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#### Page No 4.100:

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(e) Goods costing Rs 10,000 withdrawn for personal use- Increase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 4.100:

Cost of Goods Sold = Opening Stock + Purchases + Carriage Inwards − Closing Stock

= 20,000 + 50,000 + 5,000 − 10,000 = 65,000

#### Page No 4.100:

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 4.100:

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 4.100:

Gross Profit = 25% on Cost

Sales = Cost of Goods Sold + Gross Profit

= 6,40,000 + 1,60,000 = 8,00,000

#### Page No 4.100:

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 4.100:

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 4.101:

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 4.101:

Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses – Closing Stock
= Rs 1,25,000 + Rs 3,00,000 + Rs 15,000 – Rs 75,000 = Rs 3,65,000

#### Page No 4.101:

Net Credit Sales = Total Sales − Sales Return − Cash Sales

= 1,00,000 − 1,500 − 23,500 = 75,000

#### Page No 4.102:

Let Credit Sales be = x

Total Sales = Cash Sales + Credit Sales

Credit Sales = 4,80,000

1,00,000 = Opening Trade Receivables + 40,000

Opening Trade Receivables = Rs 60,000

#### Page No 4.102:

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 4.102:

Credit Sales = 8,00,000

Average Debtors = 1,00,000

#### Page No 4.102:

Let Credit Sales be = x

Total Sales = Cash Sales + Credit Sales

= 4,00,000 − 2,00,000 = 2,00,000

#### Page No 4.102:

(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:

Let the Opening Trade Receivables = x

∴ Closing  Trade Receivables = 2x

∴ Opening Trade Receivables = x = 30,000

Closing Trade Receivables = 2x = 2 × 30,000 = 60,000

#### Page No 4.102:

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 4.103:

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 4.103:

(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 4.104:

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 4.104:

Case 1

Net Credit Purchases = Net Purchases − Cash Purchases

= 3,60,000 − 90,000 = 2,70,000

Case 2

Net Purchases = 3,60,000

Case 3

Case 4

Net Credit Payables for Goods = Trade Payables − Creditors for Machinery

= 55,000 − 25,000 = 30,000

#### Page No 4.104:

Working Capital = Current Assets – Current Liabilities
= 5,00,000 – 3,00,000 = 2,00,000

#### Page No 4.104:

Current Assets = Marketable Securities + Inventory + Sundry Debtors + Bills Receivable + Cash at Bank + Cash in Hand

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

= 6,00,000

Current Liabilities = Bills Payable + Sundry Creditors + Provision for Tax

= 30,000 + 2,00,000 + 20,000

= 2,50,000

Working Capital = Current Assets − Current Liabilities

= 6,00,000 − 2,50,000 = 3,50,000

#### Page No 4.104:

Net Sales = Cash Sales + Credit Sales − Sales Returns

= 5,00,000 + 6,00,000 − 1,00,000 = 10,00,000

#### Page No 4.104:

Net Sales = Cost of Goods sold + Gross Profit

Let Net Sales =  x

#### Page No 4.104:

Gross Profit = 25% on Cost
Let Cost be = Rs x

Cost of Goods Sold = 20,00,000

#### Page No 4.104:

Cost of Goods Sold = 40,00,000

Gross Profit = 20% of Cost

#### Page No 4.104:

Gross Profit = Revenue from Operations – Cost of Revenue from Operations
= 6,00,000 – 5,40,000
= Rs 60,000

#### Page No 4.105:

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 4.105:

Sales = Cost + Gross Profit

Cost = x = Rs 3,20,000

#### Page No 4.105:

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 4.105:

Credit Sale = Rs 5,00,000
Rate of Credit Sale to Cash Sale = 4:1

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

#### Page No 4.105:

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 4.105:

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 4.105:

 Transactions Effect on Gross Profit Ratio Reason (i) Purchase of Stock-in-Trade 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 Stock-in-Trade 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) Stock-in-trade 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) Stock-in-Trade 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 4.105:

Operating Ratio = 92%

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 4.105:

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 4.106:

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 4.106:

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 4.106:

Operating Ratio = 82.59%

Operating Ratio + Operating Profit Ratio = 100%

Operating Profit Ratio = 100% − 82.59% = 17.41%

#### Page No 4.106:

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 4.107:

Net Sales = 6,00,000

Net profit = 60,000

#### Page No 4.107:

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 Long-term Debt

= 13,00,000 + 1,00,000

= 14,00,000

#### Page No 4.107:

Net Profit before Interest and Tax = 2,50,000

Capital Employed = 10,00,000

#### Page No 4.107:

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 4.107:

Net Profit before Interest and Tax = 4,00,000

Capital Employed = 15% long-term Debt + Shareholders’ Funds

= 8,00,000 + 4,00,000 = 12,00,000

#### Page No 4.107:

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 + Long-term Borrowings

= 2,00,000 + 1,00,000 + 1,00,000 = 4,00,000

#### Page No 4.108:

(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 4.108:

(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 4.108:

(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)

Long-term 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 4.108:

(i)

Opening Inventory = 28,000

Closing Inventory = 22,000

Cost of Goods Sold = Opening Inventory + Purchases + Carriage Inwards − Closing Inventory

= 28,000 + 46,000 + 4,000 − 22,000 = 56,000

(ii)

Operating Expenses = Office Expenses + Selling and Distribution Expenses

= 4,000 + 2,000 = 6,000

Net Sales = Rs 80,000*

(iii)

Working Capital = 40,000

*Note: Sales return will not be considered as amount of net sales is provided in the question.

#### Page No 4.108:

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

Working Capital = Current Assets – Current Liabilities
= 50,000 – 20,000
= Rs 30,000

#### Page No 4.108:

(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 4.109:

(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)

Long-term Debts = 13% Debentures = 1,00,000

Equity = Paid-up Share Capital = 2,50,000

(iv)

Total Assets = Total Liabilities

= Current Liabilities + Paid-up Share Capital + 13% Debentures

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

= 4,90,000

#### Page No 4.109:

(i)

Cost of Goods Sold = Opening Inventory + Purchases + Carriage Inwards − Closing Inventory

= 28,000 + 46,000 + 4,000 − 22,000

= 56,000

(ii)

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

(iii)

Gross Profit = Net Sales − Cost of Goods Sold

= 80,000 − 56,000 = 24,000

Note: Sales return will not be considered because amount of net sales is provided in the question.

#### Page No 4.109:

(i)

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

(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 4.109:

1) Return on Investment

2) Total Assets to Debt to Ratio

#### Page No 4.109:

(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)

Long-term Debts = 12% Debentures = 30,000

Equity = Accumulated Profits + Equity Share Capital

= 10,000 + 1,00,000 = 1,10,000

#### Page No 4.109:

Net Profit before tax = 6,00,000
Net Profit before interest, tax and dividend = Net Profit before tax + Interest on long-term 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 + Long-term borrowings
= 5,00,000 + 2,50,000 + 20,00,000 = 27,50,000

#### Page No 4.90:

Current Assets = Trade Receivables + Pre-paid 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 4.90:

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 4.90:

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 4.90:

Total Debts = 3,90,000

Long-term Debts = 3,00,000

Current Liabilities = Total Debts − Long-term 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 4.90:

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 4.90:

Let the Current Liabilities be = x

Current Assets = 2.5x

Working Capital = 60,000

Working Capital= Current Assets − Current Liabilities

60,000 = 2.5x − x

or, x = 40,000

Current Liabilities = x = 40,000

Current Assets = 2.5x = 2.5 × 40,000 = 1,00,000
Therefore, Current Assets = Rs 1,00,000 and
Current Liabilities = Rs 40,000

#### Page No 4.91:

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:

1. Increase Stock by Rs 30,000, Current Assets will thereby increase to Rs 4,80,000 (Rs 4,50,000 + Rs 30,000)
2. 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 4.91:

Current Liabilities = Rs 1,75,000
Payment of Rs 30,000 to a Creditor will have two effects:

1. Decrease in Cash by Rs 30,000 and therefore Current Assets will decrease to Rs 3,20,000.
2. Decrease in Creditors by Rs 30,000 and this will decrease Current Liabilities to Rs 1,45,000.

#### Page No 4.91:

The company is interested in maintaining the Current Ratio of 2:1 by paying off the liability.

Let the liability paid-off by the company = x

∴ New Current Assets = 3,00,000 − x

New Current Liabilities = 2,00,000 − x

Therefore, liability of Rs 1,00,000 need to be paid-off by the company in order to maintain the Current Ratio of 2 : 1.

#### Page No 4.91:

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 4.91:

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 4.91:

Let’s assume Current Assets as Rs 2,00,000 and Current Liabilities as Rs 1,00,000

(a) Cash paid to Trade Payables (say Rs 50,000)

(b) Bills Payable discharged (say Rs 50,000)

(c) Bills Receivable endorsed to a creditor (say Rs 50,000)

(d) Payment of final Dividend already declared (say Rs 50,000)

(e) Purchase of Stock-in-Trade on credit (say Rs 50,000)

(f) Bills Receivable endorsed to a Creditor dishonoured (say Rs 50,000)

(g) Purchase of Stock-in-Trade for cash (say Rs 50,000)

(h) Sale of Fixed Assets (Book value of Rs 50,000) for Rs 45,000

(i) Sale of Fixed Assets (Book value of Rs 50,000) for Rs 60,000

#### Page No 4.91:

(i)  Let’s assume Current Assets as Rs 1,00,000 and Current Liabilities as Rs 1,00,000

(a) Cash paid to Trade Payables (say Rs 50,000)

(b) Purchase of Stock-in-Trade on credit (say Rs 50,000)

(c) Purchase of Stock-in-Trade for cash (say Rs 50,000)

(d) Payment of Dividend (say Rs 50,000)

(e) Bills Payable discharged (say Rs 50,000)

(f) Bills Receivable endorsed to a Creditor (say Rs 50,000)

(g) Bills Receivable endorsed to a Creditor dishonoured (say Rs 50,000)

(ii) Let’s assume Current Assets as Rs 80,000 and Current Liabilities as Rs 1,00,000

(a) Cash paid to Trade Payables (say Rs 50,000)

(b) Purchase of Stock-in-Trade on credit (say Rs 50,000)

(c) Purchase of Stock-in-Trade for cash (say Rs 50,000)

(d) Payment of Dividend (say Rs 50,000)

(e) Bills Payable discharged (say Rs 50,000)

(f) Bills Receivable endorsed to a Creditor (say Rs 50,000)

(g) Bills Receivable endorsed to a Creditor dishonoured (say Rs 50,000)

#### Page No 4.92:

Quick Assets or Liquid Assets = Currents Assets – Inventories – Pre-paid Expenses
= Rs 2,00,000 – Rs 50,000 – Rs 10,000 = Rs 1,40,000

Current Liabilities = Rs 70,000

#### Page No 4.92:

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 4.92:

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 4.92:

Current Liabilities = Total Debts − Long-term 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 4.92:

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 4.92:

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 4.92:

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 4.92:

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 4.92:

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 4.92:

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 4.92:

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 4.92:

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

(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 4.93:

Quick Assets = 12,00,000

Current Assets = Quick Assets + Stock

= 12,00,000 + 3,00,000 = 15,00,000

#### Page No 4.93:

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 4.93:

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 4.93:

(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 = Short-Term 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 4.93:

Current Assets = Inventories + Trade Receivables + Cash and Cash Equivalents

= 18,600 + 9,600 + 19,800

= 48,000

Current Liabilities = Short-term Borrowings + Trade Payables

= 6,000 + 18,000

= 24,000

#### Page No 4.94:

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

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 4.94:

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 4.94:

Total Debts = 1,80,000

Current Liabilities = 20,000

Long-term 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 4.94:

Long-Term 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 4.95:

Debt-Equity Ratio = 2:1

Let Long-term 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 Long-term 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 Long-term 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 4.95:

Total Assets = 12,50,000

Total Debts = 10,00,000

Equity = Total Assets − Total Liabilities

= 12,50,000 − 10,00,000 = 2,50,000

Long-term Debts = Total Debts − Current Liabilities

= 10,00,000 − 5,00,000 = 5,00,000

#### Page No 4.95:

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 4.95:

(i) 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 = 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

(ii) Current Ratio is an indicator of short-term financial portion. It shows the proportion of Current Assets in comparison of Current Liabilities.

Current Assets = 12,00,000

Current Liabilities = 8,00,000

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 4.95:

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 Long-term 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 Long-term Loan and Shareholders’ Funds.

(iii) Redemption of Debentures- Decrease

Reason: This transaction will result decrease in Long-term Loans in the form of reduction in debtors and no change in Shareholders’ Funds.

Example: Redemption of Debentures Rs 2,00,000

Long-term Loan = 5,00,000 − 2,00,000 = 3,00,000

(iv) Purchased of goods on Credit- No Change

Reason: Neither Long-term loan nor share holders’ funds will be affected by this transaction because purchase of goods results no change in Long-term Loan and Shareholders’ Funds.

#### Page No 4.95:

Let’s take Debt and Equity as Rs 2,00,000 and Rs 1,00,000

(i) Issue of new shares for cash (say Rs 50,000)

(ii) Conversion of debentures into equity shares (say Rs 50,000)

(iii) Sale of a fixed asset at profit (say Rs 50,000 profit)

(iv) Purchase of fixed asset on long term payment basis (say Rs 50,000)

(v) Payment to creditors (say Rs 50,000)

#### Page No 4.96:

Long-term 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 4.96:

Long-term Debts = 4,00,000

Total Assets = 7,70,000

#### Page No 4.96:

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

Long-term Debts = Total Debt − Current Liabilities

= 3,60,000 − 40,000 = 3,20,000

#### Page No 4.96:

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

#### Page No 4.96:

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

#### Page No 4.97:

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

#### Page No 4.97:

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

Long-Term Debt = Total Debt – Current Liabilities
= Rs 12,00,000 – Rs 2,20,000 = Rs 9,80,000

#### Page No 4.97:

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

Long-term Debts = Long-term Borrowings = Rs 2,00,000

#### Page No 4.98:

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 4.98:

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 4.98:

Total Assets = Fixed Assets + Short-term 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 4.98:

Net Profit before Interest and Tax = 5,00,000

Interest = 1,00,000

#### Page No 4.98:

Profit before Interest and Tax = Profit after Tax + Tax +Interest

= 1,70,000 + 30,000 + 50,000 = 2,50,000

#### Page No 4.99:

Profit before Interest and Tax = Profit after Tax + Tax + Interest on Debentures + Interest on Long-term Loans from Bank

= 75,000 + 9,000 + 5,000 + 5,000 = 94,000

Total Interest Amount = Interest on Debentures + Interest on Long-term loans from Bank

= 5,000 + 5,000 = 10,000

#### Page No 4.99:

Cost of Goods Sold = 4,50,000

#### Page No 4.99:

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 4.99:

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 4.99:

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 4.99:

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 4.99:

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)