The objective is to correlate financial ratios with their corresponding classifications. Each element from List-I must be accurately paired with an element from List-II. The categorization of each ratio will be determined by its definition:

1. (A) Test of Activity: This category comprises ratios evaluating a company's asset utilization efficiency. The Debtor Turnover Ratio (III) quantifies the effectiveness of debt collection, establishing (A)-(III) as a valid correlation.
2. (B) Test of Liquidity: This classification pertains to ratios assessing a company's capacity to fulfill its immediate liabilities. The Acid Test Ratio (I) serves as a critical measure of immediate solvency, making (B)-(I) a suitable pairing.
3. (C) Test of Solvency: Solvency ratios are employed to gauge a company's ability to meet its long-term financial commitments. The Debt Equity Ratio (II) falls within this group, aligning (C)-(II).
4. (D) Test of Profitability: This category includes ratios that measure a company's earnings generation capacity relative to its revenue. The Return on Investment Ratio (IV) evaluates this performance aspect, thus (D)-(IV) represents the correct association.

Consequently, the accurate pairing of List-I with List-II is identified as: (A)-(III), (B)-(I), (C)-(II), (D)-(IV).