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Question
Ratio of Current Assets (₹3,00,000) to Current Liabilities (₹2,00,000) is 1.5:1. The accountant of the firm is interested in maintaing a Current Ratio of 2:1 by paying off a part of the Current Liabilities. Compute amount of the Current Liabilities that should be paid so that the Current Ratio at the level of 2:1 may be maintained.
Solution
`"Current Ratio" = "Current Assets"/ "Current liability" = 1.5/1`
The company is interested in maintaining the Current Ratio of 2:1 by paying off the liability.
Let the liability paid-off by the company = x
∴ New Current Assets = 3,00,000 − x
New Current Liabilities = 2,00,000 − x
New Current Ratio = `(300000 - x)/(200000 - x) = 2/1`
or, 300000 - x = 400000 - 2x
or, x = 100000
Therefore, liability of Rs 1,00,000 need to be paid-off by the company in order to maintain the Current Ratio of 2 : 1.
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| Rs. | |
| Equity Share Capital | 75,000 |
| Preference Share Capital | 25,000 |
| General Reserve | 45,000 |
| Balance in the Statement of Profits and Loss | 30,000 |
| Debentures | 75,000 |
| Trade Payables | 40,000 |
| Outstanding Expenses | 10,000 |
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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.
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| Particulars | ₹ |
Particulars |
₹ |
||
| Total Assets | 5,00,000 | Non-current Liabilities | 1,30,000 | ||
| Fixed Tangible Assets | 2,50,000 | Non-current Investments | 1,50,000 | ||
| Shareholders' Funds | 3,20,000 |
|
|
||
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| Billls Receivable | 8,000 |
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| ₹ | ₹ | |||
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(v) Stock-in-Trade costing ₹15,000 distributed as free sample.
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| ₹ | ₹ | |||
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Balance Sheet (Extract)
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31-03-2020 (₹) |
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| Prepaid Expenses | 3,00,000 | 2,50,000 | 3,50,000 |
| Trade Payables | 18,00,000 | 16,00,000 | 14,00,000 |
| Inventory | 12,00,000 | 10,00,000 | 11,00,000 |
| Trade Receivables | 11,00,000 | 8,00,000 | 10,00,000 |
| Cash in hand | 17,00,000 | 12,00,000 | 15,00,000 |
| Revenue from operations | 24,00,000 | 18,00,000 | 20,00,000 |
| Gross Profit Ratio | 12% | 15% | 18% |
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