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Question
Calculate Current Ratio, Quick Ratio and Debt to Equity Ratio from the figures given below:
|
Particulars |
₹ |
||
|
Inventory |
30,000 |
||
| Prepaid Expenses | 2,000 | ||
| Other Current Assets | 50,000 | ||
| Current Liabilities | 40,000 | ||
| 12% Debentures | 30,000 | ||
| Accumulated Profits | 10,000 | ||
| Equity Share Capital | 1,00,000 | ||
|
Non-current Investments |
15,000 |
Solution
(i)
Current Assets = Inventory + Prepaid Expenses + Other Current Assets
= 30,000 + 2,000 + 50,000 = 82,000
Current Liabilities = 40,000
Current Ratio = `"Current Assets"/"Current Liabilities" = 82000/40000 = 2.05 : 1`
(ii)
Liquid Assets = Current Assets − Inventory − Prepaid Expenses
= 82,000 − 30,000 − 2,000 = 50,000
Quick Ratio = `"Liquid Assets"/"Current Liabilities" = 50000/40000 = 1.25 : 1`
(iii)
Long-term Debts = 12% Debentures = 30,000
Equity = Accumulated Profits + Equity Share Capital
= 10,000 + 1,00,000 = 1,10,000
Debt-Equity Ratio = `"Long -Term Debts"/"Equity" = 30000/110000 = 0.27 : 1`
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RELATED QUESTIONS
Following is the Balance Sheet of Title Machine Ltd. as at March 31, 2017.
| Particulars |
Amount Rs. |
| I. Equity and Liabilities | |
|
1. Shareholders’ funds |
|
|
a) Share capital |
24,00,000 |
|
b) Reserves and surplus |
6,00,000 |
|
2. Non-current liabilities |
|
|
a) Long-term borrowings |
9,00,000 |
|
3. Current liabilities |
|
|
a) Short-term borrowings |
6,00,000 |
|
b) Trade payables |
23,40,000 |
|
c) Short-term provisions |
60,000 |
| Total | 69,00,000 |
| II. Assets | |
|
1. Non-current Assets |
|
|
a) Fixed assets |
|
|
Tangible assets |
45,00,000 |
|
2. Current Assets |
|
|
a) Inventories |
12,00,000 |
|
b) Trade receivables |
9,00,000 |
|
c) Cash and cash equivalents |
2,28,000 |
|
d) Short-term loans and advances |
72,000 |
| Total | 69,00,000 |
Calculate Current Ratio and Liquid Ratio.
A trading firm’s average inventory is Rs 20,000 (cost). If the inventory turnover ratio is 8 times and the firm sells goods at a profit of 20% on sale, ascertain the profit of the firm.
Current Ratio is 2.5, Working Capital is ₹ 1,50,000. Calculate the amount of Current Assets and Current Liabilities.
Ratio of Current Assets (₹8,75,000) to Current Liabilities (₹3,50,000) is 2.5:1 The firm wants to maintain Current Ratio of 2:1 by purchasing goods on credit. Compute amount of goods that should be purchased on credit.
Xolo Ltd.'s Liquidity Ratio is 2.5 : 1. Inventory is ₹ 6,00,000. Current Ratio is 4 : 1. Find out the Current Liabilities.
Following is the Balance Sheet of Crescent Chemical Works Limited as at 31st March, 2019:
|
Particulars |
Note |
₹ |
| I. EQUITY AND LIABILITIES : 1. Shareholder's Funds : |
||
|
(a) Share Capital |
|
70,000 |
|
(b) Reserves and Surplus |
|
35,000 |
| 2. Non-Current Liabilities : | ||
|
Long-term Borrowings |
|
25,000 |
| 3. Current Liabilities : | ||
|
(a) Short-term Borrowings |
|
3,000 |
|
(b) Trade Payables (Creditors) |
|
13,000 |
|
(b) Short-term Provisions: Provision for Tax |
|
4,000 |
|
Total |
|
1,50,000 |
| II. ASSETS : | ||
|
1. Non-Current Assets |
||
|
(a) Fixed Assets (Tangible) |
|
45,000 |
|
(b) Non-current Investments |
|
5,000 |
|
2. Current Assets |
||
|
(a) Inventories (Stock) |
|
50,000 |
|
(b) Trade Receivables (Debtors) |
|
30,000 |
|
(c) Cash and Cash Equivalents |
|
20,000 |
|
Total |
|
1,50,000 |
Compute Current Ratio and Liquid Ratio
From the following information, calculate Debt to Equity Ratio:
| ₹ | |
| 10,000 Equity Shares of ₹ 10 each fully paid | 1,00,000 |
| 5,000; 9% Preference Shares of ₹ 10 each fully paid | 50,000 |
| General Reserve | 45,000 |
| Surplus, i.e., Balance in Statement of Profit and Loss | 20,000 |
| 10% Debentures | 75,000 |
| Current Liabilities | 50,000 |
Calculate Inventory Turnover Ratio from the following information:
Opening Inventory ₹ 40,000; Purchases ₹ 3,20,000; and Closing Inventory ₹ 1,20,000.
State, giving reason, which of the following transactions would (i) increase, (ii) decrease, (iii) neither increase nor decrease the Inventory Turnover Ratio:
(a) Sale of goods for ₹ 40,000 (Cost ₹ 32,000).
(b) increase in the value of Closing Inventory by ₹ 40,000.
(c) Goods purchased for ₹ 80,000.
(d) Purchases Return ₹ 20,000.
(e) goods costing ₹ 10,000 withdrawn for personal use.
(f) Goods costing ₹ 20,000 distributed as free samples.
From the following Statement of Profit and Loss for the year ended 31st March, 2019 of Rex Ltd., calculate Inventory Turnover Ratio:
STATEMENT OF PROFIT AND LOSS
for the year ended 31st March, 2019
|
Particulars |
Note No. |
Amount (₹) |
| I. Revenue from Operations (Net Sales) |
6,00,000 |
|
| II. Expenses: | ||
|
(a) Purchases of Stock-in-Trade |
3,00,000 |
|
|
(b) Change in Inventory of Stock-in-Trade |
1 |
50,000 |
|
(c) Employees Benefit Expenses |
60,000 |
|
|
(d) Other Expenses |
2 |
45,000 |
| Total Expenses |
4,55,000 |
|
| III. Profit before Tax (I-II) |
1,45,000 |
|
| IV. Less: Tax |
45,000 |
|
| V. Profit after Tax (III-IV) |
1,00,000 |
Notes to Accounts
|
Particulars |
Amount (₹) |
| I. Change in Inventory of stock-in-Trade | |
|
Opening Inventory |
1,25,000 |
|
Less: Closing Inventory |
75,000 |
|
50,000 |
|
| 2. Other Expenses | |
|
Carriage Inwards |
15,000 |
|
Miscellaneous Expenses |
30,000 |
|
45,000 |
A limited company made Credit Sales of ₹ 4,00,000 during the financial period. If the collection period is 36 days and the year is assumed to be 360 days, calculate:
- Trade Receivables Turnover Ratio;
- Average Trade Receivables;
- Trade Receivables at the end when Trade Receivables at the end are more than that in the beginning by ₹ 6,000.
From the following, calculate Gross Profit Ratio:
Gross Profit:₹50,000; Revenue from Operations ₹5,00,000; Sales Return: ₹50,000.
State with reason whether the following transactions will increase, decrease or not change the 'Return on Investment' Ratio:
(i) Purchase of machinery worth ₹10,00,000 by issue of equity shares.
(ii) Charging depreciation of ₹25,000 on machinery.
(iii) Redemption of debentures by cheque ₹2,00,000.
(iv) Conversion of 9% Debentures of ₹1,00,000 into equity shares.
From the following information, calculate any two of the following ratios:
(ii) Debt to Equity Ratio; and
(iii) Operating Ratio.
Liquid assets are determined by:
Collection of debtors:
Items excluded in liquid assets are:
Proprietary Ratio can be calculated as ______?
Creditors (Payable) Turnover Ratio can be calculated as ______?
Which of the following is a profitability ratio?
What relationship will be established to study:
Inventory Turnover
