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Question
From the following information, calculate any two of the following ratios:
(a) Debt-Equity Ratio
(b) Working Capital Turnover Ration and
(c) Return on Investment
Information: Equity Share capital Rs 50,000, General Reserve Rs 5,000; Profit and Loss
Account after tax and interest Rs 15,000; 9% Debenture Rs 20,000; Creditors Rs 15,000; Land and Building Rs 65,000; Equipments Rs 15,000; Debtors Rs 14,500 and Cash Rs 5,500. Discount on issue of shares Rs 5,000
Sales for the year ended 31-3-2011 was Rs 1,50,000. Tax rate 50%.
Solution
(a) Debt = 9% Debenture = Rs 20,000
|
Equity |
= |
Equity share capital + General Reserve + Profit after Interest and Tax − Discount on issue of Shares |
|
= |
50,000 + 5,000 + 15,000 − 5,000 |
|
|
= |
Rs 65,000 |
∴ Debt-Equity Ratio =` "(Debt)"/"(Equity)"=(20,000)/(65,000)=0.31:1`
Working Capital Turnover Ratio=`"Sales"/"Working Capital" xx100`
Sales =Rs 1,50,000
Working Capital = Current Assets − Current Liabilities
Current Assets = Debtors + Cash
= 14,500 + 5,500
= Rs 20,000
Current Liabilities = Creditors − 15,000
∴ Working Capital = 20,000 − 15,000
= Rs 5,000
Working Capital Turnover Ratio =` (1,50,000)/(5,000)=30 "times"`
c) Return on Investment
`"Return on Investment"="Profit before Interest and Tax"/"Capital Employed"`
Profit before Interest and Tax = Profit after tax and interest + tax + interest
= 15,000 + 15,000 + 1,800
= Rs 31,800
Capital employed = Debt + Equity
= 20,000 + 65,000 = Rs 85,000
∴ Return on Investment = `(31,800)/(85,000)xx100=37.41%`
Working Note: Calculate of Tax
Let Tax be 50% of profit before tax
Let profit before tax be x%
Profit before tax = Profit after tax + Tax
=`15,000+(50x)/100=15,000`
Or`,x - (50x)/100=15,000`
x=Rs 30,000
`"Profit before Interest Tax" ="Profit Before Tax"+"Interest" `
=`30,000+1,800`
=Rs `31,800`
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