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Question
Opening Inventory ₹80,000; Purchases ₹4,30,900; Direct Expenses ₹4,000; Closing Inventory ₹1,60,000; Administrative Expenses ₹21,100; Selling and Distribution Expenses ₹40,000; Revenue from Operations, i.e., Net Sales ₹10,00,000. Calculate Inventory Turnover Ratio; Gross Profit Ratio; and Opening Ratio.
Solution
(i)
Opening Inventory = 80,000
Closing Inventory = 1,60,000
Cost of Goods Sold = Opening Inventory + Purchases + Direct Expenses − Closing Inventory
= 80,000 + 4,30,900 + 4,000 − 1,60,000
= 3,54,900
Average Inventory = `
("Opening Inventory" + "Closing Inventory") / 2`
`= (80000 + 160000)/2 = 120000`
Inventory Turnover Ratio = `"Cost of Goods Sold"/"Average Inventory"`
`= 354900/120000 =` = 2.96 Times
(ii)
Sales = 10,00,000
Gross Profit = Net Sales − Cost of Goods Sold
= 10,00,000 − 3,54,900 = 6,45,100
Gross Profit Ratio = `"Gross Profit"/"Net Sales" xx 100`
`= 645100 / 1000000 xx 100 = 64.51 %`
(iii)
Operating Expenses = Administration Expenses + Selling and Distribution Expenses
= 21,100 + 40,000 = 61,100
Operating Cost = Cost of Goods Sold + Operating Expenses
= 354900 + 61100 = 416000
Operating Ratio = `"Operating Cost"/"Net Sales" xx 100`
`= 416000/1000000 x 100 = 41.6 %`
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RELATED QUESTIONS
What relationship will be established to study:
Working Capital Turnover
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.
Compute Gross Profit Ratio, Working Capital Turnover Ratio, Debt Equity Ratio and Proprietary Ratio from the following information:
|
|
Rs |
|
Paid-up Share Capital |
5,00,000 |
|
Current Assets |
4,00,000 |
|
Revenue from Operations |
10,00,000 |
|
13% Debentures |
2,00,000 |
|
Current Liabilities |
2,80,000 |
|
Cost of Revenue from Operations |
6,00,000 |
Current Assets are ₹ 7,50,000 and Working Capital is ₹ 2,50,000. Calculate Current Ratio.
Current Liabilities of a company are ₹ 6,00,000. Its Current Ratio is 3 : 1 and Liquid Ratio is 1 : 1. Calculate value of Inventory.
Calculate Debt to Equity Ratio from the following information:
| ₹ | ₹ | |||
| Fixed Assets (Gross) | 8,40,000 | Current Assets | 3,50,000 | |
| Accumulated Depreciation | 1,40,000 | Current Liabilities | 2,80,000 | |
| Non-current Investments | 14,000 | 10% Long-term Borrowings | 4,20,000 | |
| Long-term Loans and Advances | 56,000 | Long-term Provisions | 1,40,000 |
Total Debt ₹ 60,00,000; Shareholders' Funds ₹ 10,00,000; Reserves and Surplus ₹ 2,50,000; Current Assets ₹ 25,00,000; Working Capital ₹ 5,00,000. Calculate Total Assets to Debt Ratio.
From the following information, calculate Proprietary Ratio:
| Share Capital | ₹ 300000 |
| Reserve and Surplus | ₹ 180000 |
| Non-current Assets | ₹ 1320000 |
| Current Assets | ₹ 600000 |
Calculate Trade Receivables Turnover Ratio from the following information:
| 31st March,2018 (₹) | 31st March,2019 (₹) | |
| Sundry Debtors | 28,000 | 25,000 |
| Bills Receivable | 7,000 | 15,000 |
| Provision for Doubtful Debts | 2,800 | 2,500 |
Total Sales ₹ 1,00,000; Sales Return ₹ 1,500; Cash Sales ₹ 23,500.
Closing Trade Receivables ₹ 1,20,000, Revenue from Operations ₹ 14,40,000. Provision for Doubtful Debts ₹ 20,000. Calculate Trade Receivables Turnover Ratio.
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(ii) Purchases Return ₹15,000.
(iii) Cash Sale of Stock-in-Trade ₹40,000.
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Calculate Return on Investment (ROI) from the following details: Net Profit after Tax ₹ 6,50,000; Rate of Income Tax 50%; 10% Debentures of ₹ 100 each ₹ 10,00,000; Fixed Assets at cost ₹ 22,50,000; Accumulated Depreciation on Fixed Assets up to date ₹ 2,50,000; Current Assets ₹ 12,00,000; Current Liabilities ₹ 4,00,000.
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(i) Gross Profit Ratio;
(ii) Current Ratio;
(iii) Acid Test Ratio; and
(iv) Inventory Turnover Ratio.
| ₹ | ₹ | |||
| Gross Profit | 50,000 | Revenue from Operations | 1,00,000 | |
| Inventory | 15,000 | Trade Receivables | 27,500 | |
| Cash and Cash Equivalents | 17,500 | Current Liabilities | 40,000 |
The current ratio is 2:1
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"Payment of dividend."
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| Cost of Revenue from Operations | 9,00,000 |
| Operating Expenses | 15,000 |
| Inventory | 20,000 |
| Other Current Assets | 2,00,000 |
| Current Liabilities | 75,000 |
| aid up Share Capital | 4,00,000 |
| Statement of Profit and Loss (Dr.) | 47,500 |
| Total Debt | 2,50,000 |
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