Ratio analysis Problems and Solutions 2025 to 2014 Exam [For Dibrugarh University BCOM 6th SEM NEP Syllabus]

Ratio analysis Questions and Solutions 2025 to 2014 Exam

For Dibrugarh University BCOM 6^th SEM NEP and CBCS Syllabus

5. (a) Prepare a Balance Sheet from the following information: (14)

Current ratio — 2.5

Liquidity ratio — 1.5

Proprietary ratio (Fixed Asset/Proprietor's Fund) — 0.75

Working capital — 1,20,000

Reserve and surplus — 80,000

Bank overdraft — 20,000 (Assume no long-term loan/fictitious assets)

Solution:

1. Calculation of Current Liabilities (CL) & Current Assets (CA):

Working Capital = ₹ 1,20,000

Current Ratio = 2.5

→ Current Assets (CA) / Current Liabilities (CL) = 2.5 / 1

→ CA = 2.5 × CL

We know that: Working Capital = Current Assets − Current Liabilities

→ 1,20,000 = 2.5CL − CL

→ 1,20,000 = 1.5CL

→ CL = 1,20,000 / 1.5

→ CL = ₹ 80,000

Now substitute the value of CL to find CA:

→ CA = 2.5 × 80,000

→ Current Assets = ₹ 2,00,000

2. Calculation of Liquid Assets & Stock (Inventory):

Liquidity Ratio = 1.5

→ Liquid Assets / Current Liabilities = 1.5 / 1

→ Liquid Assets = 1.5 × 80,000

→ Liquid Assets = ₹ 1,20,000

We know that: Stock (Inventory) = Current Assets − Liquid Assets

→ Stock = 2,00,000 − 1,20,000

→ Stock (Inventory) = ₹ 80,000

Calculation of Proprietor's Fund & Fixed Assets:

Since there are no long-term loans or fictitious assets:

Total Liabilities Side = Proprietor's Fund + Current Liabilities

Total Assets Side = Fixed Assets + Current Assets

Since Total Assets = Total Liabilities:

→ Fixed Assets + Current Assets = Proprietor's Fund + Current Liabilities

Given Proprietary Ratio (Fixed Asset / Proprietor's Fund) = 0.75

→ Fixed Assets = 0.75 × Proprietor's Fund

Let Proprietor's Fund = X

→ 0.75X + 2,00,000 = P + 80,000

→ 2,00,000 − 80,000 = X − 0.75X

→ 1,20,000 = 0.25X

→ X = 1,20,000 / 0.25

→ Proprietor's Fund = ₹ 4,80,000

Now substitute the value of P to find Fixed Assets:

→ Fixed Assets = 0.75 × 4,80,000

→ Fixed Assets = ₹ 3,60,000

Calculation of Share Capital:

Proprietor's Fund = Share Capital + Reserve and Surplus

→ 4,80,000 = Share Capital + 80,000

→ Share Capital = 4,80,000 − 80,000

→ Share Capital = ₹ 4,00,000

Calculation of Other Current Liabilities:

Total Current Liabilities = Bank Overdraft + Other Current Liabilities

→ 80,000 = 20,000 + Other Current Liabilities

→ Other Current Liabilities = 80,000 − 20,000

→ Other Current Liabilities = ₹ 60,000

Calculation of Total Assets / Total Liabilities:

Total Assets = Fixed Assets + Current Assets

→ Total Assets = 3,60,000 + 2,00,000

→ Total Assets = ₹ 5,60,000

Balance Sheet

Particulars	Amount (₹)
(I) Equity and Liabilities:
(1) Shareholders' Funds:
(a) Share Capital (Equity Share Capital)	4,00,000
(b) Reserves and Surplus	80,000
(2) Non-Current Liabilities:
(a) Long-term Borrowings	NIL
(3) Current Liabilities:
(a) Short-term Borrowings (Bank Overdraft)	20,000
(b) Other Current Liabilities	60,000
Total Equity and Liabilities	5,60,000
(II) Assets:
(1) Non-Current Assets:
(a) Property, Plant & Equipment (Fixed Assets)	3,60,000
(2) Current Assets:
(a) Inventories (Stock)	80,000
(b) Other Current assets (Liquid Assets)	1,20,000
Total Assets	5,60,000

(a) Prepare a Balance Sheet from the following information:

Gross profit (20% of sales) – ₹30,000

Equity share capital – ₹25,000

Credit sales to total sales – 80%

Total assets turnover – 3 times

Stock turnover – 8 times

Average collection period (360 days) – 18 days

Current ratio – 1.6:1

Long-term debt to equity ratio – 40%                   

Solution:

1. Calculation of Total Sales:

Gross Profit = 20% of Sales = 30,000

→ (20 / 100) × Sales = 30,000

→ Sales = (30,000 × 100) / 20

→ Sales = ₹ 1,50,000

2. Calculation of Credit Sales:

Credit Sales to Total Sales = 80%

→ Credit Sales / Total Sales = 80 / 100

→ Credit Sales / 1,50,000 = 80 / 100

→ Credit Sales = (80 / 100) × 1,50,000

→ Credit Sales = ₹ 1,20,000

3. Calculation of Debtors (Trade Receivables):

Average Collection Period = 18 days

→ 360 / Debtors Turnover Ratio = 18

→ 360 / (Credit Sales / Debtors) = 18

→ (360 × Debtors) / 1,20,000 = 18

→ Debtors = (18 × 1,20,000) / 360

→ Debtors = ₹ 6,00,000 / 100 = ₹ 6,000

4. Calculation of Cost of Goods Sold (COGS) & Stock:

COGS = Sales − Gross Profit

→ COGS = 1,50,000 − 30,000 = ₹ 1,20,000

Stock Turnover = 8 times

→ COGS / Stock = 8

→ 1,20,000 / Stock = 8

→ Stock (Inventory) = ₹ 15,000

5. Calculation of Total Assets:

Total Assets Turnover = 3 times

→ Net Sales / Total Assets = 3

→ 1,50,000 / Total Assets = 3

→ Total Assets = ₹ 50,000

6. Calculation of Long Term Debt:

Long Term Debt to Equity Ratio = 40%

→ Long Term Debt / Equity = 40 / 100

→ Long Term Debt / 25,000 = 40 / 100

→ Long Term Debt = (40 / 100) × 25,000

→ Long Term Debt = ₹ 10,000

7. Calculation of Current Liabilities & Current Assets:

Total Liabilities Side = Equity + Long Term Debt + Current Liabilities

→ Total Liabilities (TL) = 25,000 + 10,000 + CL --- (Equation 1)

Since Total Assets = Total Liabilities = 50,000:

→ 50,000 = 35,000 + CL [From Equation 1]

→ Current Liabilities (CL) = 50,000 − 35,000

→ CL = ₹ 15,000

Current Ratio (CR) = 1.6 / 1

→ Current Assets (CA) / CL = 1.6 / 1

→ CA = 1.6 × 15,000

→ Current Assets = ₹ 24,000

8. Calculation of Fixed Assets:

Fixed Assets = Total Assets − Current Assets

→ Fixed Assets = 50,000 − 24,000

→ Fixed Assets = ₹ 26,000

9. Calculation of Cash & Cash Equivalents (Balancing Figure):

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

→ 24,000 = 15,000 + 6,000 + Cash & Cash Equivalents

→ 24,000 = 21,000 + Cash & Cash Equivalents

→ Cash & Cash Equivalents = ₹ 3,000

Balance Sheet as per Schedule III

Particulars	Amount (₹)
(I) Equity and Liabilities:
(1) Shareholders' Funds:
(a) Share Capital (Equity Share Capital)	25,000
(2) Non-Current Liabilities:
(a) Long-term Borrowings (Long-term Debt)	10,000
(3) Current Liabilities:
(a) Short-term Liabilities (Current Liabilities)	15,000
Total Equity and Liabilities	50,000
(II) Assets:
(1) Non-Current Assets:
(a) Property, Plant & Equipment (Fixed Assets)	26,000
(2) Current Assets:
(a) Inventories (Stock)	15,000
(b) Trade Receivables (Debtors)	6,000
(c) Cash and Cash Equivalents (Balancing figure)	3,000
Total Assets	50,000

5. (a) A company has owner’s equity of Rs. 1,00,000 and following accounting ratios:

Short-term debt to total debt = 0.40

Total debt to owner’s equity = 0.60

Fixed assets to owner’s equity = 0.60

Total assets turnover = 2 times.

Inventory turnover = 8 times.

On the basis of the above data prepare the Balance Sheet:

Capital & Liabilities	Rs.	Assets	Rs.
Short-term Debts Long-term Debts Owner’s Equity	-- -- --	Cash Inventories Total Current Assets Fixed Assets	-- -- --

Solution: Given: Owners' Equity = ₹ 1,00,000

1. Calculation of Total Debt:

Total Debt to Owners' Equity = 0.60

→ Total Debt / Owners' Equity = 0.60

→ Total Debt / 1,00,000 = 0.60

→ Total Debt = ₹ 60,000

2. Calculation of Fixed Assets:

Fixed Assets to Owners' Equity = 0.60

→ Fixed Assets = 0.60 × 1,00,000

→ Fixed Assets = ₹ 60,000

3. Calculation of Short-term Debt (Current Liabilities):

Short-term Debt to Total Debt = 0.40

→ Short-term Debt / Total Debt = 0.40

→ Short-term Debt = 0.40 × 60,000

→ Short-term Debt = ₹ 24,000

4. Calculation of Long-term Debt:

Long-term Debt = Total Debt − Short-term Debt

→ Long-term Debt = 60,000 − 24,000

→ Long-term Debt = ₹ 36,000

5. Calculation of Total Assets:

Total Assets = Equity + Total Debt

→ Total Assets = 1,00,000 + 60,000

→ Total Assets = ₹ 1,60,000

6. Calculation of Current Assets:

Current Assets = Total Assets − Fixed Assets

→ Current Assets = 1,60,000 − 60,000

→ Current Assets = ₹ 1,00,000

7. Calculation of Net Sales:

Total Assets Turnover = 2 Times

→ Net Sales / Total Assets = 2

→ Net Sales = 2 × 160,000

→ Net Sales = ₹ 3,20,000

8. Calculation of Inventory:

Inventory Turnover = 8 Times

→ Net Sales / Inventory = 8

→ 320,000 / 8 = Inventory

→ Inventory = ₹ 40,000

9. Calculation of Cash (Balancing Figure):

Current Assets = Inventories + Cash

→ 1,00,000 = 40,000 + Cash

→ Cash = ₹ 60,000

Balance Sheet

Particulars	Amount (₹)
(I) Equity & Liabilities:
1) Shareholder's Fund:
Equity Share Capital	1,00,000
(2) Non-Current Liabilities:
Long term Borrowing / Debt	36,000
(3) Current Liabilities:
Short term Debts	24,000
Total	1,60,000
(II) Assets:
1) Non-Current Assets:
Fixed Assets	60,000
(2) Current Assets:
Inventories	40,000
Cash	60,000
Total	1,60,000

(b) Dibrugarh Tea Ltd. presents its Profit and Loss A/c for the year ending 31^st March, 2022 and a Balance Sheet as on that date as follow:

Profit and Loss A/c for the year ending 31^st March, 2022

	Rs.		Rs.
To Opening Inventory To Purchase of raw material To Factory expenses To Administrative expenses To Selling expenses To Interest on debenture To Depreciation To Net Profit	40,000 50,000 60,000 20,000 10,000 2,000 5,000 50,000	By Sales By Closing Inventory By Profit on sale of furniture	2,00,000 30,000 7,000
	2,37,000		2,37,000

Balance Sheet as on 31^st March, 2022

Liabilities	Rs.	Assets	Rs.
Equity shares of Rs. 10 each. 9% Preference share of Rs. 100 each Reserve 6% debenture Trade Creditors Outstanding expenses	20,000 20,000 15,000 40,000 25,000 5,000	Fixed Assets Inventory Debtors Bank	85,000 30,000 8,000 2,000
	1,25,000		1,25,000

The company has paid 20% dividend to equity shareholders and preference dividend has also been paid. Tax rate is 30%. The equity shares are quoted in stock exchange at Rs. 40 per share. Compute the following:

(a) Liquid Ratio.

(b) Debt-Equity Ratio.

(c) Dividend Coverage Ratio.

(d) Debtors Turnover Ratio.

(e) Working Capital Turnover Ratio.

(f) Net Profit Ratio.

(g) Return on Investment Ratio.

Solution:

1. Net Sales: Rs. 2,00,000

2. Cost of Goods Sold (COGS): Opening Inventory (Rs. 40,000) + Purchase (Rs. 50,000) + Factory Expenses (Rs. 60,000) - Closing Inventory (Rs. 30,000) = Rs. 1,20,000

3. Current Assets: Inventory (Rs. 30,000) + Debtors (Rs. 8,000) + Bank (Rs. 2,000) = Rs. 40,000

4. Current Liabilities: Trade Creditors (Rs. 25,000) + Outstanding Expenses (Rs. 5,000) = Rs. 30,000

5. Liquid Assets: Current Assets (Rs. 40,000) - Inventory (Rs. 30,000) = Rs. 10,000

6. Net Working Capital: Current Assets (Rs. 40,000) - Current Liabilities (Rs. 30,000) = Rs. 10,000

7. Net Profit Before Tax (EBT): The given Net Profit is Rs. 50,000.

Assuming this is the accounting net profit before corporate tax:

Tax Provision (30% of Rs. 50,000) = Rs. 15,000

Net Profit After Tax (EAT) = Rs. 50,000 - Rs. 15,000 = Rs. 35,000

8. EBIT (Net Profit Before Interest and Tax): Net Profit Before Tax (Rs. 50,000) + Interest on Debenture (Rs. 2,000) = Rs. 52,000

9. Shareholders' Funds (Equity): Equity Shares (Rs. 20,000) + 9% Preference Shares (Rs. 20,000) + Reserve (Rs. 15,000) = Rs. 55,000

(a) Liquid Ratio: Liquid Assets / Current Liabilities

Liquid Ratio = Rs. 10,000 / Rs. 30,000 = 0.33 : 1

(b) Debt-Equity Ratio: Debt / Equity (Shareholders' Funds)

Long-term Debt = 6% Debentures = Rs. 40,000

Equity = Rs. 55,000

Debt-Equity Ratio = Rs. 40,000 / Rs. 55,000 = 0.73 : 1

(c) Dividend Coverage Ratio: Net Income (After Tax) / Total Dividends Paid

Preference Dividend = 9% of Rs. 20,000 = Rs. 1,800

Equity Dividend = 20% of Rs. 20,000 = Rs. 4,000

Total Dividends Paid = Rs. 1,800 + Rs. 4,000 = Rs. 5,800

Dividend Coverage Ratio = Rs. 35,000 / Rs. 5,800 = 6.03 times

(d) Debtors Turnover Ratio: Net Credit Sales / Average Accounts Receivables

Total Sales is treated as credit sales due to absence of specific details = Rs. 2,00,000.

Closing Debtors = Rs. 8,000.

Debtors Turnover Ratio = Rs. 2,00,000 / Rs. 8,000 = 25 times

(e) Working Capital Turnover Ratio: Net Sales / Net Working Capital

Working Capital Turnover Ratio = Rs. 2,00,000 / Rs. 10,000 = 20 times

(f) Net Profit Ratio: (Net Profit After Tax / Net Sales) x 100

Net Profit Ratio = (Rs. 35,000 / Rs. 2,00,000) x 100 = 17.5%

(Note: If calculated using Net Profit Before Tax: (Rs. 50,000 / Rs. 2,00,000) x 100 = 25%)

(g) Return on Investment Ratio (ROCE): (Net Profit before Interest and Tax (EBIT) / Capital Employed) x 100

Capital Employed = Shareholders' Funds (Rs. 55,000) + Long-term Debt (Rs. 40,000) = Rs. 95,000

EBIT = Rs. 52,000

Return on Investment = (Rs. 52,000 / Rs. 95,000) x 100 = 54.74%

 

4. (a) The following information are available for a firm:

Gross Profit Ratio – 25%

Net Profit/Sales – 20%

Stock Turnover – 10

Net Profit/Capital – 1/5

Capital/Total Liabilities – 1/2

Fixed Assets/Capital – 5/4

Fixed Assets/Current Assets – 5/7

Fixed Assets – Rs. 10,00,000

Closing Stock – Rs. 1,00,000

Find out:

a) Cost of Sales.

b) Gross Profit.

c) Net Profit.

d) Current Assets.

e) Capital.

f) Total Liabilities.

g) Opening Stocks.

Solution:

1. Calculation of Current Assets:

Fixed Assets / Current Assets = 5/7

→ 10,00,000 / Current Assets = 5/7

→ Current Assets = (10,00,000 × 7) / 5

→ Current Assets = ₹ 14,00,000

2. Calculation of Capital:

Fixed Assets / Capital = 5/4

→ 10,00,000 / Capital = 5/4

→ Capital = (10,00,000 × 4) / 5

→ Capital = ₹ 8,00,000

3. Calculation of Net Profit:

Net Profit / Capital = 1/5

→ Net Profit / 8,00,000 = 1/5

→ Net Profit = 8,00,000 / 5

→ Net Profit = ₹ 1,60,000

4. Calculation of Sales & Gross Profit:

Net Profit / Sales = 20%

→ 1,60,000 / Sales = 20%

→ Sales = 1,60,000 / 20% = ₹ 8,00,000

Gross Profit = Sales × Gross Profit Ratio

→ Gross Profit = 8,00,000 × 25%

→ Gross Profit = ₹ 2,00,000

5. Calculation of Cost of Sales:

Cost of Sales = Sales − Gross Profit

→ Cost of Sales = 8,00,000 − 2,00,000

→ Cost of Sales = ₹ 6,00,000

6. Calculation of Opening Stock:

Stock Turnover Ratio = Cost of Sales / Average Stock

→ 10 = 6,00,000 / Average Stock

→ Average Stock = 6,00,000 / 10 = ₹ 60,000

Now, Average Stock = (Opening Stock + Closing Stock) / 2

→ 60,000 = (Opening Stock + 1,00,000) / 2

→ Opening Stock + 1,00,000 = 1,20,000

→ Opening Stock = 1,20,000 − 1,00,000

→ Opening Stock = ₹ 20,000

7. Calculation of Total Liabilities:

Capital / Total Liabilities = 1/2

→ 8,00,000 / Total Liabilities = 1/2

→ Total Liabilities = ₹ 16,00,000

Final Answer

a) Cost of Sales = ₹ 6,00,000

b) Gross Profit = ₹ 2,00,000

c) Net Profit = ₹ 1,60,000

d) Current Assets = ₹ 14,00,000

e) Capital = ₹ 8,00,000

f) Total Liabilities = ₹ 16,00,000

g) Opening Stock = ₹ 20,000

(2) The following are the information collected from the final accounts of a firm:

	Rs.
Total Purchases Cash Purchases Purchases Returns Creditors at the end Bills Payable at the end	10,00,000 2,00,000 60,000 1,60,000 40,000

You are required to calculate the following:

1) Creditors turnover ratio.

2) Average payment period.

Solution Calculation of Creditors Turnover Ratio:

We have,

Total Purchase = ₹ 10,00,000

Cash Purchase = ₹ 2,00,000

Credit Purchase = 10,00,000 − 2,00,000 = ₹ 8,00,000

Net Credit Purchase = Credit Purchase − Purchase Return = 8,00,000 − 60,000 = ₹ 7,40,000

Here,

Closing Trade Payable (Closing TP) = Creditors at the end + Bills Payable at the end

= 160,000 + 40,000 = ₹ 2,00,000

Creditors Turnover Ratio (CTR):

Creditors Turnover Ratio = Net Credit Purchase / Closing Trade Payable

= 7,40,000 / 2,00,000

→ CTR = 3.7 times

Also, Average Payment Period = 365 / CTR = 365 / 3.7 = 98.65 days

(b) The following information is given about PD Ltd. for the year ended 31^st March, 2017:

Current ratio Acid-test ratio Current liabilities

2.5 : 1 1.5 : 1 Rs. 50,000

Find out:

a) Current assets;

b) Liquid assets;

c) Inventory.

Solution: Current Ratio = 2.5 / 1

→ Current Asset / Current Liabilities = 2.5

→ Current Asset = 2.5 × CL

→ CA = 2.5 × 50,000

→ CA = ₹ 1,25,000

Acid-test Ratio = 1.5 : 1

→ Liquid Asset / Current Liabilities = 1.5 / 1

→ Liquid Asset = 1.5 × Current Liabilities

→ Liquid Assets = 1.5 × 50,000

→ LA = ₹ 75,000

We know, Current Assets − Inventory = Liquid Assets

→ 1,25,000 − Inventory = 75,000

→ Inventory = 1,25,000 − 75,000

→ Inventory = ₹ 50,000

(b) Prepare a projected Balance Sheet on the basis of the following information:

Estimates Sales – Rs. 4,50,000

Sales to Net Worth – 2.5 times

Total Debt to Net Worth – 65%

Current Liabilities to Net Worth – 25%

Current Ratio – 3.6

Sales to Inventory – 5 times

Average Collection Period – 36 days in a year of 360 day

Fixed Assets to Net Worth – 75%

Solution:

1. Calculation of Net Worth:

Sales to Net Worth = 2.5 times

→ Sales / Net Worth = 2.5

→ 4,50,000 / Net Worth = 2.5

→ Net Worth = ₹ 1,80,000

2. Calculation of Total Debt & Long-Term Debt:

Total Debt to Net Worth = 65%

→ Total Debt / Net Worth = 65 / 100

→ Total Debt / 1,80,000 = 0.65

→ Total Debt = ₹ 1,17,000

3. Current Liabilities to Net Worth = 25%

→ Current Liabilities (CL) / Net Worth = 25 / 100

→ CL / 1,80,000 = 0.25

→ CL = 0.25 × 1,80,000

→ Current Liabilities = ₹ 45,000

We know that:

Long-Term Debt = Total Debt − Current Liabilities

→ Long-Term Debt = 1,17,000 − 45,000

→ Long-Term Debt = ₹ 72,000

4. Calculation of Current Assets: Current Ratio = 3.6

→ Current Assets (CA) / Current Liabilities (CL) = 3.6 / 1

→ CA / 45,000 = 3.6

→ CA = 3.6 × 45,000

→ Current Assets = ₹ 1,62,000

5. Calculation of Inventory (Stock): Sales to Inventory = 5 times

→ Sales / Inventory = 5

→ 4,50,000 / Inventory = 5

→ Inventory = 4,50,000 / 5

→ Inventory (Stock) = ₹ 90,000

6. Calculation of Debtors (Trade Receivables):

Average Collection Period = 36 days

→ (360 × Debtors) / Credit Sales = 36 (Assuming Total Sales as Credit Sales)

→ (360 × Debtors) / 4,50,000 = 36

→ Debtors = (36 × 4,50,000) / 360

→ Debtors = ₹ 45,000

7. Calculation of Fixed Assets:

Fixed Assets to Net Worth = 75%

→ Fixed Assets / Net Worth = 75 / 100

→ Fixed Assets / 1,80,000 = 0.75

→ Fixed Assets = ₹ 1,35,000

8. Calculation of Cash & Cash Equivalents (Balancing Figure):

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

→ 1,62,000 = 90,000 + 45,000 + Cash & Cash Equivalents

→ 1,62,000 = 1,35,000 + Cash & Cash Equivalents

→ Cash & Cash Equivalents = 1,62,000 − 1,35,000

→ Cash & Cash Equivalents = ₹ 27,000

9. Calculation of Total Assets / Total Liabilities:

Total Liabilities Side = Net Worth + Long-Term Debt + Current Liabilities

→ Total Liabilities = 1,80,000 + 72,000 + 45,000

→ Total Liabilities = ₹ 2,97,000

Total Assets Side = Fixed Assets + Current Assets

→ Total Assets = 1,35,000 + 1,62,000

→ Total Assets = ₹ 2,97,000

Projected Balance Sheet as per Schedule III

Particulars	Amount (₹)
(I) Equity and Liabilities:
(1) Shareholders' Funds:
(a) Share Capital / Net Worth	1,80,000
(2) Non-Current Liabilities:
(a) Long-term Borrowings (Long-term Debt)	72,000
(3) Current Liabilities:
(a) Short-term Liabilities (Current Liabilities)	45,000
Total Equity and Liabilities	2,97,000
(II) Assets:
(1) Non-Current Assets:
(a) Property, Plant & Equipment (Fixed Assets)	1,35,000
(2) Current Assets:
(a) Inventories (Stock)	90,000
(b) Trade Receivables (Debtors)	45,000
(c) Cash and Cash Equivalents (Balancing figure)	27,000
Total Assets	2,97,000

(b) Debtors’ Velocity – 3 months

Creditors’ Velocity – 2 months

Stock Velocity – 8 times

Fixed Assets Turnover Ratio – 8 times

Gross Profit Ratio – 25%

Gross Profit in the year amounted to Rs. 80,000. There is no long-term Loan and Bank Overdraft. Reserve and Surplus amounted to Rs. 28,000. Liquid Assets are Rs. 97,333. Closing Stock is Rs. 2,000 more than Opening Stock. Bills Receivable and Payable are Rs. 5,000 and Rs. 2,000 respectively.

Find out (i) Sales; (ii) Sundry Debtors; (iii) Closing Stock; (iv) Sundry Creditors; (v) Fixed Assets; and (vi) Proprietor’s Fund.

Solution: 1. Calculation of Total Sales:

Gross Profit Ratio = 25%

Gross Profit = ₹ 80,000

Sales = 80,000/25% = ₹ 3,20,000

2. Calculation of Cost of Goods Sold (COGS) & Average Stock:

COGS = Sales − Gross Profit = COGS = 3,20,000 − 80,000 = ₹ 2,40,000

3. Stock Velocity (Stock Turnover) = 8 times

→ COGS / Average Stock = 8

→ Average Stock = 2,40,000 / 8

→ Average Stock = ₹ 30,000

4. Calculation of Closing Stock:

Let Opening Stock = X

Given: Closing Stock is = ₹ 2,000 more than Opening Stock

→ Closing Stock = X + 2,000

We know that:

Average Stock = (Opening Stock + Closing Stock) / 2

→ 30,000 = (X + X + 2,000) / 2

→ 30,000 × 2 = 2X + 2,000

→ 60,000 = 2X + 2,000

→ 2X = 60,000 − 2,000

→ 2X = 58,000

→ X = 29,000 (Opening Stock)

Now substitute the value of X to find Closing Stock:

→ Closing Stock = 29,000 + 2,000

→ Closing Stock = ₹ 31,000

5. Calculation of Sundry Debtors:

Debtors’ Velocity = 3 months

→Debtors’ Velocity = (12*Trade Receivables)/Sales

→ (Sales × 3) / 12 = Trade Receivables   (Assuming Total Sales as Credit Sales)

→ Trade Receivables = ₹ 80,000

We know that: Trade Receivables = Sundry Debtors + Bills Receivable

→ Sundry Debtors = 80,000 − 5,000 = ₹ 75,000

6. Calculation of Total Fixed Assets:

Fixed Assets Turnover Ratio = 8 times

→ Sales / Fixed Assets = 8

→ 3,20,000 / Fixed Assets = 8

→ Fixed Assets = 3,20,000 / 8

→ Fixed Assets = ₹ 40,000

7. Calculation of Purchases:

COGS = ₹ 2,40,000

Purchases = COGS + Closing Stock − Opening Stock

Purchases = 2,40,000 + 31,000 − 29,000

Purchases = ₹ 2,42,000

8. Calculation of Trade Payables & Sundry Creditors:

Creditors’ Velocity = 2 months

→ (Purchases × 2) / 12 = Trade Payables (Assuming Total Purchases as Credit Purchases)

→ (2,42,000 × 2) / 12 = Trade Payables

→ Trade Payables = ₹ 40,333

We know that:

Trade Payables = Sundry Creditors + Bills Payable

Sundry Creditors = 40,333 − 2,000

Sundry Creditors = ₹ 38,333

9. Calculation of Current Liabilities (CL):

Since there is no bank overdraft or other short-term loans, it is assumed that:

Current Liabilities = Trade Payables = ₹ 40,333

10. Calculation of Proprietor’s Fund:

Since there is no long-term loan and no bank overdraft:

Total Assets Side = Fixed Assets + Current Assets

Current Assets (CA) = Liquid Assets + Closing Stock = ₹ 1,28,333

Total Assets = 40,000 + 1,28,333 = ₹ 1,68,333

We know that Total Assets = Total Equity and Liabilities Total

Liabilities Side = Proprietor’s Fund + Current Liabilities

→ 1,68,333 = Proprietor’s Fund + 40,333

→ Proprietor’s Fund = 1,68,333 − 40,333

→ Proprietor’s Fund = ₹ 1,28,000

Balance Sheet as per Schedule III

Particulars	Amount (₹)
(I) Equity and Liabilities:
(1) Shareholders' Funds:
(a) Share Capital (Balancing figure)	1,00,000
(b) Reserves and Surplus	28,000
(2) Non-Current Liabilities:
(a) Long-term Loans	NIL
(3) Current Liabilities:
(a) Trade Payables (Creditors ₹38,333 + BP ₹2,000)	40,333
Total Equity and Liabilities	1,68,333
(II) Assets:
(1) Non-Current Assets:
(a) Property, Plant & Equipment (Fixed Assets)	40,000
(2) Current Assets:
(a) Inventories (Closing Stock)	31,000
(b) Other Current Assets (Liquid Assets)	97,333
Total Assets	1,68,333

(b) From the following information, prepare the Balance Sheet:

Particulars	Rs.
Net Working Capital Reserve and Surplus Bank Overdraft Current Ratio Liquid Ratio Fixed Assets to Proprietor’s Fund Long-term Liabilities	75,000 1,00,000 60,000 1.75 1.15 0.75 NIL

(b) The following is the Balance Sheet of Jagjeevan Industries Ltd. as on 31^st March, 2016:

Particulars	Amount (in Rs.)
I. Equity and Liabilities: a) Shareholder’s Fund Equity Share Capital Reserve and Surplus b) Non Current Liabilities: 10% Debentures c) Current Liabilities: Bank Overdraft Sundry Creditors	22,50,000 9,00,000   7,50,000   3,00,000 18,00,000
	60,00,000
II. Assets: a) Non-Current Assets: Fixed Assets b) Current Assets: Investments (short term) Stock-in-Trade Sundry Debtors Cash	24,75,000   2,40,000 13,65,000 18,60,000 60,000
	60,00,000

Other Information: Sales – Rs. 1, 11, 60,000; Gross Profit – Rs. 11, 16,000

You are required to calculate the following ratios:

a) Debt-Equity Ratio.

b) Proprietary Ratio.

c) Debtors’ Turnover Ratio.

d) Stock Turnover Ratio.

4. (a) From the following balance sheet of Assam Co. Ltd as on 30^th June, 2014, calculate the following: 3x4=12

(i) Debt to equity ratio

(ii) Current ratio

(iii) Quick ratio

(iv) Working capital turnover ratio

Balance Sheet of Assam Co. Ltd

AS on 30^th June, 2014

Liabilities	Amount	Assets	Amount
Equity Share capital Capital Reserve 12% loan Creditors Bank overdraft Provision for taxation Profit and loss account	28,000 5,600 22,400 11,200 2,800 5,600 8,400	Goodwill Fixed Assets Stock Debtors Short-term investment Cash in hand Underwriting commission	13,600 39,200 8,400 8,400 4,800 4,800 4,800
	84,000		84,000

Additional Information: Sales Rs. 25,200

4.(a) From the following information, prepare the balance sheet of X company showing the details of working:

Paid up capital	50000
Plant and Machinery	125000
Total sales per annum	500000
Gross profit margin	25%
Annual credit sales	80% of net sales
Current Ratio	2
Inventory Turnover	4
Fixed assets turnover	2
Sales Return	20% of sales
Average collection period	73 days
Bank credit to trade credit	3:2
Cash to inventory	1:15
Total debt to current Liability	3

 

 

 

 

 

 

 

Solution:

Calculation of Net Sales: Total sales per annum = ₹ 5,00,000

Sales Return = 20% of sales

→ Sales Return = (20 / 100) × 5,00,000 = ₹ 1,00,000

→ Net Sales = Total Sales − Sales Return

→ Net Sales = 5,00,000 − 1,00,000 = ₹ 4,00,000

Calculation of Credit Sales:

Annual credit sales = 80% of net sales

→ Credit Sales = (80 / 100) × 4,00,000

→ Credit Sales = ₹ 3,20,000

Calculation of Debtors (Trade Receivables): Average collection period = 73 days

→ (365 × Debtors) / Credit Sales = 73

→ (365 × Debtors) / 3,20,000 = 73

→ Debtors = (73 × 3,20,000) / 365

→ Debtors = ₹ 64,00,000 / 100 = ₹ 64,000

Calculation of Cost of Goods Sold (COGS) & Inventory (Stock):

Gross profit margin = 25% of Net Sales

→ Gross Profit = (25 / 100) × 4,00,000 = ₹ 1,00,000

→ COGS = Net Sales − Gross Profit

→ COGS = 4,00,000 − 1,00,000 = ₹ 3,00,000

Inventory Turnover = 4

→ COGS / Inventory = 4

→ 3,00,000 / Inventory = 4

→ Inventory (Stock) = 3,00,000 / 4

→ Inventory (Stock) = ₹ 75,000

Calculation of Cash:

Cash to inventory = 1:15

→ Cash / Inventory = 1 / 15

→ Cash / 75,000 = 1 / 15

→ Cash = 75,000 / 15 = ₹ 5,000

Calculation of Total Fixed Assets:

Fixed assets turnover = 2

→ Net Sales / Fixed Assets = 2

→ 4,00,000 / Fixed Assets = 2

→ Fixed Assets = 4,00,000 / 2 = ₹ 2,00,000

Calculation of Current Assets (CA):

Current Assets = Inventory + Debtors + Cash + Other Current Assets

Let's first determine CA using the standard component approach or through the liabilities side context. Since we have specific asset details, let's aggregate the identified assets:

→ Minimum Current Assets = 75,000 (Inventory) + 64,000 (Debtors) + 5,000 (Cash) = ₹ 1,44,000

(Note: We will verify if there are other current assets using the Current Ratio after finding Current Liabilities).

Calculation of Current Liabilities (CL) & Total Debt:

Let's find the relationship via the Total Liabilities and Asset structure.

Total Assets = Fixed Assets + Current Assets = 2,00,000 + CA

We know that Total Assets = Total Equity and Liabilities

Total Equity and Liabilities = Paid up capital + Reserves & Surplus + Total Debt

Given: Total debt to current Liability = 3

→ Total Debt = 3 × CL

Current Ratio = 2

→ CA / CL = 2

→ CA = 2 × CL

Let's substitute CA into our asset structure:

→ Total Assets = 2,00,000 + 2CL

Now let's check the components of Current Assets:

→ CA = Inventory + Debtors + Cash + Other Current Assets

→ 2CL = 75,000 + 64,000 + 5,000 + Other Current Assets

→ 2CL = 1,44,000 + Other Current Assets

Under the standard textbook assumptions for this specific problem template where no other assets are implied:

→ CA = ₹ 1,44,000

→ 2CL = 1,44,000

→ CL = 1,44,000 / 2

→ Current Liabilities = ₹ 72,000

Now calculate Total Debt:

→ Total Debt = 3 × CL

→ Total Debt = 3 × 72,000

→ Total Debt = ₹ 2,16,000

Calculation of Trade Credit (Creditors) & Bank Credit:

Bank credit to trade credit = 3:2

Trade credit + Bank credit = Total Current Liabilities

→ Bank Credit = (3 / 5) × 72,000 = ₹ 43,200

→ Trade Credit (Creditors) = (2 / 5) × 72,000 = ₹ 28,800

Calculation of Long-Term Debt:

Long-Term Debt = Total Debt − Current Liabilities

→ Long-Term Debt = 2,16,000 − 72,000

→ Long-Term Debt = ₹ 1,44,000

Calculation of Reserves and Surplus (Balancing Figure):

Total Assets = Fixed Assets + Current Assets

→ Total Assets = 2,00,000 + 1,44,000 = ₹ 3,44,000

Total Liabilities Side = Paid up capital + Reserves & Surplus + Total Debt

→ 3,44,000 = 50,000 + Reserves & Surplus + 2,16,000

→ 3,44,000 = 2,66,000 + Reserves & Surplus

→ Reserves & Surplus = 3,44,000 − 2,66,000

→ Reserves & Surplus = ₹ 78,000

Breakdown of Fixed Assets:

Total Fixed Assets = ₹ 2,00,000

Given: Plant and Machinery = ₹ 1,25,000

→ Other Fixed Assets = Total Fixed Assets − Plant and Machinery

→ Other Fixed Assets = 2,00,000 − 1,25,000

→ Other Fixed Assets = ₹ 75,000

Balance Sheet as per Schedule III

Particulars	Amount (₹)
(I) Equity and Liabilities:
(1) Shareholders' Funds:
(a) Share Capital (Paid up Capital)	50,000
(b) Reserves and Surplus (Balancing figure)	78,000
(2) Non-Current Liabilities:
(a) Long-term Borrowings (Long-term Debt)	1,44,000
(3) Current Liabilities:
(a) Short-term Borrowings (Bank Credit)	43,200
(b) Trade Payables (Trade Credit/Creditors)	28,800
Total Equity and Liabilities	3,44,000
(II) Assets:
(1) Non-Current Assets:
(a) Property, Plant & Equipment (Plant & Machinery)	1,25,000
(b) Other Fixed Assets	75,000
(2) Current Assets:
(a) Inventories (Stock)	75,000
(b) Trade Receivables (Debtors)	64,000
(c) Cash and Cash Equivalents (Cash)	5,000
Total Assets	3,44,000