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Numerical Questions Solutions

1. Following is the Balance Sheet of Raj Oil Mills Limited as at March 31, 2017. Calculate current ratio.

Particulars

₹

I. Equity and Liabilities

1. Shareholders’ Funds

Share capital

7,90,000

b) Reserves and surplus

35,000

2. Current Liabilities

Trade Payables

72,000

Total

8,97,000

II. Assets

1. Non-current Assets

Fixed assets

– Tangible assets

7,53,000

2. Current Assets

a) Inventories

55,800

b) Trade Receivables

28,800

c) Cash and cash equivalents

59,400

Total

8,97,000

Current Assets

=

Inventories + Trade Receivables + Cash and cash equivalennts

=

₹ 55,800 + ₹ 28,800 + ₹ 59,400

=

₹ 1,44,000

Current Liabilities

=

Trade Payables

=

₹ 72,000

Current Ratio

=

{\dfrac{Current~Assets}{Current~Liabilities}}

=

{\dfrac{₹~1,44,000}{₹~72,000}}

=

{\dfrac{2}{1}}

=

2:1

2. Following is the Balance Sheet of Title Machine Ltd. as at March 31, 2017.

Particulars

₹

I. Equity and Liabilities

1. Shareholders’ Funds

a) Share capital

24,00,000

b) Reserves and surplus

6,00,000

2. Non-current liabilities

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

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.

Calculation of Current Ratio:

Current Assets

=

Inventories + Trade Receivables + Cash and cash equivalents + Short-term loans and advances

=

₹ 12,00,000 + ₹ 9,00,000 + ₹ 2,28,000 ₹ 72,000

=

₹ 24,00,000

Current Liabilities

=

Short-term borrowings + Trade payables + Short-term provisions

=

₹ 6,00,000 + ₹ 23,40,000 + ₹ 60,000

=

₹ 30,00,000

Current Ratio

=

{\dfrac{Current~Assets}{Current~Liabilities}}

=

{\dfrac{₹~24,00,000}{₹~30,00,000}}

=

{\dfrac{4}{5}}

=

0.8:1

Calculation of Quick Ratio:

Quick Assets

=

Trade Receivables + Cash and cash equivalents + Short-term loans and advances

=

₹ 9,00,000 + ₹ 2,28,000 + ₹ 72,000

=

₹ 12,00,000

Quick Ratio

=

{\dfrac{Quick~Assets}{Current~Liabilities}}

=

{\dfrac{₹~12,00,000}{₹~30,00,000}}

=

{\dfrac{2}{5}}

=

0.4:1

3. Current Ratio is 3.5 : 1. Working Capital is ₹ 90,000. Calculate the amount of Current Assets and Current Liabilities.

We know that

Current Ratio

=

{\dfrac{Current~Assets}{Current~Liabilities}}

Given that

Current Ratio

=

{\dfrac{3.5}{1}}

{⇒ \dfrac{Current~Assets}{Current~Liabilities}}

=

\dfrac{3.5}{1}

⇒ Current Assets

=

3.5 × Current Liabilities

Also Given that

Working Capital

=

₹ 90,000

We know that

Working Capital

=

Current Assets – Current Liabilities

⇒ Current Assets – Current Liabilities

=

₹ 90,000

⇒ 3.5 × Current Liabilities – Current Liabilities

=

₹ 90,000

⇒ 2.5 × Current Liabilities

=

₹ 90,000

⇒ Current Liabilities

=

{\dfrac{₹~90,000}{2.5}}

=

{\dfrac{₹~90,000}{\left(\dfrac{5}{2}\right)}}

=

{₹~90,000 × \dfrac{2}{5}}

=

₹ 36,000

∴ Current Assets

=

3.5 × Current Liabilties

=

3.5 × ₹ 36,000

=

₹ 1,26,000

The answer is

Current Assets

=

₹ 1,26,000

Current Liabilities

=

₹ 36,000

4. Shine Limited has a current ratio 4.5 : 1 and quick ratio 3 : 1; if the inventory is ₹ 36,000, calculate Current Liabilities and Current Assets.

Given that

⇒ Current Ratio

=

4.5:1

{⇒ \dfrac{Current~Assets}{Current~Liabilities}}

=

{\dfrac{4.5}{1}}

⇒ Current Assets

=

4.5 × Current Liabilities

Also given that

⇒ Quick Ratio

=

3:1

{⇒ \dfrac{Quick~Assets}{Current~Liabilities}}

=

{\dfrac{3}{1}}

⇒ Quick Assets

=

3 × Current Liabilities

We know that

Quick Assets

=

Current Assets – Inventories

⇒ Inventories

=

Current Assets – Quick Assets

=

₹ 4.5 × Current Liabiliies – 3 × Current Liabilities

=

1.5 × Current Liabilities

⇒ ₹ 36,000

=

{\dfrac{3}{2} × Current~Liabilities}

⇒ Current Liabilities

=

{\dfrac{2}{3} × ₹~36,000}

=

₹ 24,000

∴ Current Assets

=

4.5 × Current Liabilities

=

4.5 × ₹ 24,000

=

₹ 1,08,000

The answer is

Current Liabilities

=

₹ 24,000

Current Assets

=

₹ 1,08,000

5. Current Liabilities of a company are ₹ 75,000. If current ratio is 4:1 and Liquid Ratio is 1 : 1, calculate value of Current Assets, Liquid Assets and Inventory.

Given that

Current Liabilities

=

₹ 75,000

Current Ratio

=

4:1

{⇒ \dfrac{Current~Assets}{Current~Liabilities}}

=

\dfrac{4}{1}

⇒ Current Assets

=

4 × Current Liabilities

=

4 × ₹ 75,000

=

₹ 3,00,000

Liquid Ratio

=

1:1

{⇒ \dfrac{Liquid~Assets}{Current~Liabilities}}

=

\dfrac{1}{1}

⇒ Liquid Assets

=

Current Liabilities

=

₹ 75,000

∴ Inventory

=

Current Assets – Liquid Assets

=

₹ 3,00,000 – ₹ 75,000

=

₹ 2,25,000

The answer is

Current Assets

=

₹ 3,00,000

Liquid Assets

=

₹ 75,000

Inventory

=

₹ 2,25,000

6. Handa Ltd. has inventory of ₹ 20,000. Total liquid assets are ₹ 1,00,000 and quick ratio is 2 : 1. Calculate current ratio.

Given that

Quick Ratio

=

2:1

{⇒ \dfrac{Liquid~Assets}{Current~Liabilities}}

=

\dfrac{2}{1}

⇒ Liquid Assets

=

2 × Current Liabilities

⇒ ₹ 1,00,000

=

2 × Current Liabilities

⇒ 2 × Current Liabilities

=

₹ 1,00,000

⇒ Current Liabilities

=

{\dfrac{₹~1,00,000}{2}}

=

₹ 50,000

Given that

Inventory

=

₹ 20,000

∴ Current Assets

=

Liquid Assets + Inventories

=

₹ 1,00,000 + ₹ 20,000

=

₹ 1,20,000

∴ Current Ratio

=

{\dfrac{Current~Assets}{Current~Liabilities}}

=

{\dfrac{₹~1,20,000}{₹~50,000}}

=

\dfrac{12}{5}

=

2.4:1

7. Calculate debt-equity ratio from the following information:

Total Assets

₹ 15,00,000

Current Liabilities

₹ 6,00,000

Total Debts

₹ 12,00,000

We know that

Debt-Equity Ratio

=

{\dfrac{Long-term~Debts}{Shareholders'~Funds}}

Long-term Debts

=

Total Debts – Current Liabilities

=

₹ 12,00,000 – ₹ 6,00,000

=

₹ 6,00,000

Shareholders’ Funds

=

Total Assets – Total Debts

=

₹ 15,00,000 – ₹ 12,00,000

=

₹ 3,00,000

So,

Debt-Equity Ratio

=

{\dfrac{Long-term Debts}{Shareholders'~Funds}}

=

{\dfrac{₹~6,00,000}{₹~3,00,000}}

=

\dfrac{2}{1}

=

2:1

8. Calculate Current Ratio if:

Inventory is ₹ 6,00,000; Liquid Assets ₹ 24,00,000; Quick Ratio 2 : 1.

We know that

Quick Ratio

=

{\dfrac{Liquid~Assets}{Current~Liabilities}}

Given that

Quick Ratio

=

2:1

{⇒ \dfrac{Liquid~Assets}{Current~Liabilities}}

=

{\dfrac{2}{1}}

⇒ Current Liabilities

=

{\dfrac{Liquid~Assets}{2}}

=

{\dfrac{₹ 24,00,000}{2}}

=

₹ 12,00,000

Now

Current Assets

=

Liquid Assets + Inventories

=

₹ 24,00,000 + ₹ 6,00,000

=

₹ 30,00,000

∴ Current Ratio

=

{\dfrac{Current~Assets}{Current~Liabilities}}

=

{\dfrac{₹~30,00,000}{₹~12,00,000}}

=

\dfrac{5}{2}

=

2.5:1

9. Compute Inventory Turnover Ratio from the following information:

Revenue from Operations

₹ 2,00,000

Gross Profit

₹ 50,000

Inventory at the end

₹ 60,000

Excess of inventory at the end over inventory in the beginning

₹ 20,000

We know that

Cost of Revenue from Operations

=

Revenue from Operations – Gross Profit

=

₹ 2,00,000 – ₹ 50,000

=

₹ 1,50,000

Inventory in the beginning

=

Inventory at the end – Excess of inventory at the end over inventory in the beginning

=

₹ 60,000 – ₹ 20,000

=

₹ 40,000

Average Inventory

=

{\dfrac{Inventory~in~the~beginning + Inventory~at~the~end}{2}}

=

{\dfrac{₹~40,000 + ₹~60,000}{2}}

=

{\dfrac{₹~1,00,000}{2}}

=

₹ 50,000

Inventory Turnover Ratio

=

{\dfrac{Cost~of~Revenue~from~Operations}{Average~Inventory}}

=

{\dfrac{₹~1,50,000}{₹~50,000}}

=

3

10. Calculate following ratios from the following information:

(i) Current ratio (ii) Liquid ratio (iii) Operating Ratio (iv) Gross profit ratio

Current Assets

₹ 35,000

Current Liabilities

₹ 17,500

Inventory

₹ 15,000

Operating Expenses

₹ 20,000

Revenue from Operations

₹ 60,000

Cost of Revenue from operation

₹ 30,000

(i) Calculation of Current Ratio:

Current Ratio

=

{\dfrac{Current~Assets}{Current~Liabilities}}

=

{\dfrac{₹~35,000}{₹~17,500}}

=

{\dfrac{2}{1}}

=

2:1

(ii) Calculation of Liquid Ratio:

We know that

Liquid Assets

=

Current Assets – Inventory

=

₹ 35,000 – ₹ 15,000

=

₹ 20,000

∴ Liquid Ratio

=

{\dfrac{Liquid~Assets}{Current~Liabilities}}

=

{\dfrac{₹~20,000}{₹~17,500}}

=

1.14:1

(iii) Calculation of Operating Ratio:

Operating Ratio

=

{\dfrac{(Cost~of~Revenue~from~Operations + Operating~Expenses)}{Net~Revenue~from~Operations} × 100}

=

{\dfrac{(₹~30,000 + ₹~20,000)}{₹~60,000} × 100}

=

{\dfrac{₹~50,000}{₹~60,000} × 100}

=

83.3%

(iv) Calculation of Gross Profit Ratio:

Gross Profit

=

Revenue from Operations – Cost of Revenue from Operations

=

₹ 60,000 – ₹ 30,000

=

₹ 30,000

Gross Profit Ratio

=

{\dfrac{Gross~Profit}{Net~Revenue~from~Operations} × 100}

=

{\dfrac{₹~30,000}{₹~60,000} × 100}

=

\dfrac{1}{2} × 100

=

50%

11. From the following information calculate:

(i) Gross Profit Ratio (ii) Inventory Turnover Ratio (iii) Current Ratio (iv) Liquid Ratio (v) Net Profit Ratio (vi) Working Capital Ratio:

Revenue from Operations

₹ 25,20,000

Net Profit

₹ 3,60,000

Cost of Revenue from Operations

₹ 19,20,000

Long-term Debts

₹ 9,00,000

Trade Payables

₹ 2,00,000

Average Inventory

₹ 8,00,000

Liquid Assets

₹ 7,60,000

Fixed Assets

₹ 14,40,000

Current Liabilities

₹ 6,00,000

Net Profit before Interest and Tax

₹ 8,00,000

(i) Calculation of Gross Profit Ratio:

We have

Gross Profit

=

Revenue from operations – Cost of Revenue from Operations

=

₹ 25,20,000 – ₹ 19,20,000

=

₹ 6,00,000

So,

Gross Profit Ratio

=

{\dfrac{Gross~Profit}{Net~Revenue~of~Operations} × 100}

=

{\dfrac{₹~6,00,000}{₹~25,20,000} × 100}

=

23.81%

(ii) Calculation of Inventory turnover ratio:

Inventory Turnover Ratio

=

{\dfrac{Cost~of~Revenue~from~Operations}{Average~Inventory}}

=

{\dfrac{₹~19,20,000}{₹~8,00,000}}

=

2.4 times

(iii) Calculation of Current Ratio:

We know that

Current Assets

=

Liquid Assets + Inventory

=

₹ 7,60,000 + 8,00,000

=

₹ 15,60,000

Current Ratio

=

{\dfrac{Current~Assets}{Current~Liabilities}}

=

{\dfrac{₹ 15,60,000}{6,00,000}}

=

\dfrac{2.6}{1}

=

2.6:1

(iv) Calculation of Liquid Ratio:

Liquid Ratio

=

{\dfrac{Liquid~Assets}{Current~Liabilities}}

=

\dfrac{7,60,000}{6,00,000}

=

\dfrac{1.27}{1}

=

1.27:1

(v) Calculation of Net Profit Ratio:

Net Profit Ratio

=

{\dfrac{Net~Profit}{Revenue~from~Operations} × 100}

=

{\dfrac{₹~3,60,000}{₹~25,20,000} × 100}

=

\dfrac{14.28}{1}

=

14.29:1

(vi) Calculation of Working Capital Ratio:

Working Capital

=

Current Assets – Current Liabilities

=

Liquid Assets + Inventory – Current Liabilities

=

₹ 7,60,000 + ₹ 8,00,000 – ₹ 6,00,000

=

₹ 9,60,000

Working Capital Turnover Ratio

=

{\dfrac{Net~Revenue~from~Operations}{Working~Capital}}

=

{\dfrac{₹~25,20,000}{₹~9,60,000}}

=

{\dfrac{2.625}{1}}

=

2.625:1

12. Compute Working Capital Turnover Ratio, Debt Equity Ratio and Proprietary Ratio from the following information:

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

Calculation of Working Capital Turnover Ratio:

Working Capital

=

Current Assets – Current Liabilities

=

₹ 4,00,000 – ₹ 2,80,000

=

₹ 1,20,000

Working Capital Turnover Ratio

=

{\dfrac{Net~Revenue~from~Operations}{Working~Capital}}

=

{\dfrac{₹~10,00,000}{₹~1,20,000}}

=

\dfrac{8.33}{1}

=

8.33:1

Calculation of Debt Equity Ratio:

Long-term Debts

=

13% Debentures

=

₹ 2,00,000

Shareholders’ Finds

=

Paid-up Share Capital

=

₹ 5,00,000

Debt Equity Ratio

=

{\dfrac{Long-term~Debts}{Shareholders'~Funds}}

=

{\dfrac{₹~2,00,000}{₹~5,00,000}}

=

\dfrac{0.4}{1}

=

0.4:1

Calculation of Proprietary Ratio:

Capital Employed

=

Shareholders’ Funds + Non-Current Liabilities

=

Paid-up Share Capital + 13% Debentures

=

₹ 5,00,000 ₹ 2,00,000

=

₹ 7,00,000

Proprietary Ratio

=

{\dfrac{Shareholders'~Funds}{Capital~Employed}}

=

{\dfrac{₹~5,00,000}{₹~7,00,000}}

=

\dfrac{0.71}{1}

=

0.71:1

13. Calculate Inventory Turnover Ratio if:

Inventory in the beginning is ₹ 76,250, Inventory at the end is ₹ 98,500, Sales is ₹ 5,20,000, Sales Return is ₹ 20,000, Purchases is ₹ 3,22,250.

Cost of Revenue from Operations

=

Inventory in the beginning + Purchases – Inventory at the end

=

₹ 76,250 + ₹ 3,22,250 – ₹ 98,500

=

₹ 3,00,000

Average Inventory

=

{\dfrac{(Inventory~in~the~beginning + Inventory~at~the~end)}{2}}

=

{\dfrac{(₹~76,250 + ₹~98,500)}{2}}

=

{\dfrac{₹~1,74,750}{2}}

=

₹ 87,375

Inventory Turnover Ratio

=

{\dfrac{Cost~of~Revenue~from~Operations}{Average~Inventory}}

=

{\dfrac{₹~3,00,000}{₹~87,375}}

=

\dfrac{3.43}{1}

=

3.43:1

Note: The sales data given in the problem is redundant. So, we can ignore it.

14. Calculate Inventory Turnover Ratio from the data given below:

Inventory in the beginning of the year

₹ 10,000

Inventory at the end of the year

₹ 5,000

Carriage

₹ 2,500

Revenue from Operations

₹ 50,000

Purchases

₹ 25,000

Cost of Revenue from operations

=

Inventory at the beginning + Purchases + Carriage – Inventory at the end

=

₹ 10,000 + ₹ 25,000 + ₹ 2,500 – ₹ 5,000

=

₹ 32,500

Average Inventory

=

{\dfrac{(Inventory~at~the~beginning + Inventory~in~the~end)}{2}}

=

{\dfrac{(₹~10,000 + ₹~5,000)}{2}}

=

\dfrac{₹~15,000}{2}

=

₹ 7,500

Inventory Turnover Ratio

=

{\dfrac{Cost~of~Revenue~from~Operations}{Average~Inventory}}

=

{\dfrac{₹~32,500}{₹~7,500}}

=

\dfrac{4.33}{1}

=

4.33:1

15. A trading firm’s average inventory is ₹ 20,000 (cost). If the inventory turnover ratio is 8 times and the firm sells goods at a gross profit of 20% on sales, ascertain the gross profit of the firm.

Assume

Sales Revenue from Operations

=

x

Given that

Inventory Turnover Ratio

=

8

{⇒ \dfrac{Cost~of~Revenue~from~Operations}{Average~Inventory}}

=

8

⇒ Cost of Revenue from Operations

=

8 × Average Inventory

=

8 × ₹ 20,000

=

₹ 1,60,000

Also given that

Gross Profit

=

20% of Sales

⇒ Sales Revenue from Operations – Cost of Revenue from operations

=

0.2 × Sales Revenue from Operations

⇒ x – Cost of Revenue from Operations

=

0.2x

⇒ x – 0.2x

=

Cost of Revenue from Operations

⇒ 0.8x

=

₹ 1,60,000

⇒ x

=

{\dfrac{₹~1,60,000}{0.8}}

=

{\dfrac{₹~1,60,000}{\left(\dfrac{8}{10}\right)}}

=

{₹~1,60,000 × \dfrac{10}{8}}

=

₹ 2,00,000

∴ Gross Profit

=

0.2 × ₹ 2,00,000

=

₹ 40,000

16. You are able to collect the following information about a company for two years:

2015-16

2016-17

Trade receivables on Apr. 01

₹ 4,00,000

₹ 5,00,000

Trade receivables on Mar. 31

₹ 5,60,000

Stock in trade on Mar. 31

₹ 6,00,000

₹ 9,00,000

Revenue from operations

(gross profit is 25% on cost of Revenue from operations)

(gross profit is 25% on cost of Revenue from operations)

₹ 3,00,000

₹ 24,00,000

Calculate Inventory Turnover Ratio and Trade Receivables Turnover Ratio

Calculation of Inventory Turover Ratio:

Let

Cost of Revenue from Operations

=

x

We know that

Revenue from Operations

=

Cost of Revenue from Operations + Gross Profit

=

x + 25% of x

=

{x + \dfrac{25}{100} × x}

=

\dfrac{125}{100}x

⇒ x

=

{Revenue~from~Operations × \dfrac{100}{125}}

=

{₹~24,00,000 × \dfrac{100}{125}}

=

₹ 19,20,000

Average Inventory

=

{\dfrac{(Inventory~at~the~beginning + Inventory~at~the~end)}{2}}

=

{\dfrac{(₹~6,00,000 + ₹ 9,00,000)}{2}}

=

\dfrac{₹~15,00,000}{2}

=

₹ 7,50,000

Inventory Turnover Ratio

=

{\dfrac{Cost~of~Revenue~from~Operations}{Gross~Profit}}

=

{\dfrac{₹~19,20,000}{₹~7,50,000}}

=

2.56 times

Calculation of Trade Reveivable Turnover Ratio:

As the credit sales are not given, let’s assume that all the sales are done on credit. So,

Net Credit Sales

=

₹ 24,00,000

Average Trade Receivables

=

{\dfrac{(Trade~Receivables~in~the~beginning + Trade~Receivables~at~the~end)}{2}}

=

{\dfrac{(₹~5,00,000 + ₹~5,60,000)}{2}}

=

{\dfrac{₹~10,60,000}{2}}

=

₹ 5,30,000

Trade Receivables Turnover Ratio

=

{\dfrac{Net~Credit~Sales}{Average~Trade~Receivables}}

=

{\dfrac{₹~24,00,000}{₹~5,30,000}}

=

4.53:1

Note: Not enough data to calculate the ratios for 2015-16. Only the ratios for 2016-17 are calculated.

17. From the following Balance Sheet and other information, calculate following ratios:

(i) Debt-Equity Ratio (ii) Working Capital Turnover Ratio (iii) Trade Receivables Turnover Ratio

Balance Sheet as at March 31, 2017

Particulars

Note

No.

No.

₹

I. Equity and Liabilities:

1. Shareholders’ funds

a) Share capital

10,00,000

b) Reserves and surplus

7,00,000

c) Money received against share warrants

2,00,000

2. Non-current Liabilities

Long-term borrowings

12,00,000

3. Current Liabilities

Trade payables

5,00,000

Total

36,00,000

II. Assets

1. Non-current Assets

Fixed assets

– Tangible assets

18,00,000

2. Current Assets

a) Inventories

4,00,000

b) Trade Receivables

9,00,000

c) Cash and cash equivalents

5,00,000

Total

36,00,000

Additional Information: Revenue from Operations ₹ 18,00,000

(i) Calculation of Debt-Equity Ratio

Long-term Debts

=

Long-term Borrowings

=

₹ 12,00,000

Shareholders’ Funds

=

Share Capital + Reserves and Surplus + Money received against share warrants

=

₹ 10,00,000 + ₹ 7,00,000 + ₹ 2,00,000

=

₹ 19,00,000

Debt-Equity Ratio

=

{\dfrac{Long-term Debts}{Shareholders'~Funds}}

=

{\dfrac{₹~12,00,000}{₹~19,00,000}}

=

0.63:1

(ii) Calculation of Working Capital Turnover Ratio:

Current Assets

=

Inventories + Trade Receivables Cash and cash equivalents

=

₹ 4,00,000 + ₹ 9,00,000 + ₹ 5,00,000

=

₹ 18,00,000

Current Liabilities

=

Trade payables

=

₹ 5,00,000

Working Capital

=

Current Assets – Current Liabilities

=

₹ 18,00,000 – ₹ 5,00,000

=

₹ 13,00,000

Working Capital Turnover Ratio

=

{\dfrac{Net~Revenue~from~Operations}{Working~Capital}}

=

{\dfrac{₹~18,00,000}{₹~13,00,000}}

=

1.38 times

(iii) Calculation of Trade Receivables Turnover Ratio:

Trade Receivables Turnover Ratio

=

{\dfrac{Net~Credit~Sales}{Average~Trade~Receivables}}

=

{\dfrac{₹~18,00,000}{₹~9,00000}}

=

2 times

Note: All the revenue from operations is assumed to be from credit sales.

18. From the following information, calculate the following ratios:

i)

Liquid Ratio

ii)

Inventory turnover ratio

iii)

Return on investment

₹

Inventory in the beginning

50,000

Inventory at the end

60,000

Net Profit

2,17,900 1,15,000

10% Debentures

2,50,000

Revenue from operations

4,00,000

Gross Profit

1,94,000

Cash and Cash Equivalents

40,000

Money received against share warrants

20,000

Trade Receivables

1,00,000

Trade Payables

1,90,000

Other Current Liabilities

70,000

Share Capital

2,00,000

Reserves and Surplus

1,20,000

(Balance in the Statement of Profit & Loss)

i) Calculation of Liquid Ratio:

Liquid Assets

=

Cash and Cash Equivalents + Trade Receivables

=

₹ 40,000 + ₹ 1,00,000

=

₹ 1,40,000

Current Liabilities

=

Trade Payables + Other Current Liabilities

=

₹ 1,90,000 + ₹ 70,000

=

₹ 2,60,000

Liquid Ratio

=

{\dfrac{Liquid~Assets}{Current~Liabilities}}

=

{\dfrac{₹~1,40,000}{₹~2,60,00}}

=

54 times

ii) Inventory turnover ratio:

Cost of Revenue from Operations

=

Revenue from Operations – Gross Profit

=

₹ 4,00,000 – ₹ 1,94,000

=

₹ 2,06,000

Average Inventory

=

{\dfrac{(Inventory~in~the~beginning + Inventory~at~the~end)}{2}}

=

{\dfrac{(₹~50,000 + ₹~60,000)}{2}}

=

₹ 55,000

Inventory Turnover Ratio

=

{\dfrac{Cost~of~Revenue~from~Operations}{Average~Inventory}}

=

{\dfrac{₹~2,06,000}{₹~55,000}}

=

3.75 times

iii) Calculation of Return on investment

Interest on Debentures

=

{₹~2,50,000 × \dfrac{10}{100}}

=

₹ 25,000

Net Profit before Interest and Tax

=

Net Profit + Interest on Debentures

=

₹ 1,15,000 + ₹ 25,000

=

₹ 1,40,000

Capital Employed

=

Share Capital + Reserves and Surplus + Money received against share warrants

=

₹ 2,00,000 + ₹ 1,20,000 + ₹ 20,000

=

₹ 3,40,000

Return on Investment

=

{\dfrac{Profit~before~Interest~and~Tax}{Capital~Employed} × 100}

=

{\dfrac{₹~1,40,000}{₹~3,40,000} × 100}

=

41.17%

Note: Net Profit is assumed as ₹ 1,15,000 so that the return on investment matches with the answer.

19. From the following, calculate (a) Debt-Equity Ratio (b) Total Assets to Debt Ratio (c) Proprietary Ratio.

Equity Share Capital

₹ 75,000

Share application money pending allotment

₹ 25,000

General Reserve

₹ 45,000

Balance in the Statement of Profit & Loss

₹ 30,000

Debentures

₹ 75,000

Trade Payables

₹ 40,000

Outstanding Expenses

₹ 10,000

(a) Calculation of Debt-Equity Ratio:

Long-term Debts

=

Debentures

=

₹ 75,000

Shareholders’ Funds

=

Equity Share Capital + Share application money pending allotment + General Reserve + Balance in Statement of Profit & Loss

=

₹ 75,000 + ₹ 25,000 + ₹ 45,000 + ₹ 30,000

=

₹ 1,75,000

Debt-Equity Ratio

=

{\dfrac{Long-term~Debts}{Shareholders'~Funds}}

=

{\dfrac{₹~75,000}{₹~1,75,00}}

=

0:43:1

(b) Calculation of Total Assets to Debt Ratio:

Total Assets

=

Equity and Liabilities

=

Equity Share Capital + Share Application money Pending Allotment + General Reserve + Balance in the Statement of Profit & Loss + Debentures + Trade Payables + Outstanding Expenses

=

₹ 75,000 + ₹ 25,000 + ₹ 45,000 + ₹ 30,000 + ₹ 75,000 + ₹ 40,000 + ₹ 10,000

=

₹ 3,00,000

Long-term Debts

=

Debentures

=

₹ 75,000

Total Assets to Debt Ratio

=

{\dfrac{Total~Assets}{Long-term~Debts}}

=

{\dfrac{₹~3,00,000}{₹~75,000}}

=

4:1

Note: The total assets are directly not given in the problem. So, we’ve calculated the total of equity and liabilities which will be equal to the total assets in the balance sheet.

(c) Calculation of Proprietary Ratio:

The Shareholders’ funds and net assets are calculated above. So, we’ll use those values in this calculation.

Proprietary Ratio

=

{\dfrac{Shareholders'~Funds}{Net~Assets}}

=

{\dfrac{₹~1,75,000}{₹~3,00,000}}

=

0.58:1

20. Cost of Revenue from Operations is ₹ 1,50,000. Operating expenses are ₹ 60,000. Revenue from Operations is ₹ 2,50,000. Calculate Operating Ratio.

Operating Ratio

=

{\dfrac{(Cost~of~Revenue~from~Operations + Operating~Expenses)}{Net~Revenue~from~Operations} × 100}

=

{\dfrac{(₹~1,50,000 + ₹~60,000)}{₹~2,50,000} × 100}

=

{\dfrac{₹~2,10,000}{₹~2,50,000} × 100}

=

84%

21. Calculate the following ratio on the basis of following information:

(i) Gross Profit Ratio (ii) Current Ratio (iii) Acid Test Ratio (iv) Inventory Turnover Ratio (v) Fixed Assets 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 Liablilites

40,000

Land & Building

50,000

Plant & Machinery

30,000

Furniture

20,000

(i) Calculation of Gross Profit Ratio:

Gross Profit Ratio

=

{\dfrac{Gross~Profit}{Net~Revenue~of~Operations} × 100}

=

{\dfrac{₹~50,000}{₹~1,00,000}}

=

50%

(ii) Calculation of Current Ratio:

Current Assets

=

Inventory + Trade Receivables + Cash and Cash Equivalents

=

₹ 15,000 + ₹ 27,500 + ₹ 17,500

=

₹ 60,000

∴ Current Ratio

=

{\dfrac{Current~Assets}{Current~Liabilities}}

=

{\dfrac{₹~60,000}{₹~40,000}}

=

1.5:1

(iii) Calculation of Acid Test Ratio:

Liquid Assets

=

Current Assets – Inventory

=

₹ 60,000 – ₹ 15,000

=

₹ 45,000

Acid Test Ratio

=

{\dfrac{Liquid~Assets}{Current~Liabilities}}

=

{\dfrac{₹~45,000}{₹~40,000}}

=

1.125:1

(iv) Calculation of Inventory Turnover Ratio:

Cost of Revenue from Operations

=

Revenue from Operations – Gross Profit

=

₹ 1,00,000 – ₹ 50,000

=

₹ 50,000

Average Inventory

=

₹ 15,000

Inventory Turnover Ratio

=

{\dfrac{Cost~of~Revenue~from~Operations}{Average~Inventory}}

=

{\dfrac{₹~50,000}{₹~15,000}}

=

3.33 times

Note: As the inventory in the beginning and at the end is not given, the given inventory is assumed to be the average inventory.

(v) Calculation of Fixed Assets Turnover Ratio:

Net Fixed Assets

=

Land & Buildings + Plant & Machinery + Furniture

=

₹ 50,000 + ₹ 30,000 + ₹ 20,000

=

₹ 1,00,000

Fixed Assets Turnover Ratio

=

{\dfrac{Net~Revenue~from~Operations}{Net~Fixed~Assets}}

=

{\dfrac{₹~1,00,000}{₹~1,00,000}}

=

1:1

22. From the following information calculate Gross Profit Ratio, Inventory Turnover Ratio and Trade Receivable Turnover Ratio.

Revenue from Operations

₹ 3,00,000

Cost of Revenue from Operations

₹ 2,40,000

Inventory at the end

₹ 62,000

Gross Profit

₹ 60,000

Inventory in the beginning

₹ 58,000

Trade Receivables

₹ 32,000

Calculation of Gross Profit Ratio:

Gross Profit Ratio

=

{\dfrac{Gross~Profit}{Net~Revenue~of~Operations} × 100}

=

{\dfrac{₹~60,000}{₹~3,00,000}}

=

20%

Calculation of Inventory Turnover Ratio:

Average Inventory

=

{\dfrac{(Inventory~in~the~beginning + Inventory~at~the~end)}{2}}

=

{\dfrac{₹~58,000 + ₹~62,000}{2}}

=

{\dfrac{₹~1,20,000}{2}}

=

₹ 60,000

∴ Inventory Turnover Ratio

=

{\dfrac{Cost~of~Revenue~from~Operations}{Average~Inventory}}

=

{\dfrac{₹~2,40,000}{₹~60,000}}

=

4 times

Calculation of Trade Receivable Trunover Ratio:

Trade Receivable Turnover Ratio

=

{\dfrac{Net~Credit~Revenue~from~Operations}{Average~Trade~Receivables}}

=

{\dfrac{₹~32,000}{₹~3,00,000}}

=

9.375 times