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#### 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.

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:

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

#### Question 82:

 Credit Revenue from Operations, i.e., Net Credit Sales for the year 1,20,000 Debtors 12,000 Billls Receivable 8,000

#### Page No 4.100:

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

= 1,00,000 − 1,500 − 23,500 = 75,000

#### 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.

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

#### 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.

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

#### 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

Credit Sales = 8,00,000

Average Debtors = 1,00,000

#### 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

Let Credit Sales be = x

Total Sales = Cash Sales + Credit Sales

= 4,00,000 − 2,00,000 = 2,00,000

#### 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?

#### 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.

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 = = Rs 40,000

Closing Trade Receivables = 4 x = 4 × 40,000 = Rs 1,60,000

#### 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:
(iii) Trade Receivables at the end when Trade Receivables at the end are more than that in the beginning by ₹ 6,000.

(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

#### 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.

#### 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.

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

#### 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.

(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.

#### 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.

Net Credit Purchases = Purchases – Cash Purchases – Purchase Return
= Rs 9,50,000 – Rs 1,00,000 – Rs 45,000 = Rs 8,05,000

#### Question 97:

Calculate Trade Payables Turnover Ratio for the year 2018-19 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.

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

#### 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

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

#### 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.

Net Sales = Cash Sales + Credit Sales − Sales Returns

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

#### 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.

Net Sales = Cost of Goods sold + Gross Profit

Let Net Sales =  x

#### 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; Long-term Loan  3,00,000; Fixed Assets (Net) ₹ 10,00,000. Calculate Working  Capital Turnover Ratio

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

Cost of Goods Sold = 20,00,000

#### 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.

Cost of Goods Sold = 40,00,000

Gross Profit = 20% of Cost

#### 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; Non-current Liabilities ₹ 10,00,000, Shareholders' Funds ₹ 5,00,000.

#### 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.

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

#### Question 105:

From the following, calculate Gross Profit Ratio:
Gross Profit:₹50,000; Revenue from Operations ₹5,00,000; Sales Return: ₹50,000.

Note: Here we will not deduct the amount of sales return because the amount of net sales has already been provided in the question.

#### 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.

Sales = Cost + Gross Profit

Cost = x = Rs 3,20,000

#### 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.

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

#### 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

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

#### 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.

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

#### 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.

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

#### 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.
(ii) Purchases Return ₹15,000.
(iii) Cash Sale of Stock-in-Trade ₹40,000.
(iv) Stock-in-Trade costing ₹20,000 withdrawn for personal use.
(v) Stock-in-Trade costing ₹15,000 distributed as free sample.

 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.

#### 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.

#### 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).

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.

#### 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.

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

#### 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

#### 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.

#### Question 117:

Calculate Operating Ratio from the following information:
Operating Cost ₹ 6,80,000; Gross Profit 25%; Operating Expenses ₹ 80,000.

#### 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

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%

#### 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

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%

#### Question 120:

What will be the Operating Profit Ratio, if Operating Ratio is 82.59%?

Operating Ratio = 82.59%

Operating Ratio + Operating Profit Ratio = 100%

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

#### 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.

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

#### Question 122:

Revenue from Operations ₹ 9,00,000; Gross Profit 25% on Cost; Operating Expenses ₹ 45,000. Calculate Operating Profit Ratio.

#### Question 123:

Operating Cost ₹ 3,40,000; Gross Profit Ratio 20%; Operating Expenses ₹ 20,000. Calculate Operating Profit Ratio.

#### 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; Non-operating incomes ₹ 30,000; Non-operating Expenses ₹ 5,000. Calculate Net Profit Ratio.

#### Question 125:

Revenue from Operations, i.e., Net Sales ₹ 6,00,000. Calculate Net Profit Ratio.

Net Sales = 6,00,000

Net profit = 60,000

#### 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.

#### Question 127:

Revenue from Operations ₹4,00,000; Gross Profit Ratio 25%; Operating Ratio 90%. Non-operating Expenses ₹2,000; Non-operating Income ₹22,000. Calculate Net Profit Ratio.

#### 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.

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

#### Question 129:

Net Profit before Interest and Tax ₹2,50,000; Capital Employed ₹10,00,000. Calculate Return on Investment.

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

Capital Employed = 10,00,000

#### 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.

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

#### Question 131:

Net Profit before Interest and Tax ₹4,00,000; 15% Long-term Debt ₹8,00,000; Shareholders' Funds ₹4,00,000. Calculate Return on Investment.

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 4.106:

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

#### 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.

 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.

#### 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.

(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

#### 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:
(i) Gross Profit Ratio,
(ii) Inventory Turnover Ratio, and

(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)

#### Question 136:

From the following information, calculate any two of the following ratios:

(i) Current Ratio;
(ii) Debt to Equity Ratio; and
(iii) 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.

(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

#### 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.

(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.

#### Question 138:

From the following calculate:

(a) Current Ratio; and
(b) Working Capital Turnover Ratio.
 ₹ (i) Revenue from Operations 1,50,000 (ii) Total Assets 1,00,000 (iii) Shareholders' Funds 60,000 (iv) Non-current Liabilities 20,000 (v) Non-current Assets 50,000

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

#### 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

#### 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

(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

#### Question 141:

From the information given below, calculate any three of the following ratio:

(i) Gross Profit 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 Paid-up Share Capital 2,50,000 Current Assets 2,00,000 13% Debentures 1,00,000

(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

#### Question 142:

On the basis of the following information calculate:

(i) Debt to Equity Ratio; and
(ii) Working Capital Turnover Ratio.
 Information: ₹ ₹ Revenue from Operations: (a) Cash Sales 40,00,000 Paid-up 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

(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

#### 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

#### 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.

1) Return on Investment

2) Total Assets to Debt to Ratio

#### 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 Non-current Investments 15,000

(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

#### 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 Non-current Trade Investments 2,50,000 Current Assets 11,00,000 10% Long-term Borrowings 20,00,000 Current Liabilities 8,50,000 Long-term Provision NIL

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

#### 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

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

#### Question 2:

Calculate Current Ratio from the following information:

 Particulars ₹ Particulars ₹ Total Assets 5,00,000 Non-current Liabilities 1,30,000 Fixed Tangible Assets 2,50,000 Non-current Investments 1,50,000 Shareholders'  Funds 3,20,000

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

#### Question 3:

Current Ratio is 2.5, Working Capital is ₹ 1,50,000. Calculate the amount of Current Assets and Current Liabilities.

#### Question 4:

Working Capital is ₹ 9,00,000; Trade payables ₹ 90,000; and Other Current Liabilities are ₹ 2,10,000. Circulate Current Ratio.

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

#### Question 5:

Working Capital ₹ 1,80,000; Total Debts ₹ 3,90,000; Long-Term Debts ₹ 3,00,000.
Calculate Current Ratio.

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

#### Question 6:

Current Assets are ₹ 7,50,000 and Working Capital is ₹ 2,50,000. Calculate Current Ratio.

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

#### Question 7:

Trade Payables ₹ 50,000, Working Capital ₹ 9,00,000, Current Liabilities ₹ 3,00,000. Calculate Current Ratio.

#### 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.

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)

#### 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.

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.

#### 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.

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.

#### 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.

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.

#### 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.

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

#### 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 Stock-in-Trade on credit.
(f) Bills Receivable endorsed to a Creditor dishonoured.
(g) Purchases of Stock-in-Trade 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.

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

#### 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 Stock-in-Trade on credit.
(c) Purchase of Stock-in-Trade 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.

(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)

#### 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

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

#### Question 16:

Quick Assets ₹ 1,50,000; Inventory (Stock) ₹ 40,000; Prepaid Expenses ₹ 10,000; Working Capital ₹ 1,20,000. Calculate Current Ratio.

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

#### Question 17:

Current Assets ₹ 3,00,000; Inventories ₹ 60,000; Working Capital ₹ 2,52,000.
Calculate Quick Ratio.

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

#### Question 18:

Working Capital  ₹  3,60,000; Total :Debts  ₹ 7,80,000; Long-term Debts ₹ 6,00,000; Inventories  ₹ 1,80,000. Calcltate Liquid Ratio.

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

#### 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

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

#### 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.

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

#### 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.

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

#### Question 22:

Current Ratio 4; Liquid Ratio 2.5; Inventory  ₹  6,00,000. Calculate Current Liabilities, Current Assets and Liquid Assets.

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

#### 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.

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:

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

#### 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.

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

#### 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.

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

#### 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.

 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.

#### 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.

Quick Assets = 12,00,000

Current Assets = Quick Assets + Stock

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

#### Question 29:

Total Assets ₹22,00,000; Fixed Assets ₹10,00,000; Capital Employed ₹20,00,000. There were no Long-term Investments.
Calculate Current Ratio.

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

#### Question 30:

Capital Employed ₹10,00,000; Fixed Assets ₹7,00,000; Current Liablities ₹1,00,000. There are no Long-term Investments. Calculate Current Ratio.

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:

(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 4.92:

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 4.93:

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.

#### Question 34:

From the following calculate: (i) Current Ratio; and (ii) Quick Ratio:

 ₹ ₹ Total Debt 6,00,000 Long-term Borrowings 2,00,000 Total Assets 8,00,000 Long-term Provisions 2,00,000 Fixed Assests (Tangible) 3,00,000 Inventories 95,000 Non-current Investment 50,000 Prepaid Expenses 5,000 Long-term Loans and Advances 50,000

#### 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.

Equity = Equity Share Capital + General Reserve + Accumulated Profits

= 5,00,000 + 90,000 + 50,000 = 6,40,000

Debt = 10% Debentures = 1,30,000

#### Question 36:

Total Assets ₹ 2,60,000; Total Debts ₹ 1,80,000; Current Liabilities ₹ 20,000. Calculate Debt to Equity Ratio.

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

#### 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

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

#### 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.

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.

#### Question 39:

Total Assets ₹12,50,000; Total Debts ₹10,00,000; Current Liabilities ₹5,00,000.
Calculate Debt to Equity Ratio.

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

#### Question 40:

Capital Employed ₹8,00,000; Shareholders' Funds ₹2,00,000. Calculate Debt to Equity Ratio.

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

#### 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 Assets-Cost 60,00,000 Long-term Loan from IDBI @ 9% 30,00,000 Depreciation Written off 14,00,000

Calculate ratios indicating the Long-term and the Short-term financial position of the company.

(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.

#### 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 Non-current Investments 14,000 10% Long-term Borrowings 4,20,000 Long-term Loans and Advances 56,000 Long-term Provisions 1,40,000

#### 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?

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.

#### 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 long-term deferred payment basis.
(v) Payment to creditors.

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 4.95:

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

#### Question 46:

Calculate Total Assets to Debt Ratio from the following information:
Long-term Debts ₹ 4,00,000; total Assets  ₹ 7,70,000.

Long-term Debts = 4,00,000

Total Assets = 7,70,000

#### Question 47:

Shareholders' Funds  ₹ 1,60,000; Total Debts ₹ 3,60,000; Current Liabilities ₹ 40,000.
Calculate Total Assets to Debt Ratio.

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

#### 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

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

#### 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.

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

#### Question 50:

Total Debt ₹15,00,000; Current Liablities ₹5,00,000; Capital Employed ₹15,00,000. Calculate Total Assets to Debt Ratio.

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

#### 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

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

#### 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.

#### Question 53:

Total Debt ₹12,00,000; Current Liabilities ₹4,00,000; Capital Employed ₹`12,00,000. Calculate Total Assets to Debt Ratio.

#### Question 54:

From the following information, calculate Total Assets to Debt Ratio:

 ₹ ₹ Fixed Assets (Gross) 6,00,000 Accumulated Depreciation 1,00,000 Non-current Investments 10,000 Long-term Loans and Advances 40,000 Current Assets 2,50,000 Current Liabilities 2,00,000 Long-term Borrowings 3,00,000 Long-term Provisions 1,00,000

#### Page No 4.96:

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

#### Question 56:

From the following information, calculate Proprietary Ratio:

 Share Capital ₹3,00,000 Reserves and Surplus ₹1,80,000 Non-current Assets ₹13,20,000 Current Assets ₹ 6,00,000

#### 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 Short-term Inverstments 2,25,000 Other Current Assets 1,50,000 7,50,000

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

#### 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

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:

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

#### 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.

 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.

#### Question 61:

If Profit before Interest and Tax is ₹5,00,000 and interest on Long-term Funds is ₹1,00,000, find Interest Coverage Ratio.

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

Interest = 1,00,000

#### Question 62:

From the following information, calculate Interest Coverage Ratio: Profit after Tax ₹1,70,000; Tax ₹30,000; Interest on Long-term Funds ₹50,000.

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

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

#### 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 Long-term Loans from Bank 50,000 Interest on Long-term Loans from Bank 5,000 Profit after Tax 75,000 Tax 9,000

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

#### 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

Cost of Goods Sold = 4,50,000

#### 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.

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

#### 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%.

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

#### 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%

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

#### 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%

#### 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.

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

#### 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.

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)

#### 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.

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

#### 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.

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.

#### 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.

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

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

#### 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.

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

#### 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.

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

#### Question 76:

Following figures have been extracted from Shivalika Mills Ltd.:

Inventory in the beginning of the year ₹ 60,000.
Inventory at the end of the year ₹ 1,00,000.
Inventory Turnover Ratio 8 times.
Selling price 25% above cost.
Compute amount of Gross Profit and Revenue from Operations (Net Sales).

Gross Profit = 25% on Cost

Sales = Cost of Goods Sold + Gross Profit

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

#### 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.

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

#### 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

Let Closing Inventory = x

Opening Inventory = 2x + x = 3x

Closing Inventory = x = Rs 18,750

Opening Inventory = 3x = 3 ×18,750 = Rs 56,250

#### 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.