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Page No 4.100:
Question 80:
Calculate Inventory Turnover Ratio in each of the following alternative cases:
Case 1: Cash Sales 25% of Credit Sales; Credit Sales ₹3,00,000; Gross Profit 20% on Revenue from Operations, i.e., Net Sales; Closing Inventory ₹1,60,000; Opening Inventory ₹40,000.
Case 2: Cash Sales 20% of Total Sales; Credit Sales ₹4,50,000; Gross Profit 25% on Cost; Opening Inventory ₹37,500; Closing Inventory ₹1,12,500.
Answer:
Case 1
Credit Sales = 3,00,000
Cash sales = 25% of Credit Sales
Total Sales = Cash Sales + Credit Sales
= 3,00,000 + 75,000 = 3,75,000
Gross Profit = 20% on Sales
Cost of Goods Sold = Total Sales − Gross Profit
= 3,75,000 − 75,000 = 3,00,000
Case 2
Let Total Sales = x
Total Sales = Cash Sales + Credit Sales
Gross Profit = Sales − Cost of Goods Sold
Page No 4.100:
Answer:
Cost of Goods Sold = Opening Inventory+ Purchases + Direct Expenses – Closing Inventory
= Rs 1,25,000 + Rs 3,00,000 + Rs 15,000 – Rs 75,000 = Rs 3,65,000
$\mathrm{Inventory}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Cost}\mathrm{of}\mathrm{Goods}\mathrm{Sold}}{\mathrm{Average}\mathrm{Inventory}}=\frac{3,65,000}{1,00,000}=3.65\mathrm{times}$
Page No 4.100:
Question 82:
Credit Revenue from Operations, i.e., Net Credit Sales for the year  1,20,000 
Debtors  12,000 
Billls Receivable  8,000 
Answer:
Page No 4.100:
Answer:
Net Credit Sales = Total Sales − Sales Return − Cash Sales
= 1,00,000 − 1,500 − 23,500 = 75,000
Page No 4.101:
Question 84:
Closing Trade Receivables ₹ 1,00,000; Cash Sales being 25% of Credit Sales; Excess of Closing Trade Receivables over Opening Trade Receivables ₹ 40,000; Revenue from Operations, i.e., Net Sales ₹ 6,00,000. Calculate Trade Receivables Turnover Ratio.
Answer:
Let Credit Sales be = x
Total Sales = Cash Sales + Credit Sales
Credit Sales = 4,80,000
Closing Trade Receivables = Opening Trade Receivables + 40,000
1,00,000 = Opening Trade Receivables + 40,000
Opening Trade Receivables = Rs 60,000
Page No 4.101:
Answer:
$\mathrm{Average}\mathrm{Debtors}=\frac{\mathrm{Opening}\mathrm{Debtors}+\mathrm{Closing}\mathrm{Debtors}}{2}\phantom{\rule{0ex}{0ex}}\mathrm{In}2017=\frac{83,000+1,17,000}{2}=\mathrm{Rs}1,00,000\phantom{\rule{0ex}{0ex}}\mathrm{In}2018=\frac{1,17,000+83,000}{2}=\mathrm{Rs}1,00,000$
$\mathrm{Debtors}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Net}\mathrm{Sales}}{\mathrm{Average}\mathrm{Debtors}}\phantom{\rule{0ex}{0ex}}\mathrm{In}2017=\frac{8,00,000}{1,00,000}=8\mathrm{Times}\phantom{\rule{0ex}{0ex}}\mathrm{In}2018=\frac{7,00,000}{1,00,000}=7\mathrm{Times}$
Page No 4.101:
Question 86:
₹ 1,75,000 is the Credit Revenue from Operations, i.e., Net Credit Sales of an enterprise. If Trade Receivables Turnover Ratio is 8 times, calculate Trade Receivables in the Beginning and at the end of the year. Trade Receivables at the end is ₹ 7,000 more than that in the beginning.
Answer:
Let Opening Trade Receivables = x
∴ Closing Trade Receivables = x + 7,000
∴ Opening Trade Receivables = x = 18,375
Closing Trade Receivables = x +7,000 = 25,375
Page No 4.101:
Question 87:
From the following particulars, determine Trade Receivables Turnover Ratio:
₹  
Revenue from Operations (Net Sales)  10,00,000 
Credit Revenue from Operations (Credit Sales)  8,00,000 
Trade Receivables  1,00,000 
Answer:
Credit Sales = 8,00,000
Average Debtors = 1,00,000
Page No 4.101:
Question 88:
Closing Trade Receivables ₹ 4,00,000; Cash Sales being 25% of Credit Sales; Excess of Closing Trade Receivables over Opening Trade Receivables ₹ 2,00,000; Revenue from Operations, i.e., Revenue from Operations, i.e., Net Sales ₹ 15,00,000. Calculate Trade Receivables Turnover Ratio
[Hint: 1. Net Credit Sales = Total Sales − Cash Sales
2. Opening Trade Receivables = Closing Trade Receivables − Excess of Closing Trade Receivables over Opening Trade Receivables.]
Answer:
Let Credit Sales be = x
Total Sales = Cash Sales + Credit Sales
Opening Trade Receivables = Closing Trade Receivables − 2,00,000
= 4,00,000 − 2,00,000 = 2,00,000
$\mathrm{Trade}\mathrm{Receivables}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Net}\mathrm{Credit}\mathrm{Sales}}{\mathrm{Average}\mathrm{Trade}\mathrm{Receivables}}\phantom{\rule{0ex}{0ex}}=\frac{12,00,000}{3,00,000}\phantom{\rule{0ex}{0ex}}=4\phantom{\rule{0ex}{0ex}}\mathrm{Therefore},\mathrm{Trades}\mathrm{Receivable}\mathrm{Turnover}\mathrm{Ratio}\mathrm{is}4\mathrm{Times}$
Page No 4.101:
Question 89:
A firm normally has trade Receivables equal to two months' credit Sales. During the coming year it expects Credit Sales of ₹ 7,20,000 spread evenly over the year (12 months). What is the estimated amount of Trade Receivables at the end of the year?
Answer:
Page No 4.101:
Question 90:
Cash Revenue from Operations (Cash Sales) ₹ 2,00,000, Cost of Revenue from Operations or Cost of Goods Solds ₹ 3,50,000; Gross Profit ₹ 1,50,000; Trade Receivables Turnover Ratio 3 Times. Calculate Opening and Closing Trade Receivables in each of the following alternative cases;
Case 1 : If Closing Trade Receivables were ₹ 1,00,000 in excess of Opening Trade Receivables.
Case 2 : If trade Receivables at the end were 3 times than in the beginning.
Case 3 ; If Trade Receivables at the end were 3 times more than that of in the beginning.
Answer:
Total Sales = Cost of Goods Sold + Gross Profit
= 3,50,000 + 1,50,000 = 5,00,000
Credit Sales = Total Sales − Cash Sales
= 5,00,000 − 2,00,000 = 3,00,000
Case 1:
Let Opening Trade Receivables = x
Closing Trade Receivables = x + 1,00,000
Opening Trade Receivables = x = RS 50,000
Closing Trade Receivables = x + 1,00,000 = 50,000 + 1,00,000 = Rs 1,50,000
Case 2:
Let Opening Trade Receivables = x
Closing Trade Receivables = 3 x
Opening Trade Receivables = x = Rs 50,000
Closing Trade Receivables = 3x = 3 × 50,000 = Rs 1,50,000
Case 3:
Let Opening Trade Receivables = x
Closing Trade Receivables = x + 3 x = 4x
Opening Trade Receivables = x = Rs 40,000
Closing Trade Receivables = 4 x = 4 × 40,000 = Rs 1,60,000
Page No 4.101:
Question 91:
A limited company made Credit Sales of ₹ 4,00,000 during the financial period. If the collection period is 36 days and year is assumed to be 360 days, calculate:
(i) Trade Receivables Turnover Ratio;
(ii) Average Trade Receivables;
(iii) Trade Receivables at the end when Trade Receivables at the end are more than that in the beginning by ₹ 6,000.
Answer:
(iii) Let the Opening Trade Receivables be x
∴ Closing Trade Receivables = x + 6,000
∴ Opening Trade Receivables = x = Rs 37,000
Closing Trade Receivables = x + 6,000 = 43,000
Page No 4.102:
Question 92:
From the following information, calculate Opening and Closing Trade Receivables, if Trade Receivables Turnover Ratio is 3 Times:
(i) Cash Revenue from Operations is 1/3rd of Credit Revenue from Operations.
(ii) Cost of Revenue from Operations is ₹3,00,000.
(iii) Gross Profit is 25% of the Revenue from Operations.
(iv) Trade Receivables at the end are 3 Times more than that of in the beginning.
Answer:
$\begin{array}{l}\text{TradeReceivableTurnoverRatio=}\frac{\text{CreditRevenuefromOperations}}{\text{AverageTradeReceivables}}\\ \text{3=}\frac{3,00,000}{\text{AverageTradeReceivables}}\\ \text{AverageTradeReceivables=}\frac{3,00,000}{3}=\text{Rs1,00,000}\\ \text{AverageTradeReceivables}=\frac{\text{OpeningTradeReceivables}+\text{ClosingTradeReceivables}}{2}\\ \text{1,00,000=}\frac{x+4x}{2}\\ \text{So,xwouldbeRs40,000}\\ \therefore \text{OpeningreceivableswouldbeRs40,000and,}\\ \text{ClosingReceivableswouldbeRs1,60,000}(40,000\times 4)\\ \text{RevenuefromOperations}=\text{3,00,000+}\frac{25}{75}\times 3,00,000=\text{Rs4,00,000}\\ \text{CreditRevenuefromOperations}=\text{TotalRevenuefromOperations}\text{CashRevenuefromOperations}\\ \text{x}=\text{4,00,000}\frac{1}{3}x\\ \text{CreditRevenuefromOperations}=\text{Rs3,00,000}\end{array}$
Page No 4.102:
Question 93:
Calculate Trade Receivables Turnover Ratio in each of the following alternative cases:
Case 1: Net Credit Sales ₹4,00,000; Average Trade Receivables ₹1,00,000.
Case 2: Revenue from Operations (Net Sales) ₹30,00,000; Cash Revenue from Operations, i.e., Cash Sales ₹6,00,000; Opening Trade Receivables ₹2,00,000; Closing Trade Receivables ₹6,00,000.
Case 3: Cost of Revenue from Operations or Cost of Goods Sold ₹3,00,000; Gross Profit on Cost 25%; Cash Sales 20% of Total Sales; Opening Trade Receivables ₹50,000; Closing Trade Receivables ₹1,00,000.
Case 4: Cost of Revenue from Operations or Cost of Goods Sold ₹4,50,000; Gross Profit on Sales 20%; Cash Sales 25% of Net Credit Sales, Opening Trade Receivables ₹90,000; Closing Trade Receivables ₹60,000.
Answer:
Case 1
Case 2
Net Credit Sales = Total Sales −Cash Sales
= 30,00,000 − 6,00,000 = 24,00,000
Case 3
Cost of Goods Sold = 3,00,000
Gross Profit = 25% on Cost
_{}
Total Sales = Cost of Goods Sold + Gross Profit
= 3,00,000 + 75,000 = 3,75,000
Cash Sales = 20% of Total Sales
Credit Sales = Total Sales − Cash Sales
= 3,75,000 − 75,000 = 3,00,000
Case 4
Let Sales be = x
Let Credit Sales be = a
Page No 4.102:
Question 94:
From the information given below, calculate Trade Receivables Turnover Ratio:
Credit Revenue from Operations, i.e., Credit Sales ₹8,00,000; Opening Trade Receivables ₹1,20,000; and Closing Trade Receivables ₹2,00,000.
State giving reason, which of the following would increase, decrease or not change Trade Receivables Turnover Ratio:
(i) Collection from Trade Receivables ₹40,000.
(ii) Credit Revenue from Operations, i.e., Credit Sales ₹80,000.
(iii) Sales Return ₹20,000.
(iv) Credit Purchase ₹1,60,000.
Answer:
(i) Collection from Trade Receivables Rs 40,000 Increase
Reason: Collection from Trade Receivables will result in decrease in the amount of closing Trade Receivables which will reduce the amount of average Trade Receivables.
Closing Trade Receivables = 2,00,000 − 40,000 = Rs 1,60,000
(ii) Credit Revenue from Operations, i.e. Sales Rs 80,000 Decrease
Reason: This transaction will result in increase in both credit sales as well as closing Trade Receivables. Increase in closing Trade Receivables, in turn, will lead to an increase in the average Trade Receivables.
Credit Sales = 8,00,000 + 80,000 = Rs 8,80,000
Closing Trade Receivables = 2,00,000 + 80,000 = Rs 2,80,000
(iii) Sales Return Rs 20,000 Increase
Reason: This transaction will result in decrease in both sales and average Trade Receivables.
Credit Sales = 8,00,000 − 20,000= Rs 7,80,000
Closing Trade Receivables = 2,00,000 − 20,000 = Rs 1,80,000
(iv) Credit Purchase Rs 1,60,000 No Change
Reason: Credit Purchase does not affect the Debtors Turnover Ratio.
Page No 4.102:
Answer:
$\mathrm{Average}\mathrm{Trade}\mathrm{Payables}=\frac{\mathrm{Opening}\mathrm{Creditors}\mathrm{B}/\mathrm{P}+\mathrm{Closing}\mathrm{Creditors}\mathrm{B}/\mathrm{P}}{2}\phantom{\rule{0ex}{0ex}}=\frac{1,50,000+50,000+4,50,000+1,50,000}{2}=\mathrm{Rs}4,00,000\phantom{\rule{0ex}{0ex}}\mathrm{Net}\mathrm{Credit}\mathrm{Purchases}=\mathrm{Total}\mathrm{Purchases}\mathrm{Purchases}\mathrm{Return}\mathrm{Cash}\mathrm{Purchases}\phantom{\rule{0ex}{0ex}}=21,00,0001,00,0004,00,000=\mathrm{Rs}16,00,000\phantom{\rule{0ex}{0ex}}\phantom{\rule{0ex}{0ex}}$
$\mathrm{Trade}\mathrm{Payables}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Net}\mathrm{Credit}\mathrm{Purchases}}{\mathrm{Average}\mathrm{Trade}\mathrm{Payables}}=\frac{16,00,000}{4,00,000}=4\mathrm{times}$
$\mathrm{Average}\mathrm{Debt}\mathrm{Payment}\mathrm{Period}=\frac{12}{\mathrm{Trade}\mathrm{Payable}\mathrm{Turnover}\mathrm{Ratio}}=\frac{12}{4}=3\mathrm{months}$
Page No 4.103:
Question 96:
Calculate Trade payables Turnover Ratio from the following information:
Opening Creditors ₹ 1,25,000; Opening Bills Payable ₹ 10,000; Closing Creditors ₹ 90,000; Closing bills Payable ₹ 5,000; Purchases ₹ 9,50,000; Cash Purchases ₹ 1,00,000; Purchases Return ₹ 45,000.
Answer:
Net Credit Purchases = Purchases – Cash Purchases – Purchase Return
= Rs 9,50,000 – Rs 1,00,000 – Rs 45,000 = Rs 8,05,000
Page No 4.103:
Question 97:
Calculate Trade Payables Turnover Ratio for the year 201819 in each of the alternative cases:
Case 1 : Closing Trade Payables ₹ 45,000; Net Purchases ₹ 3,60,000; Purchases Return ₹ 60,000; Cash Purchases ₹ 90,000.
Case 2 : Opening Trade Payables ₹ 15,000; Closing Trade Payables ₹ 45,000; Net Purchases ₹ 3,60,000.
Case 3 : Closing Trade Payables ₹ 45,000; Net Purchases ₹ 3,60,000.
Case 4 : Closing Trade Payables (including ₹ 25,000 due to a supplier of machinery) ₹ 55,000; Net Credit Purchases ₹ 3,60,000.
Answer:
Case 1
Net Credit Purchases = Net Purchases − Cash Purchases
= 3,60,000 − 90,000 = 2,70,000
$\mathrm{Trade}\mathrm{Payables}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Net}\mathrm{Credit}\mathrm{Purchases}}{\mathrm{Closing}\mathrm{Trade}\mathrm{Payables}}\phantom{\rule{0ex}{0ex}}=\frac{2,70,000}{45,000}=6\mathrm{times}$
Case 2
Net Purchases = 3,60,000
$\mathrm{Average}\mathrm{Trade}\mathrm{Payables}=\frac{\mathrm{Opening}\mathrm{Trade}\mathrm{Payables}+\mathrm{Closing}\mathrm{Trade}\mathrm{Payables}}{2}\phantom{\rule{0ex}{0ex}}=\frac{15,000+45,000}{2}=30,000$
$\mathrm{Trade}\mathrm{Payables}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Net}\mathrm{Credit}\mathrm{Purchases}}{\mathrm{Average}\mathrm{Trade}\mathrm{Payables}}=\frac{3,60,000}{30,000}=12\mathrm{times}$
Case 3
$\mathrm{Trade}\mathrm{Payable}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Net}\mathrm{Credit}\mathrm{Purchases}}{\mathrm{Closing}\mathrm{Trade}\mathrm{Payables}}=\frac{3,60,000}{45,000}=8\mathrm{times}$
Case 4
Net Credit Payables for Goods = Trade Payables − Creditors for Machinery
= 55,000 − 25,000 = 30,000
$\mathrm{Trade}\mathrm{Payables}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Net}\mathrm{Credit}\mathrm{Purchases}}{\mathrm{Average}\mathrm{Trade}\mathrm{Payables}}=\frac{3,60,000}{30,000}=12\mathrm{times}$
Page No 4.103:
Question 98:
From the following information, calculate Working Capital Turnover Ratio:
₹  
Cost of Revenue from Operations (Cost of Goods Sold)  10,00,000 
Current Assets  5,00,000 
Current Liabilities  3,00,000 
Answer:
Working Capital = Current Assets – Current Liabilities
= 5,00,000 – 3,00,000 = 2,00,000
Page No 4.103:
Question 99:
Revenue from Operations: Cash Sales ₹ 5,00,000; Credit Sales ₹ 6,00,000; Sales Return ₹ 1,00,000. Current Assets ₹ 3,00,000; Current Liabilities ₹ 1,00,000. Calculate Working Capital Turnover Ratio.
Answer:
Net Sales = Cash Sales + Credit Sales − Sales Returns
= 5,00,000 + 6,00,000 − 1,00,000 = 10,00,000
Page No 4.103:
Question 100:
Equity Share Capital ₹ 15,00,000; Gross Profit on Revenue from Operations, i.e., Net Sales 33$\frac{1}{3}$%; Cost Revenue from Operatins or Cost of Goods Sold ₹ 20,00,000; Current Assets ₹ 10,00,000; Current Liabilities ₹ 2,50,000. Calculate Working Capital Turnover Ratio.
Answer:
Net Sales = Cost of Goods sold + Gross Profit
Let Net Sales = x
Page No 4.103:
Question 101:
Gross Profit at 25% on cost; Gross profit ₹ 5,00,000; Equity Share Capital ₹ 10,00,000; Reserves and Surplus 2,00,000; Longterm Loan 3,00,000; Fixed Assets (Net) ₹ 10,00,000. Calculate Working Capital Turnover Ratio
Answer:
Gross Profit = 25% on Cost
Let Cost be = Rs x
∴ Cost of Goods Sold = 20,00,000
Page No 4.103:
Question 102:
Capital Employed ₹ 12,00,000; Net Fixed Assets 8,00,000; Cost of Goods Sold or Cost of Revenue from Operations ₹ 40,00,000; Gross Profit is 20% on Cost. Calculate Working Capital Turnover Ratio.
Answer:
Cost of Goods Sold = 40,00,000
Gross Profit = 20% of Cost
_{}
Page No 4.103:
Question 103:
Calculate Working Capital Turnover Ratio from the following information:
Revenue from Operations ₹ 30,00,000; Current Assets ₹ 12,50,000; Total Assets ₹ 20,00,000; Noncurrent Liabilities ₹ 10,00,000, Shareholders' Funds ₹ 5,00,000.
Answer:
$\mathrm{Working}\mathrm{Capital}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Net}\mathrm{Sales}}{\mathrm{Working}\mathrm{Capital}}\phantom{\rule{0ex}{0ex}}\mathrm{Revenue}\mathrm{from}\mathrm{Operations}(\mathrm{Net}\mathrm{Sales})=\mathrm{Rs}30,00,000\left(\mathrm{Given}\right)\phantom{\rule{0ex}{0ex}}\mathrm{Working}\mathrm{Capital}=\mathrm{Current}\mathrm{Assets}\mathrm{Current}\mathrm{Liabilities}\phantom{\rule{0ex}{0ex}}\mathrm{Current}\mathrm{Assets}=12,50,000\left(\mathrm{Given}\right)\phantom{\rule{0ex}{0ex}}\mathrm{Current}\mathrm{Liabilities}=?\phantom{\rule{0ex}{0ex}}\mathrm{Total}\mathrm{Assets}=\mathrm{Total}\mathrm{Liabilities}=\mathrm{Rs}20,00,000\left(\mathrm{Given}\right)\phantom{\rule{0ex}{0ex}}\mathrm{Total}\mathrm{Liabilities}=\mathrm{Shareholders}\text{'}\mathrm{Funds}+\mathrm{Non}\mathrm{Current}\mathrm{Liabilities}+\mathrm{Current}\mathrm{Liabilities}\phantom{\rule{0ex}{0ex}}20,00,000=5,00,000+10,00,000+\mathrm{Current}\mathrm{Liabilities}\phantom{\rule{0ex}{0ex}}\mathrm{Current}\mathrm{Liabilities}=\mathrm{Rs}5,00,000\phantom{\rule{0ex}{0ex}}\mathrm{Working}\mathrm{Capital}=12,50,0005,00,000=\mathrm{Rs}7,50,000\phantom{\rule{0ex}{0ex}}\mathrm{Working}\mathrm{Capital}\mathrm{Turnover}\mathrm{Ratio}=\frac{30,00,000}{7,50,000}=4\mathrm{times}$
Page No 4.103:
Question 104:
Compute Gross Profit Ratio from the following information:
Cost of Revenue from Operations (Cost of Goods Sold) ₹5,40,000; Revenue from Operations (Net Sales) ₹6,00,000.
Answer:
Gross Profit = Revenue from Operations – Cost of Revenue from Operations
= 6,00,000 – 5,40,000
= Rs 60,000
$\begin{array}{l}\text{GrossProfitRatio=}\frac{\text{GrossProfit}}{\text{RevenuefromOperations}}\text{}\times \text{100}\\ \text{}=\text{}\frac{60,000}{6,00,000}\text{}\times \text{100}\\ \text{=10\%}\end{array}$
Page No 4.104:
Question 105:
From the following, calculate Gross Profit Ratio:
Gross Profit:₹50,000; Revenue from Operations ₹5,00,000; Sales Return: ₹50,000.
Answer:
$\mathrm{Net}\mathrm{Sales}=\mathrm{Rs}5,00,000\phantom{\rule{0ex}{0ex}}\mathrm{Gross}\mathrm{Profit}=\mathrm{Rs}50,000$
$\mathrm{Gross}\mathrm{Profit}\mathrm{Ratio}=\frac{\mathrm{Gross}\mathrm{Profit}}{\mathrm{Net}\mathrm{Sales}}\times 100\phantom{\rule{0ex}{0ex}}=\frac{50,000}{5,00,000}\times 100=10\%$
Note: Here we will not deduct the amount of sales return because the amount of net sales has already been provided in the question.
Page No 4.104:
Question 106:
Compute Gross Profit Ratio from the following information:
Revenue from Operations, i.e., Net Sales = ₹4,00,000; Gross Profit 25% on Cost.
Answer:
Sales = Cost + Gross Profit
Cost = x = Rs 3,20,000
Page No 4.104:
Question 107:
Calculate Gross Profit Ratio from the following data:
Cash Sales are 20% of Total Sales; Credit Sales are ₹5,00,000; Purchases are ₹4,00,000; Excess of Closing Inventory over Opening Inventory ₹25,000.
Answer:
Credit Sales = 5,00,000
Cash sales = 20% of Total Sales
Let Total Sales be ‘x’
Therefore, Cash Sales = 20% of x
Total Sales = Cash Sales + Credit Sales
Cost of Goods Sold = Purchases – Excess of Closing Stock over Opening Stock
= Rs 4,00,000 – Rs 25,000 = Rs 3,75,000
Gross Profit = Total Sales – Cost of Goods Sold
= Rs 6,25,000 – 3,75,000 = Rs 2,50,000
Page No 4.104:
Question 108:
From the following information, calculate Gross Profit Ratio:
₹  ₹  
Credit Sales  5,00,000  Decrease in Inventory  10,000  
Purchases  3,00,000  Returns Outward  10,000  
Carriage Inwards  10,000  Wages  50,000  
Rate of Credit Sale to Cash Sale  4:1 
Answer:
Credit Sale = Rs 5,00,000
Rate of Credit Sale to Cash Sale = 4:1
$\mathrm{Cash}\mathrm{Sale}=\frac{1}{4}\times 5,00,000=\mathrm{Rs}1,25,000$
Total Sales = Cash Sales + Credit Sales = Rs 1,25,000 + Rs 5,00,000 = Rs 6,25,000
Cost of Goods Sold = Purchases – Return Outward + Carriage Inwards + Wages + Decrease in Inventory
= Rs 3,00,000 – Rs 10,000 + Rs 10,000 + Rs 50,000 + Rs 10,000
= Rs 3,60,000
Gross Profit = Total Sales – Cost of Goods Sold
= Rs 6,25,000 – Rs 3,60,000 = Rs 2,65,000
$\mathrm{Gross}\mathrm{Profit}\mathrm{Ratio}=\frac{\mathrm{Gross}\mathrm{Profit}}{\mathrm{Net}\mathrm{Sales}}\times 100=\frac{2,65,000}{6,25,000}\times 100=42.40\%$
Page No 4.104:
Question 109:
Calculate Gross Profit Ratio from the following data:
Average Inventory ₹3,20,000; Inventory Turnover Ratio 8 Times; Average Trade Receivables ₹4,00,000; Trade Receivables Turnover Ratio 6 Times; Cash Sales 25% of Net Sales.
Answer:
Inventory Turnover Ratio = 8 times
Average Inventory = Rs 3,20,000
Cost of Goods sold = 25,60,000
Trade Receivables Turnover Ratio = 6 times
Average Trade Receivables = Rs 4,00,000
Net Credit Sales = 24,00,000
Total Sales = Cash Sales + Credit Sales
Total Sales = 25% of Total Sales + Credit Sales
75% of Total Sales = 24,00,000
Gross Profit = Total Sales – Cost of Goods Sold
= 32,00,000 – 25,60,000 = 6,40,000
Page No 4.104:
Question 110:
(i) Revenue from Operations: Cash Sales ₹4,20,000; Credit Sales ₹6,00,000; Return ₹20,000. Cost of Revenue from Operations or Cost of Goods Sold ₹8,00,000. Calculate Gross Profit Ratio.
(ii) Average Inventory ₹1,60,000; Inventory Turnover Ratio is 6 Times; Selling Price 25% above cost. Calculate Gross Profit Ratio.
(iii) Opening Inventory ₹1,00,000; Closing Inventory ₹60,000; Inventory Turnover Ratio 8 Times; Selling Price 25% above cost. Calculate Gross Profit Ratio.
Answer:
Cost of Goods Sold = 8,00,000
(ii) Average Stock = 1,60,000
Stock Turnover Ratio = 6 Times
Gross Profit = 25% on Cost
(iii) Opening Inventory = 1,00,000
Closing Inventory = 60,000
Gross Profit = 25% on Cost
Page No 4.104:
Question 111:
Gross Profit Ratio of a company is 25%. State giving reason, which of the following transactions will (a) increase or (b) decrease or (c) not alter the Gross Profit Ratio.
(i) Purchases of StockinTrade ₹50,000.
(ii) Purchases Return ₹15,000.
(iii) Cash Sale of StockinTrade ₹40,000.
(iv) StockinTrade costing ₹20,000 withdrawn for personal use.
(v) StockinTrade costing ₹15,000 distributed as free sample.
Answer:
Transactions 
Effect on Gross Profit Ratio 
Reason 
(i) Purchase of StockinTrade Rs 50,000 
No Change 
Both purchases and closing inventory will increase by Rs 50,000; therefore, cost of revenue from operations will not be affected. So, Gross Profit Ratio will remain same. 
(ii) Purchase Return Rs 15,000 
No Change 
Both purchases and closing inventory will decrease by Rs 15,000; therefore, cost of revenue from operations will not be affected. So, Gross Profit Ratio will remain same. 
(iii) Cash Sale of StockinTrade Rs 40,000 
No Change 
Revenue from operations will increase by Rs 40,000 and Gross Profit will increase by 10,000 (40,000 x 25%), Therefore, both revenue from operations and gross profit will increase by 25%. So, Gross Profit Ratio will remain same. 
(iv) Stockintrade costing Rs 20,000 withdrawn for personal use 
No Change 
Both purchases and closing inventory will decrease by Rs 20,000; therefore, cost of revenue from operations will not be affected. So, Gross Profit Ratio will remain same. 
(v) StockinTrade costing Rs 15,000 distributed as free sample 
No Change 
Both purchases and closing inventory will decrease by Rs 15,000; therefore, cost of revenue from operations will not be affected. So, Gross Profit Ratio will remain same. 
Page No 4.104:
Question 112:
Cost of Revenue from Operations (Cost of Goods Sold) ₹3,00,000. Operating Expenses ₹1,20,000. Revenue from Operations: Cash Sales ₹5,20,000; Return ₹20,000. Calculate Operating Ratio.
Answer:
Page No 4.104:
Question 113:
Operating Ratio 92%; Operating Expenses ₹94,000; Revenue from Operations ₹6,00,000; Sales Return ₹40,000. Calculate Cost of Revenue from Operations (Cost of Goods Sold).
Answer:
$\mathrm{Revenue}\mathrm{from}\mathrm{Operations}(\mathrm{Net}\mathrm{Sales})=\mathrm{Rs}6,00,000*$
Operating Ratio = 92%
$\mathrm{Operating}\mathrm{Ratio}=\frac{\mathrm{Operating}\mathrm{Cost}}{\mathrm{Net}\mathrm{Sales}}\times 100\phantom{\rule{0ex}{0ex}}92=\frac{\mathrm{Operating}\mathrm{Cost}}{6,00,000}\times 100\phantom{\rule{0ex}{0ex}}\mathrm{Operating}\mathrm{Cost}=\frac{6,00,000\times 92}{100}=5,52,000$
Operating Cost = Cost of Goods Sold + Operating Expenses
5,52,000 = Cost of Goods Sold + 94,000
Cost of Goods Sold = Rs 4,58,000
*Note: Sales Return will not be considered since net sales are given which means sales return have already been adjusted in the sales figure.
Page No 4.104:
Question 114:
(i) Cost of Revenue from Operations (Cost of Goods Sold) ₹2,20,000; Revenue from Operations (Net Sales) ₹3,20,000; Selling Expenses ₹12,000; Office Expenses ₹8,000; Depreciation ₹6,000. Calculate Operating Ratio.
(ii) Revenue from Operations, Cash Sales ₹4,00,000; Credit Sales ₹1,00,000; Gross Profit ₹1,00,000; Office and Selling Expenses ₹50,000. Calculate Operating Ratio.
Answer:
Cost of Goods Sold = 2,20,000
Operating Cost = Cost of Goods Sold + Operating Expenses
Operating Cost = 2,20,000 + 26,000 = 2,46,000
Sales = 3,20,000
Operating Expenses = Office and Selling Expenses = 50,000
Page No 4.105:
Question 115:
From the following information, calculate Operating Ratio:
Cost of Revenue  Revenue from Operation:  
from Operations (Cost of Goods Sold)  ₹52,000  Gross Sales  ₹ 88,000  
Operating Expenses  ₹18,000  Sales Return  ₹ 8,000 
Answer:
$\mathrm{Net}\mathrm{Sales}=\mathrm{Gross}\mathrm{Sales}\mathrm{Sales}\mathrm{Return}\phantom{\rule{0ex}{0ex}}=88,0008,000=\mathrm{Rs}80,000$
$\mathrm{Operating}\mathrm{Cost}=\mathrm{Cost}\mathrm{of}\mathrm{Goods}\mathrm{Sold}+\mathrm{Operating}\mathrm{Expenses}\phantom{\rule{0ex}{0ex}}=52,000+18,000=\mathrm{Rs}70,000\phantom{\rule{0ex}{0ex}}\phantom{\rule{0ex}{0ex}}\mathrm{Operating}\mathrm{Ratio}=\frac{\mathrm{Operating}\mathrm{Cost}}{\mathrm{Net}\mathrm{Sales}}\times 100\phantom{\rule{0ex}{0ex}}=\frac{70,000}{80,000}\times 100=87.5\%$
Page No 4.105:
Question 116:
Calculate Cost of Revenue from Operations from the following information:
Revenue from Operations ₹ 12,00,000; Operating Ratio 75%; Operating Expenses ₹ 1,00,000.
Answer:
$\mathit{G}\mathit{i}\mathit{v}\mathit{e}\mathit{n}:\phantom{\rule{0ex}{0ex}}\mathrm{Revenue}\mathrm{from}\mathrm{Operations}(\mathrm{Net}\mathrm{Sales})=\mathrm{Rs}12,00,000\phantom{\rule{0ex}{0ex}}\mathrm{Operating}\mathrm{Ratio}=75\%\phantom{\rule{0ex}{0ex}}\mathrm{Operating}\mathrm{Expenses}=\mathrm{Rs}1,00,000\phantom{\rule{0ex}{0ex}}\mathit{F}\mathit{i}\mathit{n}\mathit{d}\mathit{}\mathit{o}\mathit{u}\mathit{t}:\mathrm{Cost}\mathrm{of}\mathrm{Revenue}\mathrm{from}\mathrm{Operations}\phantom{\rule{0ex}{0ex}}\mathrm{Operating}\mathrm{Ratio}=\frac{\mathrm{Operating}\mathrm{Cost}}{\mathrm{Net}\mathrm{Sales}}\times 100\phantom{\rule{0ex}{0ex}}0.75=\frac{\mathrm{Operating}\mathrm{Cost}}{12,00,000}\phantom{\rule{0ex}{0ex}}\mathrm{Operating}\mathrm{Cost}=\mathrm{Rs}9,00,000\phantom{\rule{0ex}{0ex}}\mathrm{Operating}\mathrm{Cost}=\mathrm{Cost}\mathrm{of}\mathrm{Revenue}\mathrm{from}\mathrm{Operations}+\mathrm{Operating}\mathrm{Expenses}\phantom{\rule{0ex}{0ex}}9,00,000=\mathrm{Cost}\mathrm{of}\mathrm{Revenue}\mathrm{from}\mathrm{Operations}+1,00,000\phantom{\rule{0ex}{0ex}}\mathrm{Cost}\mathrm{of}\mathrm{Revenue}\mathrm{from}\mathrm{Operations}=\mathrm{Rs}8,00,000$
Page No 4.105:
Question 117:
Calculate Operating Ratio from the following information:
Operating Cost ₹ 6,80,000; Gross Profit 25%; Operating Expenses ₹ 80,000.
Answer:
$\mathit{G}\mathit{i}\mathit{v}\mathit{e}\mathit{n}:\phantom{\rule{0ex}{0ex}}\mathrm{Operating}\mathrm{Cost}=\mathrm{Rs}6,80,000\phantom{\rule{0ex}{0ex}}\mathrm{Operating}\mathrm{Expenses}=\mathrm{Rs}80,000\phantom{\rule{0ex}{0ex}}\mathrm{Gross}\mathrm{Profit}\mathrm{Ratio}=25\%\phantom{\rule{0ex}{0ex}}\mathit{F}\mathit{i}\mathit{n}\mathit{d}\mathit{}\mathit{o}\mathit{u}\mathit{t}:\mathrm{Operating}\mathrm{Ratio}\phantom{\rule{0ex}{0ex}}\mathrm{Operating}\mathrm{Cost}=\mathrm{Cost}\mathrm{of}\mathrm{Revenue}\mathrm{from}\mathrm{Operations}+\mathrm{Operating}\mathrm{Expenses}\phantom{\rule{0ex}{0ex}}6,80,000=\mathrm{Cost}\mathrm{of}\mathrm{Revenue}\mathrm{from}\mathrm{Operations}+80,000\phantom{\rule{0ex}{0ex}}\mathrm{Cost}\mathrm{of}\mathrm{Revenue}\mathrm{from}\mathrm{Operations}=\mathrm{Rs}6,00,000\phantom{\rule{0ex}{0ex}}\mathrm{Gross}\mathrm{Profit}=\frac{1}{4}\mathrm{th}\mathrm{of}\mathrm{sales}=\frac{1}{3}\mathrm{rd}\mathrm{of}\mathrm{cost}\phantom{\rule{0ex}{0ex}}\mathrm{Gross}\mathrm{Profit}=\frac{1}{3}\times 6,00,000=\mathrm{Rs}2,00,000\phantom{\rule{0ex}{0ex}}\mathrm{Gross}\mathrm{Profit}\mathrm{Ratio}=\frac{\mathrm{Gross}\mathrm{Profit}}{\mathrm{Net}\mathrm{Sales}}\times 100\phantom{\rule{0ex}{0ex}}25=\frac{2,00,000}{\mathrm{Net}\mathrm{Sales}}\times 100\phantom{\rule{0ex}{0ex}}\mathrm{Net}\mathrm{Sales}=\mathrm{Rs}8,00,000\phantom{\rule{0ex}{0ex}}\mathrm{Operating}\mathrm{Ratio}=\frac{\mathrm{Operating}\mathrm{Cost}}{\mathrm{Net}\mathrm{Sales}}\times 100\phantom{\rule{0ex}{0ex}}=\frac{6,80,000}{8,00,000}\times 100=85\%$
Page No 4.105:
Question 118:
Calculate Operating Profit Ratio from the following information:
Opening Inventory  ₹1,00,000  Closing Inventory  ₹1,50,000  
Purchases  ₹ 10,00,000  Loss by fire  ₹ 20,000  
Revenue from Operations, i.e., Net Sales  ₹ 14,70,000  Dividend Received  ₹ 30,000  
Administrative and Selling Expenses  ₹ 1,70,000 
Answer:
Cost of Goods Sold = Opening Inventory + Purchases – Closing Inventory
= 1,00,000 + 10,00,000 – 1,50,000 = 9,50,000
Operating Expenses = Administrative and Selling Expenses = 1,70,000
Operating Cost = Cost of Goods Sold + Operating Expenses
= 9,50,000 + 1,70,000 = 11,20,000
Net Sales = 14,70,000
Operating Profit Ratio = 100 – Operating Ratio = 100 – 76.19 = 23.81%
Page No 4.105:
Question 119:
Calculate Operating Profit Ratio from the Following:
₹  
Revenue from Operations (Net Sales)  5,00,000 
Cost of Revenue from Operations (Cost of Goods Sold)  2,00,000 
Wages  1,00,000 
Office and Administrative Expenses  50,000 
Interest on Borrowings  5,000 
Answer:
Cost of Goods Sold = 2,00,000
Operating Expenses = Office and Administrative Expenses = 50,000
Operating Cost = Cost of Goods Sold + Operating Expenses
= 2,00,000 + 50,000 = 2,50,000
Net Sales = 5,00,000
Operating Profit Ratio = 100 – Operating Ratio = 100 – 50 = 50%
Page No 4.105:
Question 120:
What will be the Operating Profit Ratio, if Operating Ratio is 82.59%?
Answer:
Operating Ratio = 82.59%
Operating Ratio + Operating Profit Ratio = 100%
Operating Profit Ratio = 100% − 82.59% = 17.41%
Page No 4.105:
Question 121:
Calculate Operating Profit Ratio,in each of the following alternative cases:
Case 1: Revenue from Operations (Net Sales) ₹ 10,00,000; Operating Profit ₹ 1,50,000.
Case 2: Revenue from Operations (Net Sales) ₹ 6,00,000; Operating Cost ₹ 5,10,000.
Case 4: Revenue from Operations (Net Sales) ₹ 3,60,000; Gross Profit 20% on Sales; Operating Expenses ₹ 18,000
Case 4: Revenue from Operations (Net Sales) ₹ 4,50,000; Cost of Revenue from Operations ₹ 3,60,000; Operating Expenses ₹ 22,500.
Case 5: Cost of Goods Sold, i.e., Cost of Revenue from Operations ₹ 8,00,000; Gross Profit 20% on Sales; Operating Expenses ₹ 50,000.
Answer:
Case 1
Case II
Case III
Net Sales = 3,60,000
Gross Profit = 20% on Sales
Case IV
Net Sales = 4,50,000
Case V
Sales = Cost Goods Sold + Gross Profit
∴Sales = 10,00,000
Page No 4.105:
Question 122:
Revenue from Operations ₹ 9,00,000; Gross Profit 25% on Cost; Operating Expenses ₹ 45,000. Calculate Operating Profit Ratio.
Answer:
$\begin{array}{l}\text{GrossProfit=9,00,000}\times \frac{25}{125}=\text{\hspace{0.17em}Rs1,80,000}\\ \text{OperatingProfit}=\text{GrossProfitOperatingExpenses}\\ \text{}=1,80\text{,000}\text{45,000}=\text{Rs1,35,000}\\ \mathrm{Operating}\mathrm{}\mathrm{Profit}\mathrm{}\mathrm{Ratio}=\frac{\mathrm{Operating}\mathrm{}\mathrm{Profit}}{\mathrm{Revenue}\mathrm{}\mathrm{from}\mathrm{}\mathrm{Operations}}\times 100\\ \text{=}\frac{1,35,000}{9,00,000}\times 100=15\%\text{}\end{array}$
Page No 4.105:
Question 123:
Operating Cost ₹ 3,40,000; Gross Profit Ratio 20%; Operating Expenses ₹ 20,000. Calculate Operating Profit Ratio.
Answer:
$\begin{array}{l}\text{CostofRevenuefromOperations}=\text{OperatingCost}\text{OperatingExpenses}\\ \text{}=\text{3,40,00020,000}=\text{Rs3,20,000}\\ \text{GrossProfit=}\frac{3,20,000\times 20}{80}=\text{Rs80,000}\\ \text{RevenuefromOperations}=\text{CostofRevenuefromOperations+GrossProfit}\\ \text{=3,20,000+80,000}=\text{Rs4,00,000}\\ \text{OperatingProfit}=\text{RevenuefromOperationsOperatingCost}\\ \text{}=4,00,0003,40,000=\text{Rs60,000}\\ \mathrm{Operating}\mathrm{}\mathrm{Profit}\mathrm{}\mathrm{Ratio}=\frac{\mathrm{Operating}\mathrm{}\mathrm{Profit}}{\mathrm{Revenue}\mathrm{}\mathrm{from}\mathrm{}\mathrm{Operations}}\times 100\\ \text{=}\frac{60,000}{4,00,000}\times 100=15\%\text{}\end{array}$
Page No 4.106:
Question 124:
Cash Sales ₹ 2,20,000; Credit Sales ₹ 3,00,000; Sales Return ₹ 20,000; Gross Profit ₹ 1,00,000; Operating Expenses ₹ 25,000; Nonoperating incomes ₹ 30,000; Nonoperating Expenses ₹ 5,000. Calculate Net Profit Ratio.
Answer:
Page No 4.106:
Question 125:
Revenue from Operations, i.e., Net Sales ₹ 6,00,000. Calculate Net Profit Ratio.
Answer:
Net Sales = 6,00,000
Net profit = 60,000
Page No 4.106:
Question 126:
Revenue from Operations, i.e., Net Sales ₹ 8,20,000; Return ₹ 10,000; Cost of Revenue from Operations (Cost of Goods Sold) ₹ 5,20,000; Operating Expenses ₹ 2,09,000; Interest on Debentures ₹ 40,500; Gain (Profit) on Sale of a Fixed Asset ₹ 81,000. Calculate Net Profit Ratio.
Answer:
$\mathrm{Net}\mathrm{Sales}=\mathrm{Rs}8,20,000$
$\mathrm{Gross}\mathrm{Profit}=\mathrm{Net}\mathrm{Sales}\mathrm{Cost}\mathrm{of}\mathrm{Goods}\mathrm{Sold}\phantom{\rule{0ex}{0ex}}=8,20,0005,20,000\phantom{\rule{0ex}{0ex}}=\mathrm{Rs}3,00,000$
$\mathrm{Net}\mathrm{Profit}=\mathrm{Gross}\mathrm{Profit}\mathrm{Operating}\mathrm{Expenses}\mathrm{Interest}\mathrm{on}\mathrm{Debentures}+\mathrm{Profit}\mathrm{on}\mathrm{Sale}\mathrm{of}\mathrm{Fixed}\mathrm{Asset}\phantom{\rule{0ex}{0ex}}=3,00,0002,09,00040,500+81,000\phantom{\rule{0ex}{0ex}}=\mathrm{Rs}1,31,500$
$\mathrm{Net}\mathrm{Profit}\mathrm{Ratio}=\frac{\mathrm{Net}\mathrm{Profit}}{\mathrm{Net}\mathrm{Sales}}\times 100\phantom{\rule{0ex}{0ex}}=\frac{1,31,500}{8,20,000}\times 100=16.04\%$
Page No 4.106:
Question 127:
Revenue from Operations ₹4,00,000; Gross Profit Ratio 25%; Operating Ratio 90%. Nonoperating Expenses ₹2,000; Nonoperating Income ₹22,000. Calculate Net Profit Ratio.
Answer:
$\begin{array}{l}\text{NetProfit}=\text{OperatingProfit+NonOperatingIncomes}\text{NonOperatingExpenses}\\ \text{}=40\text{,000+22,0002,000}=\text{Rs60,000}\\ \text{OperatingProfitRatio}=100\text{OperatingRatio=10090=10\%}\\ \text{OperatingProfit}=4,00,000\times 10\%=\text{Rs40,000}\\ \mathrm{Net}\mathrm{}\mathrm{Profit}\mathrm{}\mathrm{Ratio}=\frac{\mathrm{Net}\mathrm{}\mathrm{Profit}}{\mathrm{Revenue}\mathrm{}\mathrm{from}\mathrm{}\mathrm{operations}}\times 100\\ \text{=}\frac{60,000}{4,00,000}\times 100=15\%\\ \end{array}$
Page No 4.106:
Question 128:
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.
Answer:
Net Fixed Assets = Fixed Assets (at cost) − Accumulated Depreciation
= 22,50,000 − 2,50,000 = 20,00,000
Capital Employed = Net Fixed Assets + Current Assets − Current Liabilities
= 20,00,000 + 12,00,000 − 4,00,000
= 28,00,000
Interest on 10% Debentures = 10% of 10,00,000 = 1,00,000
Let Profit before Tax be = x
Profit after Tax = Profit Before Tax − Tax
Tax Rate = 50%
∴ Tax = 0.5 x
x − 0.5 x = 6,50,000
x = 13,00,000
Net Profit before Tax = x = 13,00,000
Profit before Interest and Tax = Profit before Tax + Interest on Longterm Debt
= 13,00,000 + 1,00,000
= 14,00,000
Page No 4.106:
Question 129:
Net Profit before Interest and Tax ₹2,50,000; Capital Employed ₹10,00,000. Calculate Return on Investment.
Answer:
Net Profit before Interest and Tax = 2,50,000
Capital Employed = 10,00,000
Page No 4.106:
Question 130:
Net Profit before Interest and Tax ₹6,00,000; Net Fixed Assets ₹20,00,000; Net Working Capital ₹10,00,000; Current Assets ₹11,00,000. Calculate Return on Investment.
Answer:
Net Profit before Interest and Tax = 6,00,000
Capital Employed = Net Fixed Assets + Net Working Capital
= 20,00,000 + 10,00,000 = 30,00,000
Page No 4.106:
Question 131:
Net Profit before Interest and Tax ₹4,00,000; 15% Longterm Debt ₹8,00,000; Shareholders' Funds ₹4,00,000. Calculate Return on Investment.
Answer:
Net Profit before Interest and Tax = 4,00,000
Capital Employed = 15% longterm Debt + Shareholders’ Funds
= 8,00,000 + 4,00,000 = 12,00,000
Page No 4.106:
Answer:
Net Profit after Tax (as per Statement of Profit and Loss) = 45,000
Provision for Taxation = 10,000
Net Profit before Interest and Tax = 45,000 + 10,000 = 55,000
Capital Employed = Share Capital + Reserves and Surplus + Longterm Borrowings
= 2,00,000 + 1,00,000 + 1,00,000 = 4,00,000
Page No 4.106:
Question 133:
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.
Answer:
Transaction  Impact 
Purchase of machinery worth Rs 10,00,000 by issue of equity shares.  Issue of shares will lead to an increase in the capital employed by Rs 10,00,000.But profit remains intact and so there will be a decline in the return on investment ratio. 
Charging depreciation of Rs 25,000 on machinery.  Simultaneous decrease in profits and capital employed by Rs 25,000 will lead to a decline in return on investment ratio. 
Redemption of debentures by cheque Rs 2,00,000.  Redemption of debentures will lead to a decrease in the capital employed by Rs 2,00,000. Butprofit remains intact and so there will be an increase in the return on investment ratio. 
Conversion of 9% Debentures of Rs 1,00,000 into equity shares.  Decrease in debentures and increase in share capital causing a simultaneous increase and decrease in capital employed will leave the return on investment ratio unchanged. 
Page No 4.107:
Question 134:
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.
Answer:
(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
(ii)
Sales = 10,00,000
Gross Profit = Net Sales − Cost of Goods Sold
= 10,00,000 − 3,54,900 = 6,45,100
(iii)
Operating Expenses = Administration Expenses + Selling and Distribution Expenses
= 21,100 + 40,000 = 61,100
Page No 4.107:
Question 135:
Following information is given about a company:
₹  ₹  
Revenue From Operations, i.e., Net Sales Gross Profit  1,50,000  Opening Inventory  29,000  
Cost of Revenue From Operations  30,000  Closing Inventory  31,000  
(Cost of Goods Sold)  1,20,000  Debtors  16,000 
From the above information, calculate following ratios:
Answer:
(i)
Sales = 1,50,000
Gross Profit = 30,000
(ii)
Opening Inventory = 29,000
Closing Inventory = 31,000
Cost of Goods Sold = 1,20,000
(iii)
Page No 4.107:
Question 136:
From the following information, calculate any two of the following ratios:
(ii) Debt to Equity Ratio; and
(iii) Operating Ratio.
Answer:
(i)
Current Assets = Quick Assets + Closing Stock + Prepaid Expenses
= 6,00,000 + 50,000 + 10,000 = 6,60,000
Current Liabilities = 4,00,000
(ii)
Longterm Debts = 9% Debentures = 5,00,000
Shareholder’s Funds = Equity Share Capital + General Reserve
= 7,00,000 + 3,00,000 = 10,00,000
(iii)
Sales = 1,00,000
Cost of Goods Sold = 80% of Sales = 80,000
Operating Expenses = 10,000
Page No 4.107:
Question 137:
From the following information, calculate Inventory Turnover Ratio; Operating Ratio and Working Capital Turnover Ratio:
Opening Inventory ₹ 28,000; Closing Inventory ₹ 22,000; Purchases ₹ 46,000; Revenue from Operations, i.e., Net Sales ₹ 80,000; Return ₹10,000; Carriage Inwards ₹ 4,000; Office Expenses ₹ 4,000; Selling and Distribution Expenses ₹ 2,000; Working Capital ₹ 40,000.
Answer:
(i)
Opening Inventory = 28,000
Closing Inventory = 22,000
$\mathrm{Average}\mathrm{Inventory}=\frac{\mathrm{Opening}\mathrm{Inventory}+\mathrm{Closing}\mathrm{Inventory}}{2}\phantom{\rule{0ex}{0ex}}=\frac{28,000+22,000}{2}=\mathrm{Rs}25,000$
Cost of Goods Sold = Opening Inventory + Purchases + Carriage Inwards − Closing Inventory
= 28,000 + 46,000 + 4,000 − 22,000 = 56,000
$\mathrm{Inventory}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Cost}\mathrm{of}\mathrm{Goods}\mathrm{Sold}}{\mathrm{Average}\mathrm{Inventory}}=\frac{56,000}{25,000}=2.24\mathrm{Times}$
(ii)
Operating Expenses = Office Expenses + Selling and Distribution Expenses
= 4,000 + 2,000 = 6,000
Net Sales = Rs 80,000*
$\mathrm{Operating}\mathrm{Ratio}=\frac{\mathrm{Operating}\mathrm{Cost}}{\mathrm{Net}\mathrm{Sales}}\times 100\phantom{\rule{0ex}{0ex}}=\frac{62,000}{80,000}\times 100=77.5\%$(iii)
Working Capital = 40,000
$\mathrm{Working}\mathrm{Capital}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Net}\mathrm{Sales}}{\mathrm{Working}\mathrm{Capital}}=\frac{80,000}{40,000}=2\mathrm{Times}$
*Note: Sales return will not be considered as amount of net sales is provided in the question.
Page No 4.107:
Question 138:
From the following calculate:
(b) Working Capital Turnover Ratio.
₹  
(i)  Revenue from Operations  1,50,000 
(ii)  Total Assets  1,00,000 
(iii)  Shareholders' Funds  60,000 
(iv)  Noncurrent Liabilities  20,000 
(v)  Noncurrent Assets  50,000 
Answer:
$\begin{array}{l}\text{A)CurrentRatio=}\frac{\text{CurrentAssets}}{\text{CurrentLiabilities}}\text{}\\ \text{}\end{array}$
Current Assets = Total Assets – Non Current Assets
= 1,00,000 – 50,000
= Rs 50,000
Total Assets = Total Liabilities = Shareholders’ Funds + Non Current Liabilities + Current Liabilities
1,00,000 = 60,000 + 20,000 + Current Liabilities
Current Liabilities = Rs 20,000
$\begin{array}{l}\text{CurrentRatio=}\frac{\text{50,000}}{\text{20,000}}\text{=2}\text{.5}:\text{1}\\ \end{array}$
$\begin{array}{l}\text{B)WorkingCapitalTurnoverRatio=}\frac{\text{RevenuefromOperations}}{\text{WorkingCapital}}\text{}\\ \text{}\end{array}$
Working Capital = Current Assets – Current Liabilities
= 50,000 – 20,000
= Rs 30,000
$\begin{array}{l}\text{WorkingCapitalTurnoverRatio=}\frac{\text{1},\text{50,000}}{\text{30,000}}\text{=5times}\\ \end{array}$
Page No 4.107:
Question 139:
Calculate following ratios on the basis of the following information:
(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 
Answer:
$\begin{array}{l}\mathrm{Gross}\mathrm{Profit}\mathrm{Ratio}=\frac{\mathrm{Gross}\mathrm{Profit}}{\mathrm{Revenue}\mathrm{from}\mathrm{Operations}}\times 100\\ \mathrm{Gross}\mathrm{Profit}\mathrm{Ratio}=\frac{50,000}{1,00,000}\times 100=50\%\\ \mathrm{Current}\mathrm{Ratio}=\frac{\mathrm{Current}\mathrm{Assets}}{\mathrm{Current}\mathrm{Liabilities}}\\ \mathrm{Current}\mathrm{Ratio}=\frac{\mathrm{Inventory}+\mathrm{Cash}\mathrm{and}\mathrm{Cash}\mathrm{Equivalents}+\mathrm{Trade}\mathrm{Receivables}}{\mathrm{Current}\mathrm{Liabilities}}\\ \mathrm{Current}\mathrm{Ratio}=\frac{15,000+17,500+27,500}{40,000}=1.5:1\\ \mathrm{Liquid}\mathrm{Ratio}=\frac{\mathrm{Liquid}\mathrm{Assets}}{\mathrm{Current}\mathrm{Liabilities}}\\ \mathrm{Liquid}\mathrm{Ratio}=\frac{\mathrm{Cash}\mathrm{and}\mathrm{Cash}\mathrm{Equivalents}+\mathrm{Trade}\mathrm{Receivables}}{\mathrm{Current}\mathrm{Liabilities}}\\ \mathrm{Liquid}\mathrm{Ratio}=\frac{17,500+27,500}{40,000}=1.125:1\\ \mathrm{Inventory}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Cost}\mathrm{of}\mathrm{Goods}\mathrm{Sold}}{\mathrm{Average}\mathrm{Stock}}\\ \mathrm{Inventory}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Revenue}\mathrm{from}\mathrm{Operations}\mathrm{Gross}\mathrm{Profit}}{\mathrm{Average}\mathrm{Stock}}\\ \mathrm{Inventory}\mathrm{Turnover}\mathrm{Ratio}=\frac{1,00,00050,000}{15,000}=3.33\mathrm{times}\end{array}$
Page No 4.107:
Question 140:
Calculate following ratios on the basis of the given information:
(i) Current Ratio;
(ii) Acid Test Ratio;
(iii) Operating Ratio; and
(iv) Gross Profit Ratio.
₹  ₹  
Current Assets  70,000  Revenue from Operations (Sales)  1,20,000  
Current Liabilities  35,000  Operating Expenses  40,000  
Inventory  30,000  Cost of Goods Sold or Cost of Revenue from Operations  60,000 
Answer:
(i)
Current Assets = 70,000
Current Liabilities = 35,000
(ii)
Liquid Assets = Current Assets − Inventory
= 70,000 − 30,000 = 40,000
(iii)
Net Sales = 1,20,000
Operating Cost = Cost of Goods Sold + Operating Expenses
= 60,000 + 40,000 = 1,00,000
(iv)
Gross Profit = Net Sales − Cost of Goods Sold
= 1,20,000 − 60,000 = 60,000
Page No 4.108:
Question 141:
From the information given below, calculate any three of the following ratio:
(ii) Working Capital Turnover Ratio:
(iii) Debt to Equity Ratio; and
(iv) Proprietary Ratio.
₹  ₹  
Revenue from Operations (Net Sales)  5,00,000  Current Liabilities  1,40,000  
Cost of Revenue from Operations (Cost of Goods Sold)  3,00,000  Paidup Share Capital  2,50,000  
Current Assets  2,00,000  13% Debentures  1,00,000 
Answer:
(i)
Net Sales = 5,00,000
Cost of Goods Sold = 3,00,000
Gross Profit = Net Sales − Cost of Goods Sold
= 5,00,000 − 3,00,000 = 2,00,000
(ii)
Current Assets = 2,00,000
Current Liabilities = 1,40,000
Working Capital = Current Assets − Current Liabilities
= 2,00,000 − 1,40,000 = 60,000
(iii)
Longterm Debts = 13% Debentures = 1,00,000
Equity = Paidup Share Capital = 2,50,000
(iv)
Total Assets = Total Liabilities
= Current Liabilities + Paidup Share Capital + 13% Debentures
= 1,40,000 + 2,50,000 + 1,00,000
= 4,90,000
Page No 4.108:
Question 142:
On the basis of the following information calculate:
(ii) Working Capital Turnover Ratio.
Information:  ₹  ₹  
Revenue from Operations:  (a) Cash Sales  40,00,000  Paidup Share Capital  17,00,000  
(b) Credit Sales  20,00,000  6% Debentures  3,00,000  
Cost of Goods Sold  35,00,000  9% Loan from Bank  7,00,000  
Other Current Assets  8,00,000  Debentures Redemption Reserve  3,00,000  
Current Liabilities  4,00,000  Closing Inventory  1,00,000 
Answer:
(i)
Longterm Debts = 6% Debentures + 9% Loan from Bank
= 3,00,000 + 7,00,000 = 10,00,000
Equity = Paidup Share Capital + Debenture Redemption Reserve
= 17,00,000 + 3,00,000 = 20,00,000
(ii)
Current Assets = Other Current Assets + Inventory
= 8,00,000 + 1,00,000
= 9,00,000
Working Capital = Current Assets − Current Liabilities
= 9,00,000 − 4,00,000
= 5,00,000
Net Sales = Cash Sales + Credit sales
= 40,00,000 + 20,00,000
= 60,00,000
Page No 4.108:
Question 143:
From the following, calculate (a) Debt to Equity Ratio; (b) Total Assets to Debt Ratio; and (c) Proprietary Ratio:
Equity Share Capital  ₹ 75,000  Debentures  ₹ 75,000  
Preference Share Capital  ₹ 25,000  Trade Payable  ₹ 40,000  
General Reserve  ₹ 45,000  Outstanding Expenses  ₹ 10,000  
Balance in Statement of Profit and Loss  ₹ 30,000 
Answer:
$\begin{array}{l}\mathrm{Debt}\mathrm{to}\mathrm{Equity}\mathrm{Ratio}=\frac{\mathrm{Long}\mathrm{term}\mathrm{Debts}}{\mathrm{Shareholders}\text{'}\mathrm{Funds}}\\ \mathrm{Debt}\mathrm{to}\mathrm{Equity}\mathrm{Ratio}=\frac{\mathrm{Debentures}}{\mathrm{Equity}\mathrm{Share}\mathrm{Capital}+\mathrm{Preference}\mathrm{Share}\mathrm{Capital}+\mathrm{General}\mathrm{Reserve}+\mathrm{Balance}\mathrm{in}\mathrm{Statement}\mathrm{of}\mathrm{Profit}\mathrm{Losss}}\\ \mathrm{Debt}\mathrm{to}\mathrm{EquityRatio}=\frac{75,000}{75,000+25,000+45,000+30,000}=0.43:1\\ \mathrm{Total}\mathrm{Assets}\mathrm{to}\mathrm{Debt}\mathrm{Ratio}=\frac{\mathrm{Total}\mathrm{Assets}}{\mathrm{Long}\mathrm{term}\mathrm{Debts}}\\ \mathrm{Total}\mathrm{Assets}\mathrm{to}\mathrm{Debt}\mathrm{Ratio}=\frac{\mathrm{Equity}\mathrm{Share}\mathrm{Capital}+\mathrm{Preference}\mathrm{Share}\mathrm{Capital}+\mathrm{General}\mathrm{Reserve}+\mathrm{Balance}\mathrm{in}\mathrm{Statement}\mathrm{of}\mathrm{Profit}\mathrm{Loss}+\mathrm{Debentures}+\mathrm{Trade}\mathrm{Payables}+\mathrm{Outstanding}\mathrm{Expenses}}{\mathrm{Debentures}}\\ \mathrm{Total}\mathrm{Assets}\mathrm{to}\mathrm{Debt}\mathrm{Ratio}=\frac{75,000+25,000+45,000+30,000+75,000+40,000+10,000}{75,000}=4:1\\ \mathrm{Proprietary}\mathrm{Ratio}=\frac{\mathrm{Shareholders}\text{'}\mathrm{Funds}}{\mathrm{Total}\mathrm{Assets}}\\ \mathrm{Proprietary}\mathrm{Ratio}=\frac{\mathrm{Equity}\mathrm{Share}\mathrm{Capital}+\mathrm{Preference}\mathrm{Share}\mathrm{Capital}+\mathrm{General}\mathrm{Reserve}+\mathrm{Balance}\mathrm{in}\mathrm{Statement}\mathrm{of}\mathrm{Profit}\mathrm{Loss}}{\mathrm{Equity}\mathrm{Share}\mathrm{Capital}+\mathrm{Preference}\mathrm{Share}\mathrm{Capital}+\mathrm{General}\mathrm{Reserve}+\mathrm{Balance}\mathrm{in}\mathrm{Statement}\mathrm{of}\mathrm{Profit}\mathrm{Loss}+\mathrm{Debentures}+\mathrm{Trade}\mathrm{Payables}+\mathrm{Outstanding}\mathrm{Expenses}}\\ \mathrm{Proprietary}\mathrm{Ratio}=\frac{75,000+25,000+45,000+30,000}{75,000+25,000+45,000+30,000+75,000+40,000+10,000}=0.58:1\mathrm{or}58\mathrm{.33\%}\end{array}$
Page No 4.108:
Question 144:
From the following information related to Naveen Ltd., calculate (a) Return on Investment and (b) Total Assets to Debt Ratio:
Information: Fixed Assets ₹ 75,00,000; Current Assets ₹ 40,00,000; Current Liabilities ₹ 27,00,000; 12% Debentures ₹ 80,00,000 and Net Profit before Interest, Tax and Dividend ₹ 14,50,000.
Answer:
1) Return on Investment
2) Total Assets to Debt to Ratio
$\mathrm{Total}\mathrm{Assets}\mathrm{to}\mathrm{Debt}\mathrm{Ratio}=\frac{\mathrm{Total}\mathrm{Assets}}{\mathrm{Debt}}\phantom{\rule{0ex}{0ex}}\mathrm{Total}\mathrm{Assets}=\mathrm{Fixed}\mathrm{Assets}+\mathrm{Current}\mathrm{Assets}\phantom{\rule{0ex}{0ex}}=\mathrm{Rs}(75,00,000+40,00,000)\phantom{\rule{0ex}{0ex}}=\mathrm{Rs}1,15,00,000\phantom{\rule{0ex}{0ex}}\mathrm{Debt}=\mathrm{Rs}80,00,000\phantom{\rule{0ex}{0ex}}\mathrm{Total}\mathrm{Assets}\mathrm{to}\mathrm{Debt}\mathrm{Ratio}=\frac{1,15,00,000}{80,00,000}=1.44:1$
Page No 4.108:
Question 145:
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  
Noncurrent Investments 
15,000 

Answer:
(i)
Current Assets = Inventory + Prepaid Expenses + Other Current Assets
= 30,000 + 2,000 + 50,000 = 82,000
Current Liabilities = 40,000
(ii)
Liquid Assets = Current Assets − Inventory − Prepaid Expenses
= 82,000 − 30,000 − 2,000 = 50,000
(iii)
Longterm Debts = 12% Debentures = 30,000
Equity = Accumulated Profits + Equity Share Capital
= 10,000 + 1,00,000 = 1,10,000
Page No 4.108:
Question 146:
From the following informations, calculate Return on Investment (or Return on Capital Employed):




Particulars 
₹ 

Share Capital 
5,00,000 

Reserves and Surplus  2,50,000  
Net Fixed Assets  22,50,000  
Noncurrent Trade Investments  2,50,000  
Current Assets  11,00,000  
10% Longterm Borrowings  20,00,000  
Current Liabilities  8,50,000  
Longterm Provision 
NIL 

Answer:
Net Profit before tax = 6,00,000
Net Profit before interest, tax and dividend = Net Profit before tax + Interest on longterm borrowings
= 6,00,000 + 10% of 20,00,000 = 6,00,000 + 2,00,000 = 8,00,000
Capital Employed = Share Capital + Reserves and Surplus + Longterm borrowings
= 5,00,000 + 2,50,000 + 20,00,000 = 27,50,000
Page No 4.89:
Question 1:
From the following compute Current Ratio:
₹  ₹  
Trade Receivable (Sundry Debtors)  1,80,000  Bills Payable  20,000  
Prepaid Expenses  40,000  Sundry Creditors  1,00,000  
Cash and Cash Equivalents  50,000  Debentures  4,00,000  
Marketable Securities  50,000  Inventories  80,000  
Land and Building  5,00,000  Expenses Payable  80,000 
Answer:
Current Assets = Trade Receivables + Prepaid Expenses + Cash and Cash Equivalents +
Marketable Securities + Inventories
= Rs 1,80,000 + Rs 40,000 + Rs 50,000 + 50,000 + 80,000 = Rs 4,00,000
Current Liabilities = Bills Payable + Sundry Creditors + Expenses Payable
= Rs 20,000 + Rs 1,00,000 + Rs 80,000 = Rs 2,00,000
Page No 4.89:
Question 2:
Calculate Current Ratio from the following information:




Particulars  ₹ 
Particulars 
₹ 

Total Assets  5,00,000  Noncurrent Liabilities  1,30,000  
Fixed Tangible Assets  2,50,000  Noncurrent Investments  1,50,000  
Shareholders' Funds  3,20,000 



Answer:
Total Assets = Fixed Tangible Assets + Non  Current Investments + Current Assets
5,00,000 = 2,50,000 + 1,50,000 + Current Assets
Current Assets = 5,00,000 – 4,00,000 = Rs 1,00,000
Total Assets = Shareholder’s Funds + Non – Current Liabilities + Current Liabilities
5,00,000 = 3,20,000 + 1,30,000 + Current Liabilities
Current Liabilities = 5,00,000 – 4,50,000 = Rs 50,000
Page No 4.89:
Question 3:
Current Ratio is 2.5, Working Capital is ₹ 1,50,000. Calculate the amount of Current Assets and Current Liabilities.
Answer:
$\begin{array}{l}CurrentRatio=\frac{CurrentAssets}{CurrentLiabilities}\\ 2.5=\frac{\text{CurrentAssets}}{\text{CurrentLiabilities}}\\ \text{CurrentAssets}=2.5\text{CurrentLiabilities}\\ WorkingCapital=CurrentAssetsCurrentLiabilities\\ \text{1,50,000}=2.5\text{CurrentLiabilities}\text{CurrentLiabilities}\\ \text{CurrentLiabilities}=\frac{1,50,000}{1.5}\\ \text{CurrentLiabilities}=\text{Rs1,00,000}\\ \text{CurrentAssets}=2.5\text{CurrentLiabilities}\\ \text{CurrentAssets}=2.5\times 1,00,000=\text{Rs2,50,000}\end{array}$
Page No 4.89:
Question 4:
Working Capital is ₹ 9,00,000; Trade payables ₹ 90,000; and Other Current Liabilities are ₹ 2,10,000. Circulate Current Ratio.
Answer:
Working Capital = Rs 9,00,000
Current Liabilities = Trade Payables + Other Current Liabilities
= Rs 90,000 + Rs 2,10,000 = Rs 3,00,000
Working Capital = Current Assets – Current Liabilities
Rs 9,00,000 = Current Assets – Rs 3,00,000
Current Assets = Rs 9,00,000 + Rs 3,00,000 = Rs 12,00,000
Page No 4.89:
Question 5:
Working Capital ₹ 1,80,000; Total Debts ₹ 3,90,000; LongTerm Debts ₹ 3,00,000.
Calculate Current Ratio.
Answer:
Total Debts = 3,90,000
Longterm Debts = 3,00,000
Current Liabilities = Total Debts − Longterm Debts
= 3,90,000 − 3,00,000 = 90,000
Working Capital = Current Assets − Current Liabilities
1,80,000 = Current Assets − 90,000
Current Assets = 2,70,000
Page No 4.89:
Question 6:
Current Assets are ₹ 7,50,000 and Working Capital is ₹ 2,50,000. Calculate Current Ratio.
Answer:
Current Assets = Rs 7,50,000
Working Capital = Rs 2,50,000
Working Capital = Current Assets – Current Liabilities
2,50,000 = 7,50,000 – Current Liabilities
Current Liabilities = 7,50,000 – 2,50,000 = Rs 5,00,000
Page No 4.89:
Question 7:
Trade Payables ₹ 50,000, Working Capital ₹ 9,00,000, Current Liabilities ₹ 3,00,000. Calculate Current Ratio.
Answer:
$\begin{array}{l}\mathrm{Working}\mathrm{}\mathrm{Capital}=\mathrm{Current}\mathrm{}\mathrm{Assets}\mathrm{Current}\mathrm{}\mathrm{Liabilities}\\ \text{9,00,000}=\text{CurrentAssets}\text{3,00,000}\\ \text{CurrentAssets}=9,00,000+3,00,000=\text{Rs12,00,000}\\ \mathrm{Current}\mathrm{}\mathrm{Ratio}=\frac{\mathrm{Current}\mathrm{}\mathrm{Assets}}{\mathrm{Current}\mathrm{}\mathrm{Liabilities}}\\ \text{=}\frac{12,00,000}{3,00,000}=4:1\end{array}$
Page No 4.90:
Question 8:
A company had Current Assets of ₹4,50,000 and Current Liabilities of ₹2,00,000. Afterwards it purchased goods for ₹30,000 on credit. Calculate Current Ratio after the purchase.
Answer:
Current Assets = Rs 4,50,000
Current Liabilities = Rs 2,00,000
Purchase of Goods on Credit for Rs 30,000 will have two effects:
 Increase Stock by Rs 30,000, Current Assets will thereby increase to Rs 4,80,000 (Rs 4,50,000 + Rs 30,000)
 Increase Creditors by Rs 30,000 and therefore Current Liabilities will now be Rs 2,30,000 (Rs 2,00,000 + Rs 30,000)
Page No 4.90:
Question 9:
Current Liablilites of a company were ₹1,75,000 and its Current Ratio was 2:1. It paid ₹30,000 to a Creditor. Calculate Current Ratio after payment.
Answer:
Current Liabilities = Rs 1,75,000
Payment of Rs 30,000 to a Creditor will have two effects:
 Decrease in Cash by Rs 30,000 and therefore Current Assets will decrease to Rs 3,20,000.
 Decrease in Creditors by Rs 30,000 and this will decrease Current Liabilities to Rs 1,45,000.
Page No 4.90:
Question 10:
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.
Answer:
The company is interested in maintaining the Current Ratio of 2:1 by paying off the liability.
Let the liability paidoff by the company = x
∴ New Current Assets = 3,00,000 − x
New Current Liabilities = 2,00,000 − x
Therefore, liability of Rs 1,00,000 need to be paidoff by the company in order to maintain the Current Ratio of 2 : 1.
Page No 4.90:
Question 11:
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.
Answer:
Current Assets = Rs 8,75,000
Current Liabilities = Rs 3,50,000
Current Ratio = 2.5:1
The business is interested to maintain its Current Ratio at 2:1 by purchasing goods on credit.
Let the amount of goods purchased on credit be ‘x’
Current Liabilities = Rs 3,50,000 + x
Current Assets = Rs 8,75,000 + x
8,75,000 + x = 7,00,000 + 2x
8,75,000 – 7,00,000 = 2x – x
1,75,000 = x
Therefore, goods worth Rs 1,75,000 must be purchased on credit to maintain the current ratio at 2:1.
Page No 4.90:
Question 12:
A firm had Current Assets of ₹5,00,000. It paid Current Liabilities of ₹1,00,000 and the Current Ratio became 2:1. Determine Current Liabilities and Working Capital before and after the payment was made.
Answer:
Firm disposed off liabilities of Rs 1,00,000 which results in decrease in current liabilities and current assets by the same amount.
After disposing liabilities:
Current Assets = Rs 4,00,000 (Rs 5,00,000 – Rs 1,00,000)
And, Let Current Liabilities be (x – Rs 1,00,000)
4,00,000 = 2x – 2,00,000
6,00,000 = 2x
Therefore, x = 3,00,000
Current Liabilities after payment = x – Rs 1,00,000 = Rs 2,00,000
Working Capital after Payment = Current Assets – Current Liabilities
= Rs 4,00,000 – Rs 2,00,000 = Rs 2,00,000
Current Assets before payment = Rs 5,00,000
Current Liabilities before Payment = Rs 3,00,000
Therefore, Working Capital Before Payment = Current Assets – Current Liabilities
= Rs 5,00,000 – Rs 3,00,000 = Rs 2,00,000
Page No 4.90:
Question 13:
State giving reason, whether the Current Ratio will improve or decline or will have no effect in each of the following transactions if Current Ratio is 2:1:
(a) Cash paid to Trade Payables.
(b) Bills Payable discharged.
(c) Bills Receivable endorsed to a creditor.
(d) Payment of final Dividend already declared.
(e) Purchase of StockinTrade on credit.
(f) Bills Receivable endorsed to a Creditor dishonoured.
(g) Purchases of StockinTrade for cash.
(h) Sale of Fixed Assets (Book Value of ₹50,000) for ₹45,000.
(i) Sale of FIxed Assets (Book Value of ₹50,000) for ₹60,000.
Answer:
Let’s assume Current Assets as Rs 2,00,000 and Current Liabilities as Rs 1,00,000
$\begin{array}{l}\mathrm{Current}\mathrm{}\mathrm{Ratio}=\frac{\mathrm{Current}\mathrm{}\mathrm{Assets}}{\mathrm{Current}\mathrm{}\mathrm{Liabilities}}\\ \text{CurrentRatio=}\frac{2,00,000}{1,00,000}=2:1\text{}\end{array}$
(a) Cash paid to Trade Payables (say Rs 50,000)
$\text{CurrentRatio=}\frac{2,00,00050,000}{1,00,00050,000}=3:1\text{(Improve)}$
(b) Bills Payable discharged (say Rs 50,000)
$\text{CurrentRatio=}\frac{2,00,00050,000}{1,00,00050,000}=3:1\text{(Improve)}$
(c) Bills Receivable endorsed to a creditor (say Rs 50,000)
$\text{CurrentRatio=}\frac{2,00,00050,000}{1,00,00050,000}=3:1\text{\hspace{0.17em}(Improve)}$
(d) Payment of final Dividend already declared (say Rs 50,000)
$\text{CurrentRatio=}\frac{2,00,00050,000}{1,00,00050,000}=3:1\text{(Improve)}$
(e) Purchase of StockinTrade on credit (say Rs 50,000)
$\text{CurrentRatio=}\frac{2,00,000+50,000}{1,00,000+50,000}=1.67:1\text{}\left(\mathrm{Decline}\right)$
(f) Bills Receivable endorsed to a Creditor dishonoured (say Rs 50,000)
$\text{CurrentRatio=}\frac{2,00,000+50,000}{1,00,000+50,000}=1.67:1\text{(Decline)}$
(g) Purchase of StockinTrade for cash (say Rs 50,000)
$\text{CurrentRatio\hspace{0.17em}=}\frac{2,00,000+50,00050,000}{1,00,000}=2:1\text{(Noeffect)}$
(h) Sale of Fixed Assets (Book value of Rs 50,000) for Rs 45,000
$\text{CurrentRatio=}\frac{2,00,000+45,000}{1,00,000}=2.45:1\text{(Improve)}$
(i) Sale of Fixed Assets (Book value of Rs 50,000) for Rs 60,000
$\text{CurrentRatio\hspace{0.17em}=}\frac{2,00,000+60,000}{1,00,000}=2.6:1\text{(Improve)}$
Page No 4.90:
Question 14:
State giving reasons, which of the following transactions would improve, reduce or not change the Current Ratio, if Current Ratio of a company is (i) 1:1; or (ii) 0.8:1:
(a) Cash paid to Trade Payables.
(b) Purchase of StockinTrade on credit.
(c) Purchase of StockinTrade for cash.
(d) Payment of Dividend payable.
(e) Bills Payable discharged.
(f) Bills Receivable endorsed to a Creditor.
(g) Bills Receivable endorsed to a Creditor dishonoured.
Answer:
(i) Let’s assume Current Assets as Rs 1,00,000 and Current Liabilities as Rs 1,00,000
$\begin{array}{l}\mathrm{Current}\mathrm{}\mathrm{Ratio}\text{\hspace{0.17em}}=\frac{\mathrm{Current}\mathrm{}\mathrm{Assets}}{\mathrm{Current}\mathrm{}\mathrm{Liabilities}}\\ \text{CurrentRatio\hspace{0.17em}=}\frac{1,00,000}{1,00,000}=1:1\end{array}$
(a) Cash paid to Trade Payables (say Rs 50,000)
$\text{CurrentRatio\hspace{0.17em}=}\frac{1,00,00050,000}{1,00,00050,000}=1:1\text{(Nochange)}$
(b) Purchase of StockinTrade on credit (say Rs 50,000)
$\text{CurrentRatio=}\frac{1,00,000+50,000}{1,00,000+50,000}=1:1\text{\hspace{0.17em}}(\text{Nochange)}$
(c) Purchase of StockinTrade for cash (say Rs 50,000)
$\text{CurrentRatio\hspace{0.17em}=}\frac{1,00,000+50,00050,000}{1,00,000}=1:1\text{(Nochange)}$
(d) Payment of Dividend (say Rs 50,000)
$\text{CurrentRatio\hspace{0.17em}=}\frac{1,00,00050,000}{1,00,00050,000}=1:1\text{(Nochange)}$
(e) Bills Payable discharged (say Rs 50,000)
$\text{CurrentRatio\hspace{0.17em}=}\frac{1,00,00050,000}{1,00,00050,000}=1:1\text{(Nochange)}$
(f) Bills Receivable endorsed to a Creditor (say Rs 50,000)
$\text{CurrentRatio=}\frac{1,00,00050,000}{1,00,00050,000}=1:1\text{(Nochange)}$
(g) Bills Receivable endorsed to a Creditor dishonoured (say Rs 50,000)
$\text{CurrentRatio\hspace{0.17em}=}\frac{1,00,000+50,000}{1,00,000+50,000}=1:1\text{(Nochange)}$
(ii) Let’s assume Current Assets as Rs 80,000 and Current Liabilities as Rs 1,00,000
$\begin{array}{l}\mathrm{Current}\mathrm{}\mathrm{Ratio}\text{\hspace{0.17em}}=\frac{\mathrm{Current}\mathrm{}\mathrm{Assets}}{\mathrm{Current}\mathrm{}\mathrm{Liabilities}}\\ \text{CurrentRatio\hspace{0.17em}=}\frac{80,000}{1,00,000}=0.8:1\end{array}$
(a) Cash paid to Trade Payables (say Rs 50,000)
$\text{CurrentRatio\hspace{0.17em}=}\frac{80,00050,000}{1,00,00050,000}=0.6:1\text{(Reduce)}$
(b) Purchase of StockinTrade on credit (say Rs 50,000)
$\text{CurrentRatio=}\frac{80,000+50,000}{1,00,000+50,000}=0.87:1\text{\hspace{0.17em}}(\mathrm{Improve}\text{)}$
(c) Purchase of StockinTrade for cash (say Rs 50,000)
$\text{CurrentRatio\hspace{0.17em}=}\frac{80,000+50,00050,000}{1,00,000}=0.8:1\text{(Nochange)}$
(d) Payment of Dividend (say Rs 50,000)
$\text{CurrentRatio\hspace{0.17em}=}\frac{80,00050,000}{1,00,00050,000}=0.6:1\text{(Reduce)}$
(e) Bills Payable discharged (say Rs 50,000)
$\text{CurrentRatio\hspace{0.17em}=}\frac{80,00050,000}{1,00,00050,000}=0.6:1\text{(Reduce)}$
(f) Bills Receivable endorsed to a Creditor (say Rs 50,000)
$\text{CurrentRatio=}\frac{80,00050,000}{1,00,00050,000}=0.6:1\text{(Reduce)}$
(g) Bills Receivable endorsed to a Creditor dishonoured (say Rs 50,000)
$\text{CurrentRatio\hspace{0.17em}=}\frac{80,000+50,000}{1,00,000+50,000}=0.87:1\text{(Improve)}$
Page No 4.91:
Question 15:
From the following information, calculate Liquid Ratio:




Particulars 
₹  Particulars 
₹ 

Current Assets 
2,00,000  Trade Receivables 
1,10,000 

Inventories 
50,000  Current Liabilities 
70,000 

Prepaid Expenses 
10,000 


Answer:
Quick Assets or Liquid Assets = Currents Assets – Inventories – Prepaid Expenses
= Rs 2,00,000 – Rs 50,000 – Rs 10,000 = Rs 1,40,000
Current Liabilities = Rs 70,000
Page No 4.91:
Question 16:
Quick Assets ₹ 1,50,000; Inventory (Stock) ₹ 40,000; Prepaid Expenses ₹ 10,000; Working Capital ₹ 1,20,000. Calculate Current Ratio.
Answer:
Quick Assets = 1,50,000
Inventory = 40,000
Prepaid Expenses = 10,000
Current Assets = Quick Assets + Inventory + Prepaid Expenses
= 1,50,000 + 40,000 + 10,000 = 2,00,000
Working Capital = Current Assets − Current Liabilities
1,20,000 = 2,00,000 − Current Liabilities
Current Liabilities = 80,000
Page No 4.91:
Question 17:
Current Assets ₹ 3,00,000; Inventories ₹ 60,000; Working Capital ₹ 2,52,000.
Calculate Quick Ratio.
Answer:
Current Liabilities = Current Assets − Working Capital
= 3,00,000 − 2,52,000 = 48,000
Quick Assets = Current Assets − Stock
= 3,00,000 − 60,000 = 2,40,000
Page No 4.91:
Question 18:
Working Capital ₹ 3,60,000; Total :Debts ₹ 7,80,000; Longterm Debts ₹ 6,00,000; Inventories ₹ 1,80,000. Calcltate Liquid Ratio.
Answer:
Current Liabilities = Total Debts − Longterm Debts
= 7,80,000 − 6,00,000 = 1,80,000
Current Assets = Current Liabilities + Working Capital
= 1,80,000 + 3,60,000 = 5,40,000
Quick Assets = Current Assets − Stock
= 5,40,000 − 1,80,000 = 3,60,000
Page No 4.91:
Question 19:
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
Answer:
Current Liabilities = 6,00,000
Current Assets = 3 × Current Liabilities
= 3 × 6,00,000 = 18,00,000
Liquid Assets = 1 × 6,00,000 = 6,00,000
Inventory = Current Assets − Liquid Assets
= 18,00,000 − 6,00,000 = 12,00,000
Page No 4.91:
Question 20:
X Ltd. has a Current Ratio of 3.5 : 1 and Quick Ratio of 2 : 1. If the Inventories is ₹ 24,000; calculate total Current Liabilities and Current Assets.
Answer:
Let Current Liabilities be = x
Current Assets = 3.5 x
Quick Assets = 2 x
Stock = Current Assets − Quick Assets
24,000 = 3.5 x − 2 x
or, 24,000 = 1.5 x
x = 16,000
Current Liabilities = x = Rs 16,000
Current Assets = 3.5 x = 3.5 × 16,000 = Rs 56,000
Page No 4.91:
Question 21:
X Ltd. has Current Ratio of 4.5 : 1 and a Quick Ratio of 3 : 1. If its inventory is ₹ 36,000, find out its total Current Assets and total Current Liabilities.
Answer:
Inventory = 36,000
Let Current Liabilities be = x
Current Assets = 4.5x
Quick Assets = 3x
Stock = Current Assets − Quick Assets
36,000 = 4.5x − 3x
x = 24,000
Current Assets = 4.5x = 4.5 × 24,000 = 1,08,000
Liquid Assets= 3x = 3 × 24,000 = 72,000
Page No 4.91:
Question 22:
Current Ratio 4; Liquid Ratio 2.5; Inventory ₹ 6,00,000. Calculate Current Liabilities, Current Assets and Liquid Assets.
Answer:
Inventory = 6,00,000
Let Current Liabilities be = x
Current Assets = 4x
Quick Assets = 2.5x
Stock = Current Assets − Quick Assets
6,00,000 = 4x − 2.5x
x = 4,00,000
Current Assets = 4x = 4 × 4,00,000 = 16,00,000
Liquid Assets = 2.5x = 2. 5× 4,00,000 = 10,00,000
Page No 4.91:
Question 23:
Current Liabilities of a company are ₹ 1,50,000. Its Current Ratio is 3 : 1 and Acid Test Ratio (Liquid Ratio) is 1 : 1. Calculate values of Current Assets, Liquid Assets and Inventory.
Answer:
Current Liabilities = 1,50,000
Current Assets = 3 × Current Liabilities
= 3 × 1,50,000 = 4,50,000
Liquid Assets = 1 × 1,50,000 = 1,50,000
Inventory = Current Assets − Liquid Assets
= 4,50,000 − 1,50,000 = 3,00,000
Page No 4.91:
Answer:
Let the Current Liabilities be = x
Current Assets = 4x
Quick Assets = 2.5x
Stock = Current Assets − Quick Assets
6,00,000 = 4x − 2.5x
or, x = 4,00,000
Current Liabilities = x = Rs 4,00,000
Page No 4.91:
Question 25:
Current Assets of a company is are ₹ 5,00,000. Its Current Ratio is 2.5 : 1 and Quick Ratio is 1 : 1. Calculate value of Current Liabilities, Liquid Assets and Inventory.
Answer:
Current Assets = 5,00,000
Liquid Assets = Current Liabilities × 1 = 2,00,000
Inventory = Current Assets − Quick Assets
= 5,00,000 − 2,00,000 = 3,00,000
Page No 4.91:
Question 26:
Quick Ratio of a company is 2:1. State giving reasons, which of the following transactions would (i) improve, (ii) reduce, (iii) Not change the Quick Ratio:
(a) Purchase of goods for cash; (b) Purchase of goods on credit; (c) Sale of goods (costing ₹10,000) for ₹10,000; (d) Sale of goods (costing ₹10,000) for ₹11,000; (e) Cash received from Trade Receivables.
Answer:
Quick Ratio = 2:1
Let Quick Assets be = Rs 20,000
Current Liabilities = Rs 10,000
(a) Purchase of goods for Cash Reduce
Reason: This transaction will result decrease in cash and increases in stock. Liquid Asset will decrease due payment for goods purchased.
Example: Purchase of goods Rs 5,000 for cash
Quick Assets = 20,000 − 5,000 (Cash) = Rs 15,000
(b) Purchase of goods on Credit Reduce
Reason: Purchase of goods on credit will result increase in Current Liabilities and no change in Quick Assets.
Example: Purchase of goods on Credit Rs 5,000
Current Liabilities = 10,000 + 5,000 (Creditors) = Rs15,000
(c) Sale of goods for Rs 10,000 Improve
Reason: Sale of goods will result in increase in Quick Assets by the amount of Rs 10,000 in the form of either in cash or debtor. This transaction will result no change in current liabilities.
(d) Sale of goods costing Rs 10,000 of or Rs 11,000 Improve
Reason: This transaction will increase the Quick Assets by Rs 11,000 in the form of either in cash or debtors but no effect on the Current Liabilities.
Quick Assets after sale of goods = 20,000 + 11,000 = Rs 31,000
$QuickRatioaftersaleofgoods=\frac{(20,000+11,000)}{10,000}=3.1:1$
(e) Cash received from debtors No change
Reason: This transaction results increase in one quick asset in the form of cash and decrease in other quick asset in the form of debtor with equal amount. Therefore it result in no change in the total of Quick Assets.
Example: Cash received from debtors Rs 5,000
Quick Assets = 20,000 + 5,000 (Cash) − 5,000 (Debtors) = 20,000
Page No 4.91:
Question 27:
The Quick Ratio of a company is 0.8:1. State with reason, whether the following transactions will increase, decrease or not change the Quick Ratio:
(i) Purchase of loose tools for ₹2,000; (ii) Insurance premium paid in advance ₹500; (iii) Sale of goods on credit ₹3,000; (iv) Honoured a bills payable of ₹5,000 on maturity.
Answer:
Transaction  Impact 
Purchase of loose tools Rs 2,000  As cash is going out, quick assets are decreasing by 2,000. So, quick ratio will decrease. 
Insurance premium paid in advance Rs 500  As cash is going out, quick assets are decreasing by 500. So, quick ratio will decrease. 
Sale of goods on credit Rs 3,000  As debtors increase, quick assets also increase by 3,000. So, quick ratio will increase. 
Honoured a bills payable Rs 5,000 on maturity  As cash is going out, quick assets are decreasing by 5,000 and since bill is honoured current liabilities are decreasing. Thus, quick ratio will decrease. 
Page No 4.92:
Question 28:
XYZ Limited's Inventory is ₹3,00,000. Total Liquid Assts are ₹12,00,000 and Quick Ratio is 2:1. Work out Current Ratio.
Answer:
Quick Assets = 12,00,000
Current Assets = Quick Assets + Stock
= 12,00,000 + 3,00,000 = 15,00,000
Page No 4.92:
Question 29:
Total Assets ₹22,00,000; Fixed Assets ₹10,00,000; Capital Employed ₹20,00,000. There were no Longterm Investments.
Calculate Current Ratio.
Answer:
Current Assets = Total Assets − Fixed Assets
Fixed Assets = 10,00,000
Total Assets = 22,00,000
∴ Current Assets = 22,00,000 − 10,00,000 = 12,00,000
Current Liabilities = Total Assets − Capital Employed
= 22,00,000 − 20,00,000 = 2,00,000
Page No 4.92:
Question 30:
Capital Employed ₹10,00,000; Fixed Assets ₹7,00,000; Current Liablities ₹1,00,000. There are no Longterm Investments. Calculate Current Ratio.
Answer:
Capital Employed = 10,00,000
Fixed Assets = 7,00,000
Current Assets = Capital Employed + Current Liabilities − Fixed Assets
= 10,00,000 + 1,00,000 − 7,00,000 = 4,00,000
Page No 4.92:
Answer:
(i) Current Ratio
Current Assets = Inventories + Cash and Cash Equivalents + Debtors + Bills Receivable + Marketable Securities
= Rs 5,00,000 + Rs 50,000 + Rs 3,10,000 + Rs 30,000 + Rs 1,50,000 = Rs 10,40,000
Current Liabilities = ShortTerm Borrowings + Creditors + Bills Payable
= Rs 1,00,000 + 3,00,000 + Rs 1,20,000 = Rs 5,20,000
(ii) Liquid Ratio
Quick Assets = Currents Assets – Inventories
= Rs 10,40,000 – Rs 5,00,000 = Rs 5,40,000
Or
Quick Assets = Cash and Cash Equivalents + Debtors + Bills Receivable + Marketable Securities
= Rs 50,000 + Rs 3,10,000 + Rs 30,000 + Rs 1,50,000 = Rs 5,40,000
Current Liabilities = As calculated in (i) = Rs 5,20,000
Page No 4.92:
Answer:
Current Assets = Inventories + Trade Receivables + Cash and Cash Equivalents
= 18,600 + 9,600 + 19,800
= 48,000
Current Liabilities = Shortterm Borrowings + Trade Payables
= 6,000 + 18,000
= 24,000
Page No 4.93:
Answer:
Current Assets = Inventory + Trade Receivables + Cash and Cash Equivalents
= 50,000 + 30,000 + 20,000 = 1,00,000
Current Liabilities = Shortterm Borrowings + Trade Payables + Provision for Tax
= 3,000 + 13,000 + 4,000 = 20,000
Quick Assets = Trade Receivables + Cash and Cash Equivalents
= 30,000 + 20,000 = 50,000
Comments:
1. Ideal Current Ratio for a business is considered to be 2:1. But in this case the ratio is quite high i.e. 5:1. This may be due to the following reasons:
(i) Blockage of Funds in Stock
(ii) High Amount outstanding from Debtors
(iii) Huge Cash and Bank Balances
2. Ideal Quick Ratio of a business is supposed to be 1:1. This implies that Liquid Assets should be equal to the Current Liabilities. But in the given case Quick Ratio is 2.5 : 1 which indicates that the Liquid Assets are quite high in comparison to the Current Liabilities.
Page No 4.93:
Question 34:
From the following calculate: (i) Current Ratio; and (ii) Quick Ratio:
₹  ₹  
Total Debt  6,00,000  Longterm Borrowings  2,00,000 
Total Assets  8,00,000  Longterm Provisions  2,00,000 
Fixed Assests (Tangible)  3,00,000  Inventories  95,000 
Noncurrent Investment  50,000  Prepaid Expenses  5,000 
Longterm Loans and Advances  50,000 
Answer:
$\begin{array}{l}\text{(i)CurrentRatio}\\ \text{CurrentAssets}=\text{TotalAssets}\text{FixedAssets}\text{NonCurrentInvestment\hspace{0.17em}\hspace{0.17em}LongtermLoansandAdvances}\\ \text{}=\text{8,00,000}\text{3,00,000}\text{50,000}\text{50,000}=\text{Rs4,00,000}\\ \text{CurrentLiabilities}=\text{TotalDebt\hspace{0.17em}Non}\text{CurrentLiabilities}\\ \text{}=\text{6,00,000}\text{2,00,000}\text{2,00,000}=\text{Rs2,00,000}\\ \mathrm{Current}\mathrm{}\mathrm{Ratio}=\frac{\mathrm{Current}\mathrm{}\mathrm{Assets}}{\mathrm{Current}\mathrm{}\mathrm{Liabilities}}\\ \text{}=\frac{\text{4,00,000}}{\text{2,00,000}}=2:1\\ \text{(ii)\hspace{0.17em}Quick\hspace{0.17em}Ratio}\\ \text{QuickAssets}=\text{CurrentAssets}\text{Stock}\text{PrepaidExpenses}\\ \text{}=\text{4,00,000}\text{95},0005,000=\text{Rs3,00,000}\\ \mathrm{Quick}\mathrm{}\mathrm{Ratio}=\frac{\mathrm{Quick}\mathrm{}\mathrm{Assets}}{\mathrm{Current}\mathrm{}\mathrm{Liabilities}}\\ \text{=}\frac{3,00,000}{2,00,000}=1.5:1\end{array}$
Page No 4.93:
Question 35:
Calculate Debt to Equity Ratio: Equity Share Capital ₹ 5,00,000; General Reserve ₹ 90,000; Accumulated Profits ₹ 50,000; 10% Debentures ₹ 1,30,000; Current Liabilities ₹ 1,00,000.
Answer:
Equity = Equity Share Capital + General Reserve + Accumulated Profits
= 5,00,000 + 90,000 + 50,000 = 6,40,000
Debt = 10% Debentures = 1,30,000
Page No 4.93:
Question 36:
Total Assets ₹ 2,60,000; Total Debts ₹ 1,80,000; Current Liabilities ₹ 20,000. Calculate Debt to Equity Ratio.
Answer:
Total Debts = 1,80,000
Current Liabilities = 20,000
Longterm Debts = Total Debts − Current Liabilities
= 1,80,000 − 20,000 = 1,60,000
Equity = Total Assets − Total Liabilities
= 2,60,000 − 1,80,000 = 80,000
Page No 4.93:
Question 37:
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 
Answer:
LongTerm Debt = Debentures = Rs 75,000
Shareholder’s Funds = Equity Share Capital + Preference Share Capital + General Reserve + Surplus
= Rs 1,00,000 + Rs 50,000 + Rs 45,000 + Rs 20,000 = Rs 2,15,000
Page No 4.94:
Question 38:
When Debt to Equity Ratio is 2, state giving reason, whether this ratio will increase or decrease or will have no change in each of the following cases:
(i) Sale of Land (Book value ₹4,00,000) for ₹5,00,000; (ii) Issue of Equity Shares for the purchase of Plant and Machinery worth ₹10,00,000; (iii) Issue of Preference Shares for redemption of 13% Debentures, worth ₹10,00,000.
Answer:
DebtEquity Ratio = 2:1
Let Longterm loan = Rs 20,00,000
Shareholders’ Funds = Rs 10,00,000
(i) Sale of Land (Book Value Rs 4,00,000) for Rs 5,00,000 Decrease
Reason: This transaction will result increase in Shareholders’ Funds by Rs 1,00,000 as profit on sale of Land.
Shareholders’ Funds after adjusting profit on sale of land = 10,00,000 + 1,00,000 = Rs 11,00,000
(ii) Issue of Equity share for the purchase of plant and Machinery worth Rs 10,00,000 Decrease
Reason: This transaction will increase the amount of Shareholders Fund by Rs 10,00,000 in the form of equity shares and have no effect on Longterm Loans.
(iii) Issue of preference Shares for redemption of 13% Debentures worth Rs 10,00,000 Decrease
Reason: This transaction will lead to decrease in Longterm Loan by Rs 10,00,000 in the form of redemption of debentures and increase in Shareholders’ Funds with the same amount in the form of Preference Shares.
Page No 4.94:
Question 39:
Total Assets ₹12,50,000; Total Debts ₹10,00,000; Current Liabilities ₹5,00,000.
Calculate Debt to Equity Ratio.
Answer:
Total Assets = 12,50,000
Total Debts = 10,00,000
Equity = Total Assets − Total Liabilities
= 12,50,000 − 10,00,000 = 2,50,000
Longterm Debts = Total Debts − Current Liabilities
= 10,00,000 − 5,00,000 = 5,00,000
Page No 4.94:
Question 40:
Capital Employed ₹8,00,000; Shareholders' Funds ₹2,00,000. Calculate Debt to Equity Ratio.
Answer:
Shareholders’ Funds = 2,00,000
Capital Employed = 8,00,000
Long Term Debts = Capital Employed − Shareholders’ Funds
= 8,00,000 − 2,00,000 = 6,00,000
Page No 4.94:
Question 41:
Balance Sheet had the following amounts as at 31st March, 2019:
₹  ₹  
10% Preference Share Capital  5,00,000  Current Assets  12,00,000  
Equity Share Capital  15,00,000  Current Liabilities  8,00,000  
Securities Premium Reserve  1,00,000  Investments (in other companies)  2,00,000  
Reserves and Surplus  4,00,000  Fixed AssetsCost  60,00,000  
Longterm Loan from IDBI @ 9%  30,00,000  Depreciation Written off  14,00,000 
Calculate ratios indicating the Longterm and the Shortterm financial position of the company.
Answer:
(i) DebtEquity Ratio is an indicator of Longterm financial health. It shows the proportion of Longterm loan in comparison of shareholders’ Funds.
$\mathrm{Debt}\mathrm{Equity}\mathrm{Ratio}=\frac{\mathrm{Long}\mathrm{Term}\mathrm{Debts}}{\mathrm{Equity}}$
Debt = Loan from IDBI @ 9% = 30,00,000
Equity = 10% Preference Share Capital + Equity Share Capital + Reserves & Surplus
= 5,00,000 + 15,00,000 + 4,00,000 = 24,00,000
$\mathrm{Debt}\mathrm{Equity}\mathrm{Ratio}=\frac{30,00,000}{24,00,000}=1.25:1$
(ii) Current Ratio is an indicator of shortterm financial portion. It shows the proportion of Current Assets in comparison of Current Liabilities.
$\mathrm{Current}\mathrm{Ratio}=\frac{\mathrm{Current}\mathrm{Assets}}{\mathrm{Current}\mathrm{Liabilities}}$
Current Assets = 12,00,000
Current Liabilities = 8,00,000
$\mathrm{Current}\mathrm{Ratio}=\frac{12,00,000}{8,00,000}=1.5:1$
Note: In the above question, Securities Premium Reserve is not considered while computing Equity because it is already included in the amount of Reserves and Surplus.
Page No 4.94:
Question 42:
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  
Noncurrent Investments  14,000  10% Longterm Borrowings  4,20,000  
Longterm Loans and Advances  56,000  Longterm Provisions  1,40,000 
Answer:
$\begin{array}{l}\text{Debt}=\text{LongTermBorrowings}+\text{LongTermProvisions}\\ \text{=\hspace{0.17em}4,20,000+1,40,000\hspace{0.17em}=\hspace{0.17em}Rs5,60,000}\\ \text{Equity}=\text{TotalAssets\hspace{0.17em}\hspace{0.17em}TotalDebts}\\ \text{=\hspace{0.17em}(8,40,000\hspace{0.17em}1,40,000+14,000+56,000+3,50,000)\hspace{0.17em}(4,20,0001,40,000\hspace{0.17em}2,80,000)=Rs2,80,000}\\ \mathrm{Debt}\mathrm{}\mathrm{to}\mathrm{}\mathrm{Equity}\mathrm{}\mathrm{Ratio}=\frac{\mathrm{Debt}}{\mathrm{Equity}}\\ \text{=}\frac{5,60,000}{2,80,000}=2:1\end{array}$
Page No 4.94:
Question 43:
Debt to Equity Ratio of a company is 0.5:1. Which of the following suggestions would increase, decrease or not change it:
(i) Issue of Equity Shares:  (ii) Cash received from debtors: 
(iii) Redemption of debentures;  (iv) Purchased goods on Credit? 
Answer:
Debt Equity Ratio = 0.5:1
Let Long term Loan be = Rs 5,00,000
Shareholders’ Funds = Rs 10,00,000
(i) Issue of Equity shares Decrease
Reason: Issue of equity shares results in increase in Shareholders’ Funds in the form of equity shares but there will be no change in Longterm Loan.
Example: Issue of equity share Rs 5,00,000
Shareholders’ Funds after issue of equity shares = 10,00,000 + 15,00,000
= Rs 15,00,000
(ii) Cash received from Debtors No Change
Reason: Cash received from debtors will increase one current asset in the form of cash and decrease other asset in the form of debtors. This transaction will have no effect on Longterm Loan and Shareholders’ Funds.
(iii) Redemption of Debentures Decrease
Reason: This transaction will result decrease in Longterm Loans in the form of reduction in debtors and no change in Shareholders’ Funds.
Example: Redemption of Debentures Rs 2,00,000
Longterm Loan = 5,00,000 − 2,00,000 = 3,00,000
(iv) Purchased of goods on Credit No Change
Reason: Neither Longterm loan nor share holders’ funds will be affected by this transaction because purchase of goods results no change in Longterm Loan and Shareholders’ Funds.
Page No 4.94:
Question 44:
Assuming That the Debt to Equity Ratio is 2 : 1, state giving reasons, which of the following transactions would (i) increase; (ii) Decrease; (iii) Not alter Debt to Equity Ratio:
(i) Issue of new shares for cash.
(ii) Conversion of debentures into equity shares
(iii) Sale of a fixed asset at profit.
(iv) Purchase of a fixed asset on longterm deferred payment basis.
(v) Payment to creditors.
Answer:
Let’s take Debt and Equity as Rs 2,00,000 and Rs 1,00,000
$\begin{array}{l}\mathrm{Debt}\mathrm{}\mathrm{to}\mathrm{}\mathrm{Equity}\mathrm{}\mathrm{Ratio}=\frac{\mathrm{Debt}}{\mathrm{Equity}}\\ \text{=}\frac{2,00,000}{1,00,000}=2:1\end{array}$
(i) Issue of new shares for cash (say Rs 50,000)
$\text{DebttoEquityRatio=}\frac{2,00,000}{1,00,000+50,000}=1.33:\text{1(Decrease})$
(ii) Conversion of debentures into equity shares (say Rs 50,000)
$\text{DebttoEquityRatio=}\frac{2,00,000}{1,00,000+50,000}=1.33:\text{1(Decrease})$
(iii) Sale of a fixed asset at profit (say Rs 50,000 profit)
$\text{DebttoEquityRatio=}\frac{2,00,000}{1,00,000+50,000}=1.33:\text{1(Decrease})$
(iv) Purchase of fixed asset on long term payment basis (say Rs 50,000)
$\text{DebttoEquityRatio=}\frac{2,00,000+50,000}{1,00,000}=2.5:\text{1(Increase})$
(v) Payment to creditors (say Rs 50,000)
$\text{DebttoEquityRatio=}\frac{2,00,000}{1,00,000}=2:1(\text{NoChange)}$
Page No 4.95:
Answer:
Longterm Debt = Debentures = 2,50,000
Equity = Equity Share Capital + 10% Preference Share Capital + Reserves and Surplus
= 5,00,000 + 5,00,000 + 2,40,000 = 12,40,000
Page No 4.95:
Question 46:
Calculate Total Assets to Debt Ratio from the following information:
Longterm Debts ₹ 4,00,000; total Assets ₹ 7,70,000.
Answer:
Longterm Debts = 4,00,000
Total Assets = 7,70,000
Page No 4.95:
Question 47:
Shareholders' Funds ₹ 1,60,000; Total Debts ₹ 3,60,000; Current Liabilities ₹ 40,000.
Calculate Total Assets to Debt Ratio.
Answer:
Total Debts = 3,60,000
Shareholders’ Funds = 1,60,000
Current Liabilities = 40,000
Total Assets = Total Debts + Shareholders’ Funds
= 3,60,000 + 1,60,000 = 5,20,000
Longterm Debts = Total Debt − Current Liabilities
= 3,60,000 − 40,000 = 3,20,000
Page No 4.95:
Question 48:
On the basis of the following information, calculate Total Assets to Debt Ratio:




Particulars 
₹ 
Particulars 
₹  
Capital Employed 
50,00,000 
Share Capital 
35,00,000  
Current Liabilities 
20,00,000 
10% Debentures 
10,00,000  
Land and Building  60,00,000  General Reserve  3,00,000  
Trade Receivable  4,00,000  Surplus, i.e., Balance in Statement of Profit and Loss  2,00,000  
Cash and Cash Equivalents  5,00,000  
Investment (Trade) 
1,00,000 


Answer:
$\begin{array}{l}\text{TotalAssetstoDebtRatio=}\frac{\text{TotalAssets}}{\text{LongTermDebt}}\\ \end{array}$
Total Assets = Land and Buildings + Trade Receivables + Cash and Cash Equivalents + Investments (Trade)
= 60,00,000 + 4,00,000 + 5,00,000 + 1,00,000
= Rs 70, 00,000
Long Term Debts = Capital Employed  Shareholders’ funds
= 50,00,000 – 40,00,000
= Rs 10,00,000
Shareholder’s Fund = Share Capital + Reserve and Surplus
= 35,00,000 + 3,00,000 + 2, 00,000
= Rs 40,00,000
$\text{TotalAssetstoDebtRatio=}\frac{\text{70},00\text{,000}}{\text{10,00},\text{000}}\text{=7:1}$
Page No 4.95:
Question 49:
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.
Answer:
$\text{TotalAssetstoDebtRatio=}\frac{\text{TotalAssets}}{\text{LongTermDebt}}$
Working Capital = Current Assets – Current Liabilities
5,00,000 = 25,00,000 – Current Liabilities
Current Liabilities = Rs 20,00,000
Long Term Debts = Total Debt – Current Liabilities
= 60,00,000 – 20,00,000
= Rs 40,00,000
Total Assets = Total Liabilities = Total Debt + Shareholders’ Funds
= 60,00,000 + 10,00,000
= Rs 70,00,000
$\text{TotalAssetstoDebtRatio=}\frac{\text{70},00\text{,000}}{\text{40,00},\text{000}}\text{=7:4or1.75:1}$
Page No 4.96:
Question 50:
Total Debt ₹15,00,000; Current Liablities ₹5,00,000; Capital Employed ₹15,00,000. Calculate Total Assets to Debt Ratio.
Answer:
$\text{TotalAssetstoDebtRatio=}\frac{\text{TotalAssets}}{\text{LongTermDebt}}$
Capital Employed = Total Assets – Current Liabilities
15,00,000 = Total Assets – 5,00,000
Total Assets = Rs 20,00,000
Long Term Debt = Total Debt – Current Liabilities
= 15,00,000 – 5,00,000
= Rs 10,00,000
$\text{TotalAssetstoDebtRatio=}\frac{\text{20},00\text{,000}}{\text{10,00},\text{000}}\text{=2:1}$
Page No 4.96:
Question 51:
Calculate Total Assets to Debt Ratio from the following information:




Particulars  ₹ 
Particulars 
₹


Total Assets  15,00,000  Bills Payable  60,000  
Total Debts  12,00,000  Bank Overdraft  50,000  
Creditors  90,000 
Outstanding Expenses 
20,000 
Answer:
Total Assets = Rs 15,00,000
Current Liabilities = Creditors + Bills Payable + Bank Overdraft + Outstanding Expenses
= Rs 90,000 + Rs 60,000 + Rs 50,000 + Rs 20,000 = Rs 2,20,000
LongTerm Debt = Total Debt – Current Liabilities
= Rs 12,00,000 – Rs 2,20,000 = Rs 9,80,000
Page No 4.96:
Question 52:
Total Debt ₹12,00,000; Shareholders' Funds ₹2,00,000; Reserves and Surplus ₹50,000; Current Assets ₹5,00,000; Working Capital ₹1,00,000. Calculate Total Assets to Debt Ratio.
Answer:
$\begin{array}{l}\text{WorkingCapital}=\text{CurrentAssets}\text{CurrentLiabilities}\\ \text{1,00,000}=\text{5,00,000}\text{CurrentLiabilities}\\ \text{CurrentLiabilities}=\text{Rs4,00,000}\\ \text{Debt}=\text{TotalDebt}\text{CurrentLiabilities}=\text{12,00,0004,00,000=Rs8,00,000}\\ \text{TotalAssets}=\text{Shareholders'Funds+TotalDebt}\\ \text{}=\text{2,00,000}+\text{12,00,000}=\text{Rs14,00,000}\\ \mathrm{Total}\mathrm{}\mathrm{Assets}\mathrm{}\mathrm{to}\mathrm{}\mathrm{Debt}\mathrm{}\mathrm{Ratio}\mathrm{}=\frac{\mathrm{Total}\mathrm{}\mathrm{Assets}}{\mathrm{Debt}}\\ \text{=}\frac{14,00,000}{8,00,000}=1.75:1\end{array}$
Page No 4.96:
Question 53:
Total Debt ₹12,00,000; Current Liabilities ₹4,00,000; Capital Employed ₹`12,00,000. Calculate Total Assets to Debt Ratio.
Answer:
$\begin{array}{l}\text{Debt}=\text{TotalDebt}\text{CurrentLiabilities}=12,00,0004,00,000=\text{Rs8,00,000}\\ \text{TotalAssets}=\text{CapitalEmployed+CurrentLiabilities}\\ \text{}=12\text{,00,000}+4\text{,00,000}=\text{Rs16,00,000}\\ \mathrm{Total}\mathrm{}\mathrm{Assets}\mathrm{}\mathrm{to}\mathrm{}\mathrm{Debt}\mathrm{}\mathrm{Ratio}\mathrm{}=\frac{\mathrm{Total}\mathrm{}\mathrm{Assets}}{\mathrm{Debt}}\\ \text{=}\frac{16,00,000}{8,00,000}=2:1\end{array}$
Page No 4.96:
Question 54:
From the following information, calculate Total Assets to Debt Ratio:
₹  ₹  
Fixed Assets (Gross)  6,00,000  Accumulated Depreciation  1,00,000  
Noncurrent Investments  10,000  Longterm Loans and Advances  40,000  
Current Assets  2,50,000  Current Liabilities  2,00,000  
Longterm Borrowings  3,00,000  Longterm Provisions  1,00,000 
Answer:
$\begin{array}{l}\text{Debts}=\text{LongtermBorrowings+LongTermProvisions}=3,00,000+1,00,000=\text{Rs4,00,000}\\ \text{TotalAssets}=\text{NonCurrentAssets+CurrentAssets}\\ \text{}=6\text{,00,0001,00,000+10,000}+2\text{,50,000+40,000}=\text{Rs8,00,000}\\ \mathrm{Total}\mathrm{}\mathrm{Assets}\mathrm{}\mathrm{to}\mathrm{}\mathrm{Debt}\mathrm{}\mathrm{Ratio}\mathrm{}=\frac{\mathrm{Total}\mathrm{}\mathrm{Assets}}{\mathrm{Debt}}\\ \text{=}\frac{8,00,000}{4,00,000}=2:1\end{array}$
Page No 4.96:
Answer:
Total Assets = Fixed Assets + Inventories + Trade receivables + Cash and Cash Equivalents
= 6,00,000 + 1,50,000 + 2,50,000 + 1,00,000 = 11,00,000
Longterm Debts = Longterm Borrowings = Rs 2,00,000
Page No 4.97:
Question 56:
From the following information, calculate Proprietary Ratio:
Share Capital  ₹3,00,000  Reserves and Surplus  ₹1,80,000 
Noncurrent Assets  ₹13,20,000  Current Assets  ₹ 6,00,000 
Answer:
$\begin{array}{l}\mathrm{Proprietary}\mathrm{Ratio}=\frac{\mathrm{Shareholders}\text{'}\mathrm{Funds}}{\mathrm{Total}\mathrm{Assets}}\\ \mathrm{Proprietary}\mathrm{Ratio}=\frac{\mathrm{Share}\mathrm{Capital}+\mathrm{Reserves}\mathrm{and}\mathrm{Surplus}}{\mathrm{Non}\mathrm{Current}\mathrm{Assets}+\mathrm{Current}\mathrm{Assets}}\\ \mathrm{Proprietary}\mathrm{Ratio}=\frac{3,00,000+1,80,000}{13,20,000+6,00,000}=0.25:1\mathrm{or}25\%\end{array}$
Page No 4.97:
Question 57:
From the following infromation, calculate Proprietary Ratio:



₹ 
Equity Share Capital  3,00,000 
Preference Share Capital  1,50,000 
Reserves and Surplus  75,000 
Debentures  1,80,000 
Trade Payables 
45,000 

7,50,000 
Fixed Assets 
3,75,000 
Shortterm Inverstments  2,25,000 
Other Current Assets 
1,50,000 

7,50,000 
Answer:
Total Assets = Fixed Assets + Current Assets + Investments
= 3,75,000 + 1,50,000 + 2,25,000 = 7,50,000
Shareholders’ Funds = Equity Share Capital + Preference Share Capital + Reserves and Surplus
= 3,00,000 + 1,50,000 + 75,000 = 5,25,000
Page No 4.97:
Question 58:
Calculate Proprietary Ratio from the following:
Equity Shares Capital  ₹ 4,50,000  9% Debentures  ₹ 3,00,000 
10% Preference Share Capital  ₹ 3,20,000  Fixed Assets  ₹ 7,00,000 
Reserves and Surplus  ₹ 65,000  Trade Investment  ₹ 2,45,000 
Creditors  ₹ 1,10,000  Current Assets  ₹ 3,00,000 
Answer:
Total Assets = Fixed Assets + Trade Investments + Current Assets
= 7,00,000 + 2,45,000 + 3,00,000 = 12,45,000
Shareholders’ Funds = Equity Share Capital + 10% Preference Share Capital + Reserves and Surplus
= 4,50,000 + 3,20,000 + 65,000 = 8,35,000
Page No 4.97:
Answer:
Total Assets = Fixed Assets + Shortterm Investments + Inventories + Trade Receivables + Cash and Cash Equivalents
= 5,00,000 + 1,50,000 + 1,00,000 + 1,50,000 + 1,00,000 = 10,00,000
Shareholders’ Funds = Share Capital + Reserves and Surplus
= 6,00,000 + 1,50,000 = 7,50,000
Page No 4.97:
Question 60:
State with reason, whether the Proprietary Ratio will improve, decline or will not change because of the following transactions if Proprietary Ratio is 0.8 : 1:
(i) Obtained a loan of ₹ 5,00,000 from State Bank of India payable after five years.
(ii) Purchased machinery of ₹ 2,00,000 by cheque.
(iii) Redeemed 7% Redeemable Preference Shares ₹ 3,00,000.
(iv) Issued equity shares to the vendor of building purchased for ₹ 7,00,000.
(v) Redeemed 10% redeemable debentures of ₹ 6,00,000.
Answer:
Transaction  Impact 
Obtained a loan of Rs 5,00,000 from State Bank of India payable after five years.  Total assets increase by 5,00,000 (as cash is coming in). However, since shareholders' funds remain unchanged, therefore proprietary ratio will decrease. 
Purchased machinery of Rs 2,00,000 by cheque.  Total assets are increasing and decreasing by 2,00,000 simultaneously (as cash is going out and machinery is coming in). Thus, both numerator and denominator remain unchanged and so proprietary ratio will not change. 
Redeemed 7% Redeemable Preference Shares Rs 3,00,000.  Both shareholders' funds and total assets decrease by 3,00,000 simultaneously and so proprietary ratio will decrease. 
Issued equity shares to the vendor of building purchased for Rs 7,00,000.  Both shareholders' funds and total assets increase by 7,00,000 simultaneously and so proprietary ratio will improve. 
Redeemed 10% redeemable debentures of Rs 6,00,000  Total assets decrease by 6,00,000 (as cash is going out). However, since shareholders' funds remain unchanged, therefore proprietary ratio will improve. 
Page No 4.98:
Question 61:
If Profit before Interest and Tax is ₹5,00,000 and interest on Longterm Funds is ₹1,00,000, find Interest Coverage Ratio.
Answer:
Net Profit before Interest and Tax = 5,00,000
Interest = 1,00,000
Page No 4.98:
Question 62:
From the following information, calculate Interest Coverage Ratio: Profit after Tax ₹1,70,000; Tax ₹30,000; Interest on Longterm Funds ₹50,000.
Answer:
Profit before Interest and Tax = Profit after Tax + Tax +Interest
= 1,70,000 + 30,000 + 50,000 = 2,50,000
Page No 4.98:
Question 63:
From the following information, calculate Interest Coverage Ratio:
₹  
10,000 Equity Shares of ₹10 each  1,00,000 
8% Preference Shares  70,000 
10% Debentures  50,000 
Longterm Loans from Bank  50,000 
Interest on Longterm Loans from Bank  5,000 
Profit after Tax  75,000 
Tax  9,000 
Answer:
Profit before Interest and Tax = Profit after Tax + Tax + Interest on Debentures + Interest on Longterm Loans from Bank
= 75,000 + 9,000 + 5,000 + 5,000 = 94,000
Total Interest Amount = Interest on Debentures + Interest on Longterm loans from Bank
= 5,000 + 5,000 = 10,000
_{}
Page No 4.98:
Question 64:
From the following details, calculate Inventory Turnover Ratio:
₹  
Cost of Revenue from Operations (Cost of Goods Sold)  4,50,000 
Inventory in the beginning of the year  1,25,000 
Inventory at the close of the year  1,75,000 
Answer:
Cost of Goods Sold = 4,50,000
Page No 4.98:
Question 65:
Cost of Revenue from Operations (Cost of Goods Sold) ₹5,00,000; Purchases ₹5,50,000; Opening Inventory ₹1,00,000.
Calculate Inventory Turnover Ratio.
Answer:
Cost of Goods Sold = Opening Inventory + Purchases − Closing Inventory
5,00,000 = 1,00,000 + 5,50,000 − Closing Inventory
Closing Inventory = 1,50,000
Page No 4.98:
Question 66:
Calculate Inventory Turnover Ratio from the following information:
Opening Inventory is ₹50,000; Purchases ₹3,90,000; Revenue from Operations, i.e., Net Sales ₹6,00,000; Gross Profit Ratio 30%.
Answer:
Cost of Goods Sold = Net Sales – Gross Profit
= Rs 6,00,000 – 30% of Rs 6,00,000
= Rs 6,00,000 – Rs 1,80,000 = Rs 4,20,000
Cost of Goods Sold = Opening Inventory + Purchases – Closing Inventory
Rs 4,20,000 = Rs 50,000 + Rs 3,90,000 – Closing Inventory
Closing Inventory = Rs 50,000 + Rs 3,90,000 – Rs 4,20,000
= Rs 20,000
Page No 4.98:
Question 67:
Calculate Inventory Turnover Ratio from the following:
₹  
Opening Inventory  29,000 
Closing Inventory  31,000 
Revenue from Operations, i.e., Sales  3,20,000 
Gross Profit Ratio 25% 
Answer:
Sales = 3,20,000
Gross Profit = 25% on Sales
Cost of Goods Sold = Total Sales − Gross Profit
= 3,20,000 − 80,000 = 2,40,000
Page No 4.98:
Question 68:
From the following information, calculate Inventory Turnover Ratio:
₹  
Revenue from Operations  16,00,000 
Average Inventory  2,20,000 
Gross Loss Ratio 5% 
Answer:
$\begin{array}{l}\text{CostofRevenuefromOperations}=\text{RevenuefromOperations}+\text{GrossLoss}\\ \text{=16,00,000+80,000}=\text{Rs16,80,000}\\ \mathrm{Inventory}\mathrm{}\mathrm{Turnover}\mathrm{}\mathrm{Ratio}=\frac{\mathrm{Cost}\mathrm{}\mathrm{of}\mathrm{}\mathrm{Revenue}\mathrm{}\mathrm{from}\mathrm{}\mathrm{Operations}}{\mathrm{Average}\mathrm{}\mathrm{Inventory}}\\ \text{=}\frac{16,80,000}{2,20,000}=7.64\text{Times}\\ \text{}\end{array}$
Page No 4.98:
Question 69:
Revenue from Operations ₹4,00,000; Gross Profit ₹1,00,000; Closing Inventory ₹1,20,000; Excess of Closing Inventory over Opening Inventory ₹40,000. Calculate Inventory Turnover Ratio.
Answer:
Sales = 4,00,000
Gross Profit = 1,00,000
Cost of Goods Sold = Sales − Gross Profit
= 4,00,000 − 1,00,000 = 3,00,000
Let Opening Inventory = x
Closing Inventory = x + 40,000
1,20,000 = x + 40,000
x= 80,000
Opening Inventory = 80,000
Page No 4.98:
Question 70:
From the following data, calculate Inventory Turnover Ratio:
Total Sales ₹5,00,000; Sales Return ₹50,000; Gross Profit ₹90,000; Closing Inventory ₹1,00,000; Excess of Closing Inventory over Opening Inventory ₹20,000.
Answer:
Cost of Goods Sold = Net Sales (Sales – Sales Return) – Gross Profit
= Rs 5,00,000 – Rs 50,000 – Rs 90,000 = Rs 3,60,000
Closing Inventory = Rs 1,00,000
Closing Inventory is Rs 20,000 more than the Opening Inventory
Therefore, Opening Inventory = Rs 80,000 (Rs 1,00,000 – Rs 20,000)
Page No 4.98:
Question 71:
₹2,00,000 is the Cost of Revenue from Operations (Cost of Goods Sold), during the year. If Inventory Turnover Ratio is 8 times, calculate inventories at the end of the year. Inventories at the end is 1.5 times that of in the beginning.
Answer:
Let Opening Inventory = x
Closing Inventory = 1.5 × x = 1.5 x
Opening Inventory = x = Rs 20,000
Closing Inventory = 1.5 x = 20,000 × 1.5 = Rs 30,000
Page No 4.99:
Question 72:
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.
Answer:
Cost of Goods Sold = Opening Stock + Purchases + Closing Stock
= 40,000 + 3,20,000 − 1,20,000 = 2,40,000
(a) Sale of goods for Rs 40,000 (Cost Rs 32,000) Increase
Reason: This transaction will decrease stock at the end (closing stock). Decrease in closing stock will result increase the proportion of Cost of Goods Sold and decrease in Average Stock
(b) Increase in value of Closing Stock by 40,000 Decrease
Reason: Increase in Closing Stock results decrease in Cost of Goods Sold and increase in Average Stock.
(c) Goods purchased for Rs 80,000 Decrease
Reason: This Transaction increases the amount of Closing Stock. Increase in Closing Stock reduces the proportion of Cost of Goods Sold and Increase in Average Stock.
(d) Purchase Return Rs 20,000 Increase
Reason: It will result decrease in Cost of Goods Sold and Average Stock with same amount.
(e) Goods costing Rs 10,000 withdrawn for personal use Increase
Reason: Drawing of goods will decrease the amount of Closing Stock and increase in Cost of Goods Sold.
(f) Goods costing Rs 20,000 distributed as free sample Increase
Reason: Goods distributed as free sample reduces Closing Stock. Reduction in Closing Stock will result increase in Cost of Goods Sold and decrease in Average Stock.
Page No 4.99:
Question 73:
Calculate Inventory Turnover Ratio from the data given Below:
₹  ₹  
Inventory in the beginning of the year  20,000  Carriage Inwards  5,000 
Inventory at the end of the year  10,000  Revenue from Operations, i.e., Sales  1,00,000 
Purchases  50,000 
State the significance of this ratio.
Answer:
Cost of Goods Sold = Opening Stock + Purchases + Carriage Inwards − Closing Stock
= 20,000 + 50,000 + 5,000 − 10,000 = 65,000
Page No 4.99:
Question 74:
From the following information, calculate value of Opening Inventory:
Closing Inventory  =  ₹ 68,000 
Total Sales  =  ₹ 4,80,000 (including Cash Sales ₹ 1,20,000) 
Total Purchases  =  ₹ 3,60,000 (including Credit Purchases ₹ 2,39,200) 
Goods are sold at a profit of 25% on cost.
Answer:
Let Cost of Goods Sold be = x
Cost of Goods Sold = x = Rs 3,84,000
Cost of Goods Sold = Opening Inventory (Stock) + Purchases − Closing Inventory (Stock)
3,84,000 = Opening Inventory + 3,60,000 − 68,000
Opening Inventory = 3,84,000 − 2,92,000 = Rs 92,000
Page No 4.99:
Question 75:
From the following information, determine Opening and Closing inventories:
Inventory Turnover Ratio 5 Times, Total sales ₹ 2,00,000, Gross Profit Ratio 25%. Closing Inventory is more by ₹ 4,000 than the Opening Inventory.
Answer:
Sales = 2,00,000
Gross Profit = 25% on Sales
Cost of Goods Sold = Total Sales − Gross Profit
= 2,00,000 − 50,000 = 1,50,000
Let Opening Inventory = x
Closing Inventory = x + 4,000
Opening Inventory = x = Rs 28,000
Closing Inventory = x + 4,000 = 28,000 + 4,000 = Rs 32,000
Page No 4.99:
Question 76:
Following figures have been extracted from Shivalika Mills Ltd.:
Inventory at the end of the year ₹ 1,00,000.
Inventory Turnover Ratio 8 times.
Selling price 25% above cost.
Answer:
Gross Profit = 25% on Cost
Sales = Cost of Goods Sold + Gross Profit
= 6,40,000 + 1,60,000 = 8,00,000
Page No 4.99:
Question 77:
Inventory Turnover Ratio 5 times; Cost of Revenue from Operations (Cost of Goods Sold) ₹ 18,90,000. Calculate Opening Inventory and Closing Inventory if Inventory at the end is 2.5 times more than that in the beginning.
Answer:
Let Opening Inventory = x
Closing Inventory = 2.5x + x = 3.5 x
Opening Inventory = x = Rs 1,68,000
Closing Inventory = 3.5 x = 3.5 × 1,68,000 = Rs 5,88,000
Page No 4.99:
Question 78:
₹ 3,00,000 is the Cost of Revenue from Operations (Cost of Goods Sold).
Inventory Turnover Ratio 8 times; Inventory in the beginning is 2 times more than the inventory at the end. Calculate value of Opening and Closing Inventories
Answer:
Let Closing Inventory = x
Opening Inventory = 2x + x = 3x
Closing Inventory = x = Rs 18,750
Opening Inventory = 3x = 3 ×18,750 = Rs 56,250
Page No 4.99:
Question 79:
From the following Information, calculate Inventory Turnover Ratio:
Credit Revenue from Operations ₹ 3,00,000; Cash Revenue from Operations ₹ 1,00,000, Gross Profit 25% of Cost, Closing Inventory was 3 times the Opening Inventory. Opening Inventory was 10% of Cost of Revenue from Operations.
Answer:
$\begin{array}{l}\text{AverageInventory}=\frac{30,000+90,000}{2}=\text{Rs60,000}\\ \text{OpeningInventory}=\text{3,00,000}\times \text{10\%}=\text{Rs30,000}\\ \text{ClosingInventory}=\text{30,000}\times \text{3}=\text{Rs90,000}\\ \text{CostofRevenuefromOperations}=\text{RevenuefromOperations}\text{GrossProfit}\\ \text{}=\text{4,00,0001,00,000}=\text{Rs3,00,000}\\ \mathrm{Inventory}\mathrm{}\mathrm{Turnover}\mathrm{}\mathrm{Ratio}=\frac{\mathrm{Cost}\mathrm{}\mathrm{of}\mathrm{}\mathrm{Revenue}\mathrm{}\mathrm{from}\mathrm{}\mathrm{Operations}}{\mathrm{Average}\mathrm{}\mathrm{Inventory}}\\ \text{=}\frac{3,00,000}{60,000}=5\text{Times}\end{array}$
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