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Accountancy 6 Marks Question

Accounting Ratios · CBSE STD 12 Commerce (CBSE - English Medium). 41 questions.

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Question 16 Marks
Calculate Trade Receivables Turnover Ratio in the following:
Case: 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:
Let Sales be = x.
$\text{Gross Profit}=\text{x}\times\frac{20}{100}$
$=\frac{20\text{x}}{100}$
Sales = Cost of Goods Sold + Gross Profit
or, $\text{x} = 4,50,000+\frac{20\text{x}}{100}$
or, $\text{x}-\frac{20}{100}=4,50,000$
or, $\text{x}=\frac{4,50,000\times100}{80}$
= 5,62,500
Sales = x ₹ 5,62,500
Let Credit Sales be = a
$\text{Case Sales}=\text{a}\times\frac{25}{100}$
$=\frac{25\text{a}}{100}$
Sales = Case Sales + Credit sales
or, $5,62,500=\frac{25\text{a}}{100}+\text{a}$
or, $\text{a}=\frac{5,62,500\times100}{125}$
= 4,50,000
Credit Sales = a = 4,50,000
Average Trade Receivables $=\frac{\text{Opning Trade Receivable + Closing Trade Receivables}}{2}$
Average Trade Receivables $=\frac{90,000+60,000}{2}$
= 75,000
Trade Receivable Turnover Ratio $=\frac{\text{Net Credit Sales}}{\text{Average Trade Receivables}}$
Trade Receivable Turnover Ratio $=\frac{4,50,000}{75,000}=6\text{ Times}$
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Question 26 Marks
Balance Sheet had the following amounts as at 31st March, 2018:
  ₹
10% Preference Share Capital. 5,00,000
Equity Share Capital. 15,00,000
Securities Premium Reserve. 1,00,000
Reserves and Surplus. 4,00,000
Long-term Loan from IDBI @ 9%. 30,00,000
Current Asset. 12,00,000
Current Liabilities. 8,00,000
(Investments in other companies). 2,00,000
Fixed Assets-Cost. 60,00,000
Depreciation Written off. 14,00,000
Calculate ratios indicating the Long-term and the Short-term financial position of the company.
Answer
  1. Debt-Equity Ratio is an indicator of Long-term financial health. It shows the proportion of Long-term loan in comparison of shareholders’ Funds.
Debt - Equity Ratio $=\frac{\text{Long Term Debts }}{\text{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
Debt - Equity Ratio $=\frac{30,00,000}{24,00,000}=1.25:1$
  1. Current Ratio is an indicator of short-term financial portion. It shows the proportion of Current Assets in comparison of Current Liabilities.
Current Ratio $=\frac{\text{Current Assets}}{\text{Current Liabilities}}$
Current Assets = 12,00,000
Current Liabilities = 8,00,000
Current 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.
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Question 36 Marks
Calculate Trade Payables Turnover Ratio and Average Debt Payment Period from the following information:
 
1st April, 2017
₹
31st March, 2018
₹
Sundry Creditors
1,50,000
4,50,000
Bills Payable
50,000
1,50,000
Total Purchases ₹ 21,00,000 Purchases Return ₹ 1,00,000; Cash Purchases ₹ 4,00,000.
Answer
Average Trade Payables $=\frac{\text{Opening Creditors & B/P + Closing Creditors & B/P}}{2}$
$=\frac{1,50,000+50,000 +4,50,000+1,50,000}{2}=₹\ 4,00,000$
Net Credit Purchases = Total Purchases - Purchases Return - Cash Purchases
= 21,00,000 - 1,00,000 - 4,00,000 = ₹ 16,00,000
Trade Payables Turnover Ratio $=\frac{\text{Net Credit Purchases}}{\text{Average Trade Payables}}$
$=\frac{16,00,000}{4,00,000}=4\text{ Times}$
Average Debt Payment Period $=\frac{12}{\text{Trade Payable Turnover Ratio}}$
$=\frac{12}{4}=3\text{ Months}$
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Question 46 Marks
Following is the Balance Sheet of Crescent Chemical Works Limited as at 31st March, 2018:

Compute Current Ratio And Liquid Ratio.
Answer
Current Assets = Inventory + Trade Receivables + Cash and Cash Equivalents = 50,000 + 30,000 + 20,000 = 1,00,000 Current Liabilities = Short-term 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 $\text{Current Ratio}=\frac{\text{Current Assets}}{\text{Current Liabilities}}$ $=\frac{1,00,000}{20,000}=5:1$ $\text{Quick Ratio}=\frac{\text{Liquid Assets}}{\text{Current Liabilities}}$ $=\frac{50,000}{20,000}=2.5:1$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:
  • Blockage of Funds in Stock.
  • High Amount outstanding from Debtors.
  • Huge Cash and Bank Balances.
  1. 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.
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Question 56 Marks
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:
  1. Purchase of goods for cash
  2. Purchase of goods on credit
  3. Sale of goods (costing ₹ 10,000) for ₹ 10,000
  4. Sale of goods (costing ₹ 10,000) for ₹ 11,000
  5. Cash received from Trade Receivables.
Answer
Quick Ratio = 2 : 1
Let Quick Assets be = ₹ 20,000
Current Liabilities = ₹ 10,000
  1. 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 ₹ 5,000 for cash

Quick Assets = 20,000 - 5,000 (Cash) = ₹ 15,000

Quick Ratio after Purchase of will be $=\frac{(20,000-5,000)}{10,000}=1.5:1$
  1. 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 ₹ 5,000

Current Liabilities = 10,000 + 5,000 (Creditors) = ₹ 15,000

Quick Ratio after Purchase of good on Credit $=\frac{(20,000)}{(10,000+5,000)}=1.33:1$
  1. Sale of goods for ₹ 10,000- Improve
Reason: Sale of goods will result in increase in Quick Assets by the amount of ₹ 10,000 in the form of either in cash or debtor. This transaction will result no change in current liabilities.

Quick Ratio after Sale of goods $=\frac{(20,000+10,000)}{(10,000)}=3:1$
  1. Sale of goods costing ₹ 10,000 of or ₹ 11,000-Improve
Reason: This transaction will increase the Quick Assets by ₹ 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 = ₹ 31,000

Quick Ratio after Sale of goods $=\frac{(20,000+11,000)}{(10,000)}=3.1:1$
  1. 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 ₹ 5,000

Quick Assets = 20,000 + 5,000 (Cash) - 5,000 (Debtors) = ₹ 20,000

Quick Ratio after case received from debtors $=\frac{(20,000-5,000+5,000)}{(10,000)}=2:1$
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Question 66 Marks
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:
  1. Issue of new shares for cash.
  2. Conversion of debentures into equity shares.
  3. Sale of a fixed asset at profit.
  4. Purchase of a fixed asset on long-term deferred payment basis.
  5. Payment to creditors.
Answer
Let’s take Debt and Equity as ₹ 2,00,000 and ₹ 1,00,000
$\text{Debt to Equity Ratio}=\frac{\text{Debt}}{\text{Equity}}$
$=\frac{2,00,000}{1,00,000}=2:1$
  1. Issue of new shares for cash (say ₹ 50,000)
Debt to Equity Ratio $=\frac{2,00,000}{1,00,000+50,000}=1.33:1\text{ (Decrease)}$
  1. Conversion of debentures into equity shares (say ₹ 50,000)
Debt to Equity Ratio $=\frac{2,00,000}{1,00,000+50,000}=1.33:1\text{ (Decrease)}$
  1. Sale of a fixed asset at profit (say ₹ 50,000 profit)
Debt to Equity Ratio $=\frac{2,00,000}{1,00,000+50,000}=1.33:1\text{ (Decrease)}$
  1. Purchase of fixed asset on long term payment basis (say ₹ 50,000)
Debt to Equity Ratio $=\frac{2,00,000+50,000}{1,00,000}=2.5:1\text{ (Increase)}$
  1. Payment to creditors (say ₹ 50,000)
Debt to Equity Ratio $=\frac{2,00,000}{1,00,000}=2:1\text{ (No Change)}$
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Question 76 Marks
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:
  1. Obtained a loan of ₹ 5,00,000 from State Bank of India payable after five years.
  2. Purchased machinery of ₹ 2,00,000 by cheque.
  3. Redeemed 7% Redeemable Preference Shares ₹ 3,00,000.
  4. Issued equity shares to the vendor of building purchased for ₹ 7,00,000.
  5. Redeemed 10% redeemable debentures of ₹ 6,00,000.
Answer
 
Transaction
Impact
(i)
Obtained a loan of ₹ 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.
(ii)
Purchased machinery of ₹ 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.
(iii)
Redeemed 7% Redeemable Preference Shares ₹ 3,00,000.
Both shareholders' funds and total assets decrease by 3,00,000 simultaneously and so proprietary ratio will decrease.
(iv)
Issued equity shares to the vendor of building purchased for ₹ 7,00,000.
Both shareholders' funds and total assets increase by 7,00,000 simultaneously and so proprietary ratio will improve.
(v)
Redeemed 10% redeemable debentures of ₹ 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.
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Question 86 Marks

From the above Comparative Statement of Profit and loss for the year ended 31st March, 2017 and 31st March, 2018, compute Net Profit ratio.
Answer
Net Profit Ratio 31st March, 2017 31st March, 2018
$\frac{\text{Net Profit after Tax}}{\text{Revenue from Operation}}\times100$ $=\frac{₹\ 16,80,000}{₹\ 24,00,000}\times100=70\%$ $=\frac{₹\ 28,80,000}{₹\ 40,00,000}\times100=72\%$
Note: It is assumed that no expenses is incurred to earn Non-Operating Income (Other Income).
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Question 96 Marks
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:
  1. Trade Receivables Turnover Ratio.
  2. Average Trade Receivables.
  3. Trade Receivables at the end when Trade Receivables at the end are more than that in the beginning by ₹ 6,000.
Answer
  1. Debt Collection Period $=\frac{360}{\text{Trade Receivable Turnover Ratio}}$
$36=\frac{360}{\text{Trade Receivable Turnover Ratio}}$

Trade Receivables Turnover Ratio = 10 Times
  1. Trade Receivable Turnover Ratio $=\frac{\text{Net Credit Sale}}{\text{Average Trade Receivables}}$
$10=\frac{4,00,000}{\text{Average Trade Receivables}}$

Average Trade Receivable = ₹ 40,000
  1. Let the Opening Trade Receivables be x
$\therefore$ Closing Trade Receivables = x + 6,000

Average Trade Receivables $=\frac{\text{Opning Trade Receivables+Closing Trade Receivables}}{2}$

$40,000=\frac{\text{x+x}+6,000}{2}$

or, 80,000 = 2x + 6,000

or, 2x = 74,000

or, x = 37,000

$\therefore$ Opening Trade Receivables = x = ₹ 37,000

Closing Trade Receivables = x + 6,000 = 43,000.
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Question 106 Marks

From the above Comparative Statment of Profit and loss for the year ended 31st March, 2017 and 31st March, 2018, compute Operating ratio.
Answer
Operating Ratio 31st March, 2017 31st March, 2018
$\frac{\text{Operating Cost}}{\text{Revenue from Operation}}\times100$ $=\frac{₹\ 20,00,000}{₹\ 32,00,000}\times100=62.50\%$ $=\frac{₹\ 22,00,000}{₹\ 40,00,000}\times100=55.00\%$
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Question 116 Marks

From the above, Compute Operating Ratio.
Answer
Operating Ratio 31st March, 2017 31st March, 2018
$\frac{\text{Operating Cost}}{\text{Revenue from Operation}}\times100$ $=\frac{₹\ 10,00,000}{₹\ 16,00,000}\times100=62.50\%$ $=\frac{₹\ 11,00,000}{₹\ 20,00,000}\times100=55\%$
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Question 126 Marks

From the above Common-size Statment of Profit and loss for the year ended 31st March, 2017 and 31st March, 2018, compute Gross Profit ratio.
Answer
Gross Profit Ratio 31st March, 2017 31st March, 2018
$\frac{\text{Gross Profit}}{\text{Revenue from Operation}}\times100$ $=\frac{₹\ 2,50,000}{₹\ 10,00,000}\times100=25\%$ $=\frac{₹\ 4,00,000}{₹\ 12,50,000}\times100=32\%$
Gross Profit: ₹ ₹
Revenue From Operations. $1,00,000$ $12,50,000$
Less: Cost of Revenue from Operations. $\underline{7,50,000}$ $\underline{8,50,000}$
  $\underline{2,50,000}$ $\underline{4,00,000}$
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Question 136 Marks
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
$\text{Case Sale}=\text{Total Sales}\times\frac{25}{100}$
$\text{Case Sales}=\text{x}\times\frac{25}{100}=\frac{25\text{x}}{100}$
Total Sales = Cash Sales + Credit Sales
$6,00,000=\frac{25\text{x}}{100}+\text{x}$
or, $\frac{125\text{x}}{100}=6,00,000$
or, $\frac{6,00,000\times100}{125}=4,80,000$
Credit Sales = 4,80,000
Closing Trade Receivables = Opening Trade Receivables + 40,000
1,00,000 = Opening Trade Receivables + 40,000
Opening Trade Receivables = ₹ 60,000
Average Trade Receivable $=\frac{\text{Opening Trade Receivable+Closing Trade Receivables}}{2}$
$=\frac{1,00,000+60,000}{2}=₹\ 80,000$
Trade Receivable Turnover Ratio $=\frac{\text{Credit Sales}}{\text{Average Trade Receivable}}$
$=\frac{4,80,000}{80,000}=6\text{ Times}$
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Question 146 Marks
From the following, calculate:
  1. Debt to Equity Ratio.
  2. Total Assets to Debt Ratio.
  3. Proprietary Ratio.
 
₹
Equity Share Capital.
75,000
Preference Share Capital.
25,000
General Reserve.
45,000
Balance in Statement of Profit and Loss.
30,000
Debentures. 75,000
Trade Payables. 40,000
Outstanding Expenses. 10,000
Answer
Debt to Equity Ratio $=\frac{\text{Long-term Debts}}{\text{Shareholders' Funds}}$ Debt to Equity Ratio $=\frac{\text{Debentures}}{\text{Equity Share Cpital + Perferance Share Capital + General Reserve + Balance in stament}}$ Debt to Equity Ratio $=\frac{75,000}{75,000+25,000+45,000+30,000}=0.43:1$ Total Assets to Debt Ratio $=\frac{\text{Total Assets}}{\text{Long-term Debts}}$ Total Assets to Debt Ratio $=\frac{\text{Equity Share Cpital + Perferance Share Capital + General Reserve + Balance in staments}}{\text{Debenteres}}$ Total Assets to Debt Ratio $=\frac{75,000+25,000+45,000+30,000+75,000+40,000+10,000}{75,000}=4:1$ Proprietary Ratio $=\frac{\text{Shareholders' Fund}}{\text{Total Assets}}$ $\text{Proprietary Ratio}=\frac{\ \ \ \ \text{Equity Share Capital}\\ +\text{ Preference Share Capital}\\ +\text{ General Reserve}\\+ \text{ Balance in Statement of Profit & Loss}}{\ \ \ \ \text{Equity Share Capital}\\+\text{ Preference Share Capital}\\+\text{ General Reserve }\\+ \text{ Balance in Statement of Profit & Loss}\\+\text{ Trade Payables}\\+\text{ Outstanding Expenses}}$$$Proprietary Ratio $=\frac{75,000+25,000+45,000+30,000}{75,000+25,000+45,000+30,000+75,000+40,000+10,000}=0.58:1\text{ or }58.33\%$
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Question 156 Marks
XYZ Ltd., in the bussiness of readymade garments, decided to take part in Sawachh Bharat Abhiyan by educating the people about the disadvantages of pollation and its effect on health. Its Comparative Balance Sheet is given Below:

Compute Proprietary Ratio from the Comparative Balance Sheet as at 31st March, 2017 and 31st March, 2018. Also identify the value practiced by the company.
Answer
Proprietary Ratio 31st March, 2017 31st March, 2018
$\frac{\text{Shareholders' Funds}}{\text{Total Assets}}$ $=\frac{₹\ 6,00,000+₹\ 2,40,000}{₹\ 14,80,000}=0.57:1$ $=\frac{₹\ 7,20,000+₹\ 3,00,000}{₹\ 17,70,000}=0.58:1$
Value: Practiced is educating people about the harmful effects of pollution on health.
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Question 166 Marks
From the following calculate:
  1. Current Ratio.
  2. Working Capital Turnover Ratio.
 
₹
Revenue from Operations.
1,50,000
Total Assets.
1,00,000
Shareholders' Funds.
60,000
Non-current Liabilities.
20,000
Non-current Assets.
50,000
Answer
  1. Current Ratio = $\frac{\text{Current Assets}}{\text{Current Liabilities}}$
Current Assets = Total Assets - Non Current Assets

= 1,00,000 - 50,000

= ₹ 50,000

Total Assets = Total Liabilities = Shareholders’ Funds + Non Current Liabilities + Current Liabilities

1,00,000 = 60,000 + 20,000 + Current Liabilities

Current Liabilities = ₹ 20,000

Current Ratio = $\frac{50,000}{20,000}=2.5:1$
  1. Working Capital Turnover Ratio = $\frac{\text{Revenue From Operation}}{\text{Working Capital}}$
Working Capital = Current Assets - Current Liabilities

= 50,000 - 20,000

= ₹ 30,000

Working Capital Turnover Ratio = $\frac{1,50,000}{30,000}=5\text{ Times}$
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Question 176 Marks

From the above Comparative Statment of Profit and loss for the year ended 31st March, 2017 and 31st March, 2018, compute Gross Profit ratio.
[Hint: Cost of Revenue from Operations (Cost of Goods Sold) = Purchases of Stock-in- Trade + Change in Inventories of Stock-in-Trade.]
Answer
Gross Profit Ratio 31st March, 2017 31st March, 2018
$\frac{\text{Gross Profit}}{\text{Revenue from Operation}}\times100$ $=\frac{₹\ 1,20,000}{₹\ 4,20,000}\times100=28.57\%$ $=\frac{₹\ 3,00,000}{₹\ 8,00,000}\times100=37.50\%$
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Question 186 Marks
Hopeful Ltd. in the business of manufacturing and selling FMCG decided to set up a new Manufacturing unit in economically backward area of Chattisgarh. It decided to employ Factory staff the local population. But before that it imparted training to them for six months and gave each trainee a stiped of ₹ 5,000 per month, Given below is its Comparative Balance Sheet:

Calculate Debt to Equity Ratio From the above. Also identify the value adopted by the Company.
Answer
Debt to Equity Ratio 31st March, 2017 31st March, 2018
$\frac{\text{Debt}}{\text{Equity(Shareholders' Funds)}}$ $=\frac{₹\ 6,00,000}{₹\ 12,00,000}=0.5:1$ $=\frac{₹\ 6,00,000}{₹\ 18,00,000}=0.33:1$
Value practiced are: Economic uplifting the backward region and developing employable skills in the local population.
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Question 196 Marks
On the basis of the following information, calculate:
  1. Debt to Equity Ratio.
  2. Working Capital Turnuover ratio.
Information
 
₹
Revenue from operation:
 
a. Cash Sales
b. Credit Sales
40,00,000
20,00,000
Cost of Goods Sold.
 
35,00,000
Other Current Assets.
 
8,00,000
Current Liabilities.
 
4,00,000
Paid-up Share Capital.   17,00,000
6% Debentures   3,00,000
9% Loan from Bank.   7,00,000
Debntures Redemption Reserve.   3,00,000
Closing Inventory.   1,00,000
Answer
  1. Long-term Debts = 6% Debentures + 9% Loan from Bank
= 3,00,000 + 7,00,000 = 10,00,000

Equity = Paid-up Share Capital + Debenture Redemption Reserve

= 17,00,000 + 3,00,000 = 20,00,000

Debt-Eqity Ratio = $\frac{\text{Long-Term Debt}}{\text{Equity}}$

$=\frac{10,00,000}{20,00,000}=0.5:1$
  1. 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

Working Capital Turnover Ratio = $\frac{\text{Net Sales}}{\text{Working Capital}}$

$=\frac{60,00,000}{5,00,000}=12\text{ times}$
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Question 206 Marks
Prepare a Common-size Income Statement of XYZ Ltd. From the Following Information and compute Net Profit Ratio.
Answer

Net Profit Ratio $\frac{\text{Net Profit After Tax}}{\text{Revenue from Operation}}\times100$
$=\frac{₹\ 6,48,000}{₹\ 60,00,000}\times100=10.80\%$
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Question 216 Marks
From the following Balance Sheet of CPT Ltd. as at 31st March, 2018, Prepare a Comparative Balance Sheet and also compute debt to Equity Ratio:
Answer

Debt to Equity Ratio $=\frac{\text{Long-term Debts}}{\text{Shareholders' Funds}}$
For 2016-17 $=\frac{₹\ 6,00,000}{₹\ 19,00,000}=0.32:1$
For 2017-18 $=\frac{₹\ 9,00,000}{₹\ 23,00,000}=0.39:1$
Note: Shareholders' Fund = Share Capital + Reserves and surplus
2016-17 = ₹ 15,00,000 + ₹ 4,00,000 = ₹ 19,00,000; 2017= 18 = ₹ 20,00,000 + ₹ 3,00,000 = ₹ 23,00,000.
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Question 226 Marks

From the above, Compute Operating Ratio.
Answer
Operating Ratio 31st March, 2017 31st March, 2018
$\frac{\text{Operating Cost}}{\text{Revenue from Operation}}\times100$ $=\frac{₹\ 1,32,000}{₹\ 7,50,000}\times100=17.67\%$ $=\frac{₹\ 2,90,000}{₹\ 10,00,000}\times100=29\%$
Note: Operating Profit = Net Profit Before - Tax = Other Income.
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Question 236 Marks
Calculate Current Ratio, Quick Ratio and Debt to Equity Ratio from the figures given below:
Particulars
₹
Inventory.
Prepaid Expenses.
Other Current Assets.
Current Liabilities.
12% Debentures.
Accumulated Profits.
Equity Share Capital.
Non-current Investments.
30,000
2,000
50,000
40,000
30,000
10,000
1,00,000
15,000
Answer
  1. Current Assets = Inventory + Prepaid Expenses + Other Current Assets
= 30,000 + 2,000 + 50,000 = 82,000
Current Liabilities = 40,000
Current Ratio = $\frac{\text{Current Assets}}{\text{Current Liabilities}}$
= $\frac{82,000}{40,000}=2.05:1$
  1. Liquid Assets = Current Assets - Inventory - Prepaid Expenses
= 82,000 - 30,000 - 2,000 = 50,000
Quick Ratio = $\frac{\text{Liquid Assets}}{\text{Current Liabilities}}$
$\frac{50,000}{40,000}=1.25:1$
  1. Long-term Debts = 12% Debentures = 30,000
Equity = Accumulated Profits + Equity Share Capital
= 10,000 + 1,00,000 = 1,10,000
Debt- Equity Ratio = $\frac{\text{Long-Term Debts}}{\text{Equity}}$
$\frac{30,000}{1,10,000}=0.27:1$
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Question 246 Marks
From the Following Balance Sheet of Moon Ltd. as at 31st March, 2018, prepare a Common-size Balence Sheet and compute Proprietary Ratio:
Answer

Proprietary Ratio $=\frac{\text{Shareholders' Funds}}{\text{Total Assets}}$
$=\frac{₹\ 68,00,000}{₹\ 1,00,00,000}=0.68:1.$
Shareholders' Funds = Share Capital + Reserves and Surplus
= ₹ 60,00,000 + ₹ 8,00,000 = ₹ 68,00,000.
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Question 256 Marks
The motto of Yash Ltd., an advertising company is 'Service with Dignity'. Its management and work force is hard working, honest and motivated. The net profit of the Company doubled during the year ended 31st. March, 2014. Encouraged by its performance company decided to give one month extra salary to all its employees.

Following is the Comparative Statement of Profit and Loss of The company for the years ended 31st March, 2013 and 2014.
  1. Calculate Net Profit Ratio for the year ending 31st March, 2013 and 2014.
    1. Identify any two value which Yash Ltd, is typing to propagate.
Answer
  1. Net Profit Ratio $=\frac{\text{Net Profit after Tax}}{\text{Revenue from Operation}}\times100$
For the year ending 31st March, 2013 $=\frac{₹\ 3,00,000}{₹\ 10,00,000}\times100=30\%$

For the year ending 31st March, 2014 $=\frac{₹\ 6,00,000}{₹\ 15,00,000}\times100=40\%$
  1. Values that yash Ltd. propagates are:
  1. Sharing Profits with the employees.
  2. Acknowledging hard work and honesty of employees.
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Question 266 Marks
The motto of 'Pharma Ltd.', a company engaged in the manufacturing of low-cast generic medicines, is 'Healthy India'. Its Management and employees are hardworking, honest and motivated. The net profit of the company doubled during the year ended 31st March, 2014. Encouraged by its performance, the company decided to pay bonus to all employees at the rate than last year.
Following is the Comparative Statement of Profit and Loss of the company for the years ended 31st March, 2013 and 31st march, 2014:
  1. Calculate Net Profit Ratio for the years ending 31st March, 2013 and 2014.
  2. Identify any two value which 'Pharma Ltd.' is trying to propagate.
Answer
  1. Net Profit Ratio $=\frac{\text{Net Profit after Tax}}{\text{Revenue from Operation}}\times100$
For the year ending 31st March, 2013 $=\frac{₹\ 6,00,000}{₹\ 20,00,000}\times100=30\%$

For the year ending 31st March, 2014 $=\frac{₹\ 12,00,000}{₹\ 30,00,000}\times100=40\%$
  1. Two value which 'Pharma Ltd.' is trying to propagate:
  1. Sharing Profits with the employees.
  2. Recougnition of hard work and honesty of employees.
  3. Ethical Practices of Pharma Ltd.
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Question 276 Marks
State with reason whether the following transactions will increase, decrease or not change the 'Return on Investment' Ratio:
  1. Purchase of machinery worth ₹ 10,00,000 by issue of equity shares.
  2. Charging depreciation of ₹ 25,000 on machinery.
  3. Redemption of debentures by cheque ₹ 2,00,000.
  4. Conversion of 9% Debentures of ₹ 1,00,000 into equity shares.
Answer
 
Transaction
Impact
(i)
Purchase of machinery worth ₹ 10,00,000 by issue of equity shares.
Issue of shares will lead to an increase in the capital employed by ₹ 10,00,000.But profit remains intact and so there will be a decline in the return on investment ratio.
(ii)
Charging depreciation of ₹ 25,000 on machinery.
Simultaneous decrease in profits and capital employed by ₹ 25,000 will lead to a decline in return on investment ratio.
(iii)
Redemption of debentures by cheque ₹ 2,00,000.
Redemption of debentures will lead to a decrease in the capital employed by ₹ 2,00,000. But profit remains intact and so there will be an increase in the return on investment ratio.
(iv)
Conversion of 9% Debentures of ₹ 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.
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Question 286 Marks
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
Return on Investment:
Return on Investment = $\frac{\text{Net Profit brfore Interest, Tax and Dividend}}{\text{Capital Employed}}\times100$
Net Profit Before Interest, Tax and Dividend = ₹ 14,50,000
Capital Employed = Fixed Assets + Current Assets - Current Liabilities
= ₹ (75,00,000 + 40,00,000 - 27,00,000)
= ₹ 88,00,000
Return on Investment = $\frac{14,50,000}{88,00,000}\times100$
= 16.48%
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Question 296 Marks

From the above Common-size Balance Sheet as at 31st March, 2018, compute current Ratio, Quick Ratio, Total Assets to Debt Ratio, and Dept to Equity Ratio.
Answer
Current Ratio 31st March, 2017 31st march,2018
$\frac{\text{Current Assets}}{\text{Current Liabilities}}$ $=\frac{₹\ 5,00,000}{₹\ 2,00,000}=2.5:1$ $=\frac{₹\ 9,00,000}{₹\ 4,00,000}=2.25:1$
Quick Ratio    
$\frac{\text{Current Assets}}{\text{Current Liabilities}}$ $=\frac{₹\ 5,00,000}{₹\ 2,00,000}=2.5:1$ $=\frac{₹\ 9,00,000}{₹\ 4,00,000}=2.25:1$
Total Assets to Debt Ratio    
$\frac{\text{Total Assets}}{\text{Debt}}$ $=\frac{₹\ 15,00,000}{₹\ 5,00,000}=3:1$ $=\frac{₹\ 24,00,000}{₹\ 8,00,000}=3:1$
Debt to Equity Ratio    
$\frac{\text{Debt}}{\text{Equity (Shareholders' Finds)}}$ $=\frac{₹\ 5,00,000}{₹\ 8,00,000}=0.63:1$ $=\frac{₹\ 8,00,000}{₹\ 12,00,000}=0.67:1$
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Question 306 Marks
SCS Ltd. Has a manufacturing base in rural area of Andhra Pradesh. As a Corporate Social Responsibility it decided to join hands Municipal Corporation in educating Local population the advantages of cleanliness and contributed large amount in making the area clean. Following is its Comparative Balance Sheet:

From the Comparative Balance Sheet, compute Total Assets to Debt Ratio. Also Identify the value adopted by the company.
Answer
Total Assets Debt Ratio 31st March, 2017 31st March, 2018
$\frac{\text{Total Assets}}{\text{Debt}}$ $=\frac{₹\ 7,40,000}{₹\ 1,70,000}=4.35:1$ $=\frac{₹\ 8,85,000}{₹\ 2,55,000}=3.47:1$
Value: Making people healthy through hygiene and cleanliness.
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Question 316 Marks
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:
  1. Sale of Land (Book value ₹ 4,00,000) for ₹ 5,00,000.
  2. Issue of Equity Shares for the purchase of Plant and Machinery worth ₹ 10,00,000.
  3. Issue of Preference Shares for redemption of 13% Debentures, worth ₹ 10,00,000.
Answer
Debt-Equity Ratio = 2 : 1
Let Long-term loan = ₹ 20,00,000
Shareholders’ Funds = ₹ 10,00,000
  1. Sale of Land (Book Value ₹ 4,00,000) for ₹ 5,00,000 - Decrease
Reason: This transaction will result increase in Shareholders’ Funds by ₹ 1,00,000 as profit on sale of Land.

Shareholders’ Funds after adjusting profit on sale of land = 10,00,000 + 1,00,000 = ₹ 11,00,000

$\text{Debt-Equity Ratio}=\frac{20,00,000}{11,00,000}=1.81:1$
  1. Issue of Equity share for the purchase of plant and Machinery worth ₹ 10,00,000 - Decrease.
Reason: This transaction will increase the amount of Shareholders Fund by ₹ 10,00,000 in the form of equity shares and have no effect on Long-term Loans.

$\text{Debt-Equity Ratio}=\frac{20,00,000}{(10,00,000+10,00,000)}=1:1$
  1. Issue of preference Shares for redemption of 13% Debentures worth ₹ 10,00,000- Decrease.
Reason: This transaction will lead to decrease in Long-term Loan by ₹ 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.

$\text{Debt-Equity Ratio}=\frac{(20,00,000-10,00,000)}{(10,00,000+10,00,000)}=0.5:1$
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Question 326 Marks
Following information is given about a company:
 
₹
Revenue from Operations, i.e., Net Sales.
1,50,000
Gross Profit.
30,000
Cost of Revenue from Operations (Cost of Goods Sold).
1,20,000
Opening inventory.
29,000
Closing Inventory. 31,000
Debtors. 16,000
From the above information, calculate following ratios:
  1. Gross Profit Ratio,
  2. Inventory Turnover Ratio, and
  3. Trade Receivables Turnover Ratio.
Answer
  1. Sales = 1,50,000
Gross Profit = 30,000

Gross Profit Ratio = $\frac{\text{Gross Profit}}{\text{Net Sales}}\times100$

$=\frac{30,000}{1,50,000}\times100=20\%$
  1. Opening Inventory = 29,000
Closing Inventory = 31,000

Average Inventory = $\frac{\text{Opening Inventory + Closing Inventory}}{2}$

$=\frac{29,000 + 31,000}{2}=30,000$

Cost of Goods Sold = 1,20,000

Inventory Turnover Ratio = $\frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}$

$=\frac{1,20,000}{30,000}=4\text{ Times}$
  1. Trade Receivable Turnover Ratio = $\frac{\text{Net Credit Sales}}{\text{Average Trade Receivables}}$
$=\frac{1,50,000}{16,000}=9.4\text{ Times}$
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Question 336 Marks
From the following information, calculate any two of the following ratios:
  1. Current Ratio.
  2. Debt to Equity Ratio.
  3. Operating Ratio.
Revenue from Operations (Net Sales) ₹ 1,00,000; Cost of Revenue from Operations (Cost of Goods Sold) was 80% of sales; Equity Share Capital ₹ 7,00,000; General Reserve ₹ 3,00,000; Operating Expenses ₹ 10,000; Quick Assets ₹ 6,00,000; 9% Debentures ₹ 5,00,000; Closing Inventory ₹ 50,000; Prepaid. Expenses ₹ 10,000 and Current Liabilities ₹ 4,00,000.
Answer
  1. Current Assets = Quick Assets + Closing Stock + Prepaid Expenses
= 6,00,000 + 50,000 + 10,000 = 6,60,000

Current Liabilities = 4,00,000

Current Ratio = $\frac{\text{Current Assets}}{\text{Current Liabilities}}$

$=\frac{6,60,000}{4,00,000}=1.65:1$
  1. Long-term Debts = 9% Debentures = 5,00,000
Shareholder’s Funds = Equity Share Capital + General Reserve

Debt-Equity Ratio = $\frac{\text{Long-term Debts}}{\text{Shereholder's Fund}}$

$=\frac{5,00,000 }{10,00,000}=0.5:1$
  1. Sales = 1,00,000
Cost of Goods Sold = 80% of Sales = 80,000

Operating Expenses = 10,000

Operating Cost = Cost of Goods Sold + Operating Expenses

Operating Ratio = $\frac{\text{Operating Cost}}{\text{Net Sales}}\times100$

$=\frac{90,000}{1,00,000}\times100=90\%$
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Question 346 Marks
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:
  1. Sale of goods for ₹ 40,000 (Cost ₹ 32,000).
  2. Increase in the value of Closing Inventory by ₹ 40,000.
  3. Goods purchased for ₹ 80,000.
  4. Purchases Return ₹ 20,000.
  5. Goods costing ₹ 10,000 withdrawn for personal use.
  6. 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
Average Stock $=\frac{\text{Opening Stock+Closing Stock}}{2}$
$=\frac{40,000+1,20,000}{2}=80,000$
Stock Turnover Ratio $=\frac{2,40,000}{80,000}=3\text{ Time}$
  1. Sale of goods for ₹ 40,000 (Cost ₹ 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.
  1. 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.
  1. Goods purchased for ₹ 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.
  1. Purchase Return ₹ 20,000-Increase
Reason: It will result decrease in Cost of Goods Sold and Average Stock with same amount.
  1. Goods costing ₹ 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.
  1. Goods costing ₹ 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.
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Question 356 Marks
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:
  1. Collection from Trade Receivables ₹ 40,000.
  2. Credit Revenue from Operations, i.e., Credit Sales ₹ 80,000.
  3. Sales Return ₹ 20,000.
  4. Credit Purchase 1, ₹ 60,000.
Answer
Average Trade Receivables $=\frac{1,20,000+2,00,000}{2}=₹\ 1,60,000$
Trade Receivable Turnover Ratio $=\frac{\text{Net Credit Sales}}{\text{Average Trade Receivables}}=\frac{8,00,000}{1,60,000}=5 \ \text{Times}$
  1. Collection from Trade Receivables ₹ 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 = ₹ 1,60,000

Average Trade Receivables $=\frac{1,20,000+1,60,000}{2}=₹\ 1,40,000$

Trade Receivable Turnover Ratio $=\frac{\text{Net Credit Sales}}{\text{Average Trade Receivables}}$

$=\frac{8,00,000}{4,40,000}=5.71\text{ Times}$
  1. Credit Revenue from Operations, i.e. Sales ₹ 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 = ₹ 8,80,000

Closing Trade Receivables = 2,00,000 + 80,000 = ₹ 2,80,000

Average Trade Receivables $=\frac{1,20,000+2,80,000}{2}=₹\ 2,00,000$

Trade Receivable Turnover Ratio $=\frac{\text{Credit Sales}}{\text{Average Trade Receivables}}$

$=\frac{8,80,000}{2,00,000}=4.4\text{ Times}$
  1. Sales Return ₹ 20,000 - Increase
Reason: This transaction will result in decrease in both sales and average Trade Receivables.

Credit Sales = 8,00,000 − 20,000= ₹ 7,80,000

Closing Trade Receivables = 2,00,000 − 20,000 = ₹ 1,80,000

Average Trade Receivables $=\frac{1,20,000+1,80,000}{2}=₹\ 1,50,000$

Trade Receivable Turnover Ratio $=\frac{7,80,000}{1,50,000}=5.2\text{ Times}$
  1. Credit Purchase ₹ 1,60,000 - No Change
Reason: Credit Purchase does not affect the Debtors Turnover Ratio.
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Question 366 Marks
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. Metal
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.
 
Opening Trade Receivables
(₹)
Closing Trade Receivables
(₹)
Case 1:
50,000
1,50,000
Case 2:
50,000
1,50,000
Case 3:
40,000
1,60,000
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
Trade Receivables Turnover Ratio $=\frac{\text{Credit Sales}}{\text{Average Trade Receivables}}$
$3=\frac{3,00,000}{\text{Average Trade Receivables}}$
Average Trade Receivable = ₹ 1,00,000
Case 1:
Let Opening Trade Receivables = x
Closing Trade Receivables = x + 1,00,000
Average Trade Receivable $=\frac{\text{Opening Trade Receivable+Closing Trade Receivables}}{2}$
$1,00,000=\frac{\text{x+x}+1,00,000}{2}$
or, 2,00,000 = 2x + 1,00,000
or, 2x = 1,00,000
or, x = 50,000
Opening Trade Receivables = x = ₹ 50,000
Closing Trade Receivables = x + 1,00,000 = 50,000 + 1,00,000 = ₹ 1,50,000
Case 2:
Let Opening Trade Receivables = x
Closing Trade Receivables = 3x
Average Trade Receivable $=\frac{\text{Opening Trade Receivable+Closing Trade Receivables}}{2}$
$1,00,000=\frac{\text{x}+3\text{x}}{2}$
or, 2,00,000 = 4x
or, x = 50,000
Opening Trade Receivables = x = ₹ 50,000
Closing Trade Receivables = 3x = 3 × 50,000 = ₹ 1,50,000.
Case 3:
Let Opening Trade Receivables = x
Closing Trade Receivables = x + 3x = 4x
Average Trade Receivable $=\frac{\text{Opning Trade Receivable+Closing Trade Receivables}}{2}$
$1,00,000=\frac{\text{x}+4\text{x}}{2}$
or, 2,00,000 = 5x
or, x = 40,000
Opening Trade Receivables = x = ₹ 40,000
Closing Trade Receivables = 4x = 4 × 40,000 = ₹ 1,60,000.
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Question 376 Marks
Calculate following ratios on the basis of the following information:
  1. Gross Profit Ratio.
  2. Current Ratio.
  3. Acid Test Ratio.
  4. 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
Gross Profit Ratio = $\frac{\text{Gross Profit}}{\text{Revenue from Operations}}\times100$
Gross Current Ratio = $\frac{50,000}{1,00,000}\times100=50\%$
Current Ratio = $\frac{\text{Current Assets}}{\text{Current Liabilities}}$
Current Ratio = $\frac{\text{Inventory + Cash and Cash Equivalent + Trade Receivables}}{\text{Current Liabilities}}$
Current Ratio = $\frac{15,000+17,5000+27,500}{40,000}=1.5:1$
Liquid Ratio = $\frac{\text{Liquid Assets}}{\text{Current Liabilities}}$
Liquid Ratio = $\frac{\text{Cash and Cash Equivalnts + Trade Receivable}}{\text{Current Liabilities}}$
Liquid Ratio = $\frac{17,5000+27,500}{40,000}=1.125:1$
Inventory Turnover Ratio = $\frac{\text{Cost of Good Sold}}{\text{Average Stock}}$
Inventory Turnover Ratio = $\frac{\text{Revenue From Operation - Gross Profit}}{\text{Average Stock}}$
Inventory Turnover Ratio = $\frac{1,00,000-50,000}{15,000}=3.33\text{ Times}$
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Question 386 Marks
Calculate following ratios on the basis of the given information:
  1. Current Ratio.
  2. Acid Test Ratio.
  3. Operating Ratio.
  4. Gross Profit Ratio.
 
₹
Current Assets.
70,000
Current Liabilities.
35,000
Inventory.
30,000
Revenue from Operations (Sales). 1,20,000
Operating Expenses. 40,000
Cost of Goods Sold or Cost of Revenue from Operations. 60,000
Answer
  1. Current Assets = 70,000
Current Liabilities = 35,000

Current Ratio = $\frac{\text{Current Assets}}{\text{Current Liabilities}}$

$=\frac{70,000}{35,000}=2:1$
  1. Liquid Assets = Current Assets - Inventory
= 70,000 - 30,000 = 40,000

Acid Test Ratio = $\frac{\text{Liquid Assets}}{\text{Current Liabilities}}$

$=\frac{40,000}{35,000}=1.14:1$
  1. Net Sales = 1,20,000
Operating Cost = Cost of Goods Sold + Operating Expenses

= 60,000 + 40,000 = 1,00,000

Operating Ratio = $\frac{\text{Operating Cost}}{\text{Net Sales}}\times 100$

$=\frac{1,00,000}{1,20,000}\times100=83.33\%$
  1. Gross Profit = Net Sales - Cost of Goods Sold
= 1,20,000 - 60,000 = 60,000

Gross Profit Ratio = $\frac{\text{Gross profit}}{\text{Net Sales}}\times 100$

$=\frac{60,000}{1,20,000}\times100=50\%$
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Question 396 Marks
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
  1. Opening Inventory = 28,000
Closing Inventory = 22,000
Average Inventory = $\frac{\text{Opening Inventory + Closing Inventory}}{2}$
$=\frac{28,000 + 22,000}{2}=₹\ 25,000$
Cost of Goods Sold = Opening Inventory + Purchases + Carriage Inwards - Closing Inventory
= 28,000 + 46,000 + 4,000 - 22,000 = 56,000
Inventory Turnover Ratio $=\frac{\text{Cost of Goods Sold}}{\text{Average Inventory }}=\frac{56,000}{25,000} = 2.24 \ \text{Times}$
  1. Operating Expenses = Office Expenses + Selling and Distribution Expenses
= 4,000 + 2,000 = 6,000
Operating Cost = Cost of Goods Sold + Operating Expenses
= 56,000 + 6,000 = 62,000
Net Sales = ₹ 80,000
Operating Ratio = $\frac{\text{Operating Cost}}{\text{Net Sales}}\times100$
$=\frac{62,000}{80,000}\times100=77.5\%$
  1. Working Capital = 40,000
Working Capital Turnover Ratio = $\frac{\text{Net Sales}}{\text{Working Capital}}$
$=\frac{80,000}{40,000}=2\text{ Times}$
Note: Sales return will not be considered as amount of net sales is provided in the question.
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Question 406 Marks
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 Operating Ratio.
Answer
  1. Opening Inventory = 80,000
Closing Inventory = 1,60,000

Cost of Goods Sold = Opening Inventory + Purchases + Direct Expenses - Closing Inventory

= 80,000 + 4,30,900 + 4,000 - 1,60,000

= 3,54,900

Average Inventory = $\frac{\text{Opening Inventory + Closing Inventory}}{2}$

$=\frac{80,000 + 1,60,000}{2}=1,20,000$

Inventory Turnover Ratio = $\frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}$

$=\frac{3,54,900}{1,20,000}=2.96\text{ Times}$
  1. Sales = 10,00,000
Gross Profit = Net Sales - Cost of Goods Sold

= 10,00,000 - 3,54,900 = 6,45,100

Gross Profit Ratio = $\frac{\text{Gross Profit}}{\text{Net Sales}}\times100$

$=\frac{6,45,100}{10,00,000}\times100=64.51\%$
  1. Operating Expenses = Administration Expenses + Selling and Distribution Expenses
= 21,100 + 40,000 = 61,100

Operating Cost = Cost of Goods Sold + Operating Expanses

= 3,54,900 + 61,100 = 4,16,000

Operating Ratio = $\frac{\text{Operating Cost}}{\text{Net Sales}}\times100$

$= \frac{4,16,000}{10,00,000}\times100=41.6\%$
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Question 416 Marks
From the information given below, calculate any three of the following ratios:
  1. Gross Profit Ratio.
  2. Working Capital Turnover Ratio.
  3. Debt to Equity Ratio.
  4. Proprietary Ratio.
 
₹
Revenue from Operations (Net Sales).
5,00,000
Cost of Revenue from Operations (Cost of Goods Sold).
3,00,000
Current Assets.
2,00,000
Current Liabilities. 1,40,000
Paid-up Share Capital. 2,50,000
13% Debentures. 1,00,000
Answer
  1. 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

Gross Profit Ratio = $\frac{\text{Gross Profit}}{\text{Net Sales}}\times100$

$=\frac{2,00,000}{5,00,000}\times100=40\%$
  1. Current Assets = 2,00,000
Current Liabilities = 1,40,000

Working Capital = Current Assets - Current Liabilities

= 2,00,000 - 1,40,000 = 60,000

Working Capital Turnover Ratio = $\frac{\text{Net Sales}}{\text{Working Capital}}$

$=\frac{5,00,000}{60,000}=8.33\text{ times}$
  1. Long-term Debts = 13% Debentures = 1,00,000
Equity = Paid-up Share Capital = 2,50,000

Debt-Eqity Ratio = $\frac{\text{Long-Term Debt}}{\text{Equity}}$

$=\frac{1,00,000}{2,50,000}=0.4:1$
  1. Total Assets = Total Liabilities
= Current Liabilities + Paid-up Share Capital + 13% Debentures

= 1,40,000 + 2,50,000 + 1,00,000

= 4,90,000

Proprietary Ratio = $\frac{\text{Shareholders' Fund}}{\text{Total Assets}}$

$=\frac{2,50,000}{4,90,000}=0.51:1$
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