3 Marks Question - Accountancy STD 12 Commerce Questions - Vidyadip

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Question 13 Marks

Calculate Cost of Goods Sold from the following information:

Answer

Net Revenue from Operations = Revenue from Operations - Revenue from Operations Return
= ₹ 7,00,000 - ₹ 40,000 = ₹ 6,60,000
Operating Ratio $=\frac{\text{Cost of Revenue from Operations + Operating Expenses}}{\text{Net Revenue from Operations}}\times100$
Hence, Cost of Revenue from Operations + Operating Expenses = 90% of Net Revenue from Operations

Cost of Revenue from Operations+ ₹ 30,000 + ₹ 20,000	=	90% of ₹ 6,60,000
Cost of Revenue from Operations+ ₹ 50,000	=	₹ 5,94,000
Cost of Revenue from Operations	=	₹ 5,94,000 - ₹ 50,000
	=	₹ 5,44,000

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Question 23 Marks

From the following information, calculate Inventory Turnover Ratio:
Revenue from Operations (Sales) ₹ 4,00,000, Average Inventory: ₹ 55,000. The rate of Gross Loss on Revenue from Operations was 10%.

Answer

Revenue from Operations = ₹ 4,00,000 Gross Loss = 10% of ₹ 4,00,000 = ₹ 40,0000 Cost of Revenue from Operations = Revenue from Operations + Gross Loss = ₹ 4,00,000 + ₹ 40,000 = ₹ 4,40,000 Inventory Turnover Ratio $=\frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}$$=\frac{₹\ 4,40,000}{₹\ 55,000}=8\text{ times.}$

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Question 33 Marks

Calculate operating ratio from the following:

Answer

Operating Ratio $=\frac{\text{Cost of Revenue from Operations + Operating Expenses}}{\text{Net Revenue from Operations}}\times100$
Cost of Revenue from Operations = Net Revenue from Operations - Gross Profit
= ₹ 12,00,000 - ₹ 3,00,000 = ₹ 9,00,000
Operating Expenses = Office Expenses + Selling Expenses
= ₹ 80,000 + ₹ 40,000 = ₹ 1,20,000
Hence, Operating Ratio $=\frac{₹\ 9,00,000+₹\ 1,20,000}{₹\ 12,00,000}=85\%$

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Question 43 Marks

Calculate 'Return on Capital Employed' from the following detail:
Gross Profit ₹ 2,70,000; Administration Expenses ₹ 60,000; Selling Expenses ₹ 30,000; 12% Long-Term Debts ₹ 2,00,000; Tax Rate 40%; Non Current Assets ₹ 6,00,000; Current Assets ₹ 2,00,000; and Current Liabilities ₹ 50,000.

Answer

Return on Capital Employed $=\frac{\text{Net profit before Interst & Tax}}{\text{Capital Employed }}\times100$Net Profit before interest and tax = Gross Profit - Administration Exp. - Selling Exp.
= ₹ 2,10,000- ₹ 60,000- ₹ 30,000 = ₹ 1,80,000
Capital Employed = Non Current Assets+ Current Assets - Current Liabilities
= ₹ 6,00,000 + ₹ 2,00,000- ₹ 50,000
= ₹ 7,50,000
Return on Capital Employed $=\frac{₹\ 1,80,000}{₹ \ 7,50,000}\times100=24\%$

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Question 53 Marks

Net Profit after Interest and Tax ₹ 30,000; Fixed Assets ₹ 3,80,000; Current Assets ₹ 1,70,000; Current Liabilities ₹ 50,000; 10% Long-Term Debt ₹ 2,00,000. Tax Paid ₹ 30,000. Calculate Return on Investment

Answer

Return on Investment $=\frac{\text{Profit before interest and tax}}{\text{Capital Employed}}\times100$

Calculation of Profit before interest and tax:		₹
Profit after interest and tax	=	30,000
+ Interest (10% on ₹ 2,00,000) + Tax Profit before interest and tax		20,000 30,000 $\underline{\overline{\underline{80,000}}}$

Capital Employed = Fixed Assets + Current Assets - Current Liabilities
= ₹ 3,80,000 + ₹ 1,70,000 - ₹ 50,000
= ₹ 5,00,000
Return on Investment $=\frac{₹\ 80,000}{₹\ 5,00,000}\times100=16\%$

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Question 63 Marks

Average Inventory carried by a trader is ₹ 60,000; Inventory turnover ratio is 10 times. Goods are sold at a profit of 10% on cost. Find out the profit.

Answer

Inventory Turnover Ratio $=\frac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}$
10 (Given) $=\frac{\text{Cost of Revenue from Operations}}{60,000\text{ (Given)}}$
Cost of Revenue from Operations = 10 x ₹ 60,000 = ₹ 6,00,000
Selling Price is 10% above cost
= ₹ 18,750 × 2 = ₹ 37,500
$\therefore$ Selling Price $=₹\ 6,00,000\times\frac{110}{100}=₹\ 6,60,000$
Hence, Gross Profit is ₹ 60,000

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Question 73 Marks

From the following information, calculate Operating Ratio:

Answer

Operating Ratio $=\frac{\text{Cost of Revenue from Operations + Operating Expenses}}{\text{Revenue from Operations}}$
Revenue from ₹ 4,00,000 + ₹ 3,00,000 = ₹ 1,00,000
Cost of Revenue from Oprations $=₹\ 7,00,000\times\frac{100}{140}=₹\ 5,00,000$
Operating Expenses = Administrative Expenses + Selling and Distribution Expenses
= ₹ 60,000 + ₹ 42,000 = ₹ 1,02,000
Operating Ratio $=\frac{₹\ 5,00,000+1,02,000}{7,00,000}=86\%$

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Question 83 Marks

What does too low 'Trade Receivables Turnover Ratio' indicate?

Answer

A too low trade receivables turnover ratio will indicate the liberal and inefficient credit and collection policy of the management. It shows that more money is being locked-up in trade receivables which will result in higher bad-debts, increase in cost of collection and also the loss of interest on the money due from trade receivables.

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Question 93 Marks

Find out the value of opening inventory from the following particulars:

Total Revenue from Operations	₹ 2,00,000
Inventory Turnover Ratio	5 Times
Gross Profit	25% on Revenue from Operations

You are informed that closing inventory is ₹ 8,000 more than the opening inventory.

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Question 103 Marks

A firm has Current Ratio of 4.5 : 1 and Quick Ratio of 3 : 1. If its inventory is ₹ 72,000, find out its total current assets and total current liabilities.

Answer

Current Ratio is 4.5 and quick ratio is 3. Difference between current ratio and quick ratio is inventory. Therefore, inventory is 4.5 - 3 = 1.5.
If Inventory is 1.5, Current Assets = 4.5
If lnventory is 1, Current Assets $=\frac{4.5}{1.5}$
Iflnventory is 72,000, Current Assets $=\frac{4.5}{1.5}\times72,000=₹2,16,000$
As Current Ratio is 4.5 : 1 and current assets are ₹ 2,16,000
$\therefore$ Current Liabilities $=\frac{₹\ 2,16,000}{4.5}=₹\ 48,000.$

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Question 113 Marks

Calculate Working Capital Turnover Ratio from the following information:

Answer

Working Capital Turnover Ratio $=\frac{\text{Net Revenue from Operations}}{\text{Working Capital}}$
Net Revenue from Operations = Cost of Revenue from Operations + Gross Profit
= ₹ 20,00,000 + 30% of 20,00,000
= ₹ 20,00,000 + ₹ 6,00,000 = ₹ 26,00,000
Working Capital Current Assets - Current Liabilities
= ₹ 8,60,000- ₹ 3,40,000 = ₹ 5,20,000
Working Capital Turnover Ratio $=\frac{₹\ 26,00,000}{₹\ 5,20,000}=5\text{ Times}$

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Question 123 Marks

Net Profit after Interest and Tax ₹ 51,000; Shareholder's Funds ₹ 3,00,000; 15% Long-Term Debt ₹ 1,00,000. Tax Paid ₹ 34,000. Calculate Return on Investment.

Answer

Return on Investment $=\frac{\text{Profit before interest and tax}}{\text{Capital Employed}}\times100$

Calculation of Profit before interest and tax:		₹
Profit after interest and tax	=	51,000
+ Interest (15% on ₹ 1,00,000) + Tax Profit before interest and tax		15,000 34,000 $\underline{\overline{\underline{1,00,000}}}$

Capital Employed = Shareholder's Funds + Long Term Debt
= ₹ 3,00,000 + ₹ 1,00,000 = ₹ 4,00,000
Return on Investment $=\frac{₹\ 1,00,000}{₹\ 4,00,000}\times100=25\%$
Note: It is assumed that Shareholder's Funds include current year's profits.

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Question 133 Marks

Calculate Working Capital Turnover Ratio from the following:

Answer

Net Revenue from Operations = Credit Revenue from Operations + Cash Revenue from Operations - Revenuefrom Operations Return
₹ 8,00,000 + ₹ 12,60,000 - ₹ 80,000
= ₹ 19,80,000
Working Capital = Current Assets- Current Liabilities
= ₹ 7,20,000 - ₹ 3,24,000 = ₹ 3,96,000
Working Capital Turnover Ratio $=\frac{\text{Net Revenue from Operations}}{\text{Working Capital}}$
$=\frac{₹\ 19,80,000}{₹\ 3,96,000}=5\text{ Times}$

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Question 143 Marks

Current Ratio 2 : 1, Quick Ratio 1.5 : 1, Current Liabilities ₹ 1,60,000. Calculate Current Assets, Quick Assets and Inventory.

Answer

Current Ratio $=\frac{\text{Current Assets}}{\text{Current Liabilities}}$
2 (Given) $=\frac{\text{Current Assets}}{₹\ 1,60,000\text{ (Given)}}$
$\therefore$ Current Assets = ₹ 1,60,000 × 2 = ₹ 3,20,000
Acid Test Ratio (Quick Ratio) $=\frac{\text{Liquid Assets}}{\text{Current Liabilities}}$
1.5 (Given) $=\frac{\text{Liquid Assets}}{₹\ \text{1,60,000 (Given)}}$
$\therefore$ Liquid Assets (Quick Assets) = ₹ 1,60,000 x 1.5 = ₹ 2,40,000
Inventory = Current Assets - Liquid Assets
= ₹ 3,20,000 - ₹ 2,40,000 = ₹ 80,000

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Question 153 Marks

Comparison with the help of ratios is not possible if different firms follow different accounting policies.'' Comment.

Answer

Comparison not Possible if Different Firms Adopt Different Accounting Policies, There may be different accounting policies adopted by different firms with regard to providing depreciation, creation of provision for doubtful debts, method of valuation of closing inventory etc. For instance, one firm may adopt the policy of charging depreciation on straight-line basis, while other may charge on written-down value method. Such differences make the accounting ratios incomparable.

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Question 163 Marks

Current Liabilities ₹ 80,000; Working Capital ₹ 1,70,000; Inventory ₹ 85,000 Prepaid Expenses ₹ 5,000 Calculate Quick Ratio.

Answer

Current Assets = Current Liabilities+ Working Capital
= ₹ 80,000 + ₹ 1,70,000
= ₹ 2,50,000
Quick Ratio $=\frac{\text{Liquid Assets}}{\text{Current Liabilities}}$
Liquid Assets = Current Assets - Inventory - Prepaid Expenses
= ₹ 1,50,000 - ₹ 85,000 - ₹ 5,000
= ₹ 1,60,000
Quick Ratio $=\frac{₹\ 1,60,000}{₹\ 80,000}=2:1$

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Question 173 Marks

Compute Operating Ratio from the following Statement of Profit and Loss of X Ltd. for the year ended 31st March, 2018:

Answer

Operating Ratio $=\frac{\text{Cost of Revenue from Operations + Operating Expenses}}{\text{Revenue from Operations}}\times100$
Cost of Revenue from Operations = Cost of Materials Consumed + Change in Inventories of Finished Goods and Work in Progress
= ₹ 14,10,000 - ₹ 30,000 = ₹ 13,80,000
Operating Expenses = Employee Benefit Exp. + Depreciation and Amortization Exp. + Other Exp. (Office Exp.)
= ₹ 2,82,000 + ₹ 60,000 + ₹ 54,000
= ₹ 3,96,000
Operating Ratio $=\frac{₹\ 13,80,000+₹\ 3,96,000}{₹\ 24,00,000}\times100=74\%$

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Question 183 Marks

Current Ratio 2.5 : 1, Quick Ratio 0.95 : 1, Current Assets ₹ 17,00,000. Calculate Current Liabilities, Quick Assets and Inventory.

Answer

Current Ratio $=\frac{\text{Current Assets}}{\text{Current Liabilities}}$
2.5 (Given) $=\frac{₹\ 17,00,000\text{ (Given)}}{\text{Current Liabilities}}$
$\therefore$ Current Liabilities $=\frac{₹\ 17,00,000}{2.5}$
$=17,00,000\times\frac{10}{25}=₹\ 6,80,000$
Acid Test Ratio (Quick Ratio) $=\frac{\text{Liquid Assets}}{\text{Current Liabilities}}$
0.95 (Given) $=\frac{\text{Liquid Assets}}{₹\ \text{6,80,000 (Calculated as above)}}$
$\therefore$ Liquid Assets (Quick Assets) = ₹ 6,80,000 x 0.95 = ₹ 6,46,000
Inventory = Current Assets - Liquid Assets
= ₹ 17,00,000 - ₹ 6,46,000 = ₹ 10,54,000

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Question 193 Marks

From the following information, calculate interest coverage ratio and give your comments also:

Answer

Interest Coverage Ratio $=\frac{\text{Net profit before Interest & Income Tax}}{\text{Fiixed Interest Charges}}$
In the above question net profit after interest and tax is given, whereas net profit before interest and tax is required to calculate this ratio.
If profit after tax is 50, the profit before tax must be = 100
If profit after tax is 1,20,000, the profit before tax must be
$=\frac{100}{50}\times1,20,000=₹\ 2,40,000$
Interest paid on ₹ 1,00,000 debentures during the year at the rate of 15% amounts to ₹ 15,000 and on ₹ 1,00,000 mortgage loan at the rate of 12% amounts to ₹ 12,000.
Therefore, profit before payment of interest and tax = ₹ 2,40,000 + ₹ 27,000 (Interest) = ₹ 2,67,000.
Interest Coverage Ratio $=\frac{₹\ 2,67,000}{₹\ 27,000}=9.89 \text{ Times}.$

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Question 203 Marks

Calculate 'Debt Equity Ratio' from the following information:
Total Assets ₹ 3,50,000; Total Debt ₹ 2,50,000 and Current Liabilities ₹ 80,000.

Answer

Debt-Equity Ratio $=\frac{\text{Debt}}{\text{Equity}}\text{ or }\frac{\text{Long Term Debt}}{\text{Shareholder's Funds}}$
Long-term Debt = Total Debts - Current Liabilitie
= ₹ 2,50,000 - ₹ 80,000 = ₹ 1,70,000
Shareholder's Fund = Total Assets - Total Debts
= ₹ 3,50,000 - ₹ 2,50,000 = ₹ 1,00,000
Debt Equity Ratio $=\frac{₹\ 1,70,000}{₹\ 1,00,000}=1.7:1$

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Question 213 Marks

Current Ratio 2.5 : 1; Quick Ratio 1 : 1; Current Assets ₹ 5,00,000. Calculate Current Liabilities; Liquid Assets and Inventory.

Answer

Current Ratio $=\frac{\text{Current Assets}}{\text{Current Liabilities}}$
2.5 (Given) $=\frac{₹\ 5,00,000 \text{(Given)}}{\text{Current Liabilities}}$
$\therefore$ Current Assets $\frac{₹\ 5,00,000\text{(Given)} }{2.5}=₹\ 2,00,000$
Acid Test Ratio $=\frac{\text{Liquid Assets}}{\text{Current Liabilities}}$
1 (Given) $=\frac{\text{Liquid Assets}}{₹\ 2,00,000}$
$\therefore$ Liquid Assets = ₹ 2 ,00,000 ×1 = ₹ 2,00,000
Inventory = Current Assets - Liquid Assets
= ₹ 5,00,000- ₹ 2,00,000 = ₹ 3,00,000

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Question 223 Marks

Net Profit after Interest but before Tax ₹ 65,000; Shareholder's Funds ₹ 3,00,000; 15% Long-Term Debt ₹ 1,00,000. Calculate Return on Investment.

Answer

Return on Investment $=\frac{\text{Net profit before Interst & Tax}}{\text{Capital Employed }}\times100$
Calculation of Net Profit before interest and tax:

Profit after interest but before tax	65,000
Interest ( 15% on ₹ 1,00,000)	15,000
Net Profit before interest and tax	80,000

Capital Employed = Shareholder's Funds+ Long Term Debt
= ₹ 3,00,000 + ₹ 1,00,000 = ₹ 4,00,000
Return on Investment $=\frac{80,000}{4,00,000}\times100=20\%$
Note: It is assumed that Shareholder's Funds include current year's profits.

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Question 233 Marks

₹ 1,50,000 is the cost of revenue from operations of a firm for the year 2014. If inventory turnover ratio is 6 times, calculate inventory at the end of the year. Inventory at the end is 1.5 times than that in the beginning.

Answer

Inventory Turnover Ratio $=\frac{\text{Cost of Revenue from Operations }}{\text{Average Inventory }}$
$6\text{ (Given)} =\frac{₹\ 1,50,000\ (\text{Given})}{\text{Average Inventory }}$
Average Inventory $=\frac{₹\ 1,50,000}{6}=₹\ 25,000$
Total of Opening and
Closing Inventory = ₹ 25,000 × 2 = ₹ 50,000
Ratio of Opening Inventory
to Closing Inventory = 1 : 1.5
Therefore, Closing Inventory $=₹\ 50,000\times\frac{1.5}{2.5}=₹\ 30,000$

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Question 243 Marks

From the following particulars determine the Opening Trade Receivables:

Answer

Trade Receivables Turnover Ratio $=\frac{\text{Credit Revenue from Operations}}{\text{Average Trade Receivables}}$
$12=\frac{₹\ 4,32,000}{\text{Average Trade Receivables}}$
$\therefore$ Average Trade Receivables $=\frac{₹\ 4,32,000}{12}=₹\ 36,000$
Calculation of Closing Trade Receivables:
Opening Trade Receivables + Closing Trade Receivables
= Average Trade Receivables × 2
= ₹ 36,000 × 2 = ₹ 72,000
As Closing Trade Receivables are ₹ 40,000, therefore
Opening Trade Receivables= ₹ 72,000- ₹ 40,000 = ₹ 32,000

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Question 253 Marks

Calculate Operating Profit Ratio in the following cases:

i.	Revenue from Operations (Sales) ₹ 7,50,000; Operating Profit ₹ 3,00,000.
ii.	Revenue from Operations (Sales). Cost of Revenue from Operations. Operating Expenses.	₹ 15,00,000 ₹ 12,40,000 ₹ 35,000
iii.	Revenue from Operations (Sales). Gross Profit. Operating Expenses.	₹12,00,000 20% on Sales. ₹ 30,000

Answer

Operating Profit Ratio $=\frac{\text{Operating Profit}}{\text{Revenue From Operations}}\times100$
Case I:
Operating Profit Ratio $=\frac{₹\ 3,00,000}{₹\ 7,50,000}\times100=40\%$
Case II:
Operating Profit = Gross Profit - Operating Expenses
= ₹ 15,00,000 - ₹ 12,40,000 - ₹ 35,000
= ₹ 2,25,000
Operating Profit Ratio $=\frac{₹\ 2,25,000}{₹\ 15,00,000}\times100=15\%$
Case III:
Operating Profit = Gross Profit - Operating Expenses
= 20% of ₹ 12,00,000 - ₹ 30,000 = ₹ 2,10,000
Operating Profit Ratio $=\frac{₹\ 2,10,000}{₹\ 12,00,000}\times100=17.5\%$

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Question 263 Marks

From the following information, calculate Inventory Turnover Ratio:
Purchases ₹ 10,00,000; Revenue from Operations (Sales) ₹ 12,00,000; Direct Expenses ₹ 48,000; Gross Profit Ratio 15% on Revenue from Operations; Closing Inventory ₹ 1,64,000

Answer

Cost of Revenue from Operations = Revenue from Operations (Sales)- Gross Profit
= ₹ 12,00,000 - 15% of ₹ 12,00,000
= ₹ 12,00,000 - ₹ 1,80,000 = ₹ 10,20,000
Cost of Revenue from Operations = Opening Inventory + Purchases + Direct Expenses - Closing Inventoy
₹ 10,20,000 = Opening Inventory + ₹ 10,00,000 + ₹ 48,000 - ₹ 1,64,000
₹ 10,20,000 = Opening Inventory+ ₹ 8,84,000
Opening Inventory = ₹ 1,36,000
Average Inventory $=\frac{\text{Opening Inventory + Closing Inventory}}{2}$
$=\frac{₹\ 1,36,000+₹\ 1,64,000}{2}= ₹\ 1,50,000$
Inventory Turnover Ratio $=\frac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}$
$=\frac{₹\ 10,20,000}{₹\ 1,50,000}=6.8\text{ times.}$

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Question 273 Marks

Calculate the Debt Equity Ratio from the following:-

Answer

Debt - Equity Ratio $=\frac{\text{Debt}}{\text{Equity}}\text{ or }\frac{\text{Long term Debts}}{\text{Shareholder's Funds}}$
Long term Debts = Long term Borrowings + Long term Provisions (i.e. Provision for Employee Benefits).
= ₹ 2,00,000 + ₹ 60,000 = ₹ 2,60,000
Shareholder's Funds = Equity Share Capital + Preference Share Capital + Reserves - Profit & Loss Balance
= ₹ 3,00,000 + ₹ 50,000 + ₹ 1,60,000 - ₹ 50,000
= ₹ 4,60,000
Debt Equity Ratio $=\frac{₹\ 2,60,000}{₹\ 4,60,000}=0.57:1.$

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Question 283 Marks

Following is the Statement of Profit & Loss of Triveni Ltd. Calculate Inventory Turnover Ratio:

Notes to Accounts:

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Question 293 Marks

Following is the Comparative Balance Sheet of X Ltd.

Additional Information: Inventory as at 1st April, 2013 was ₹ 7,40,000 and Cost of Revenue from Operations for the year ended 31st March 2014 was ₹ 48,00,000 and for the year ended 31st March 2015 was ₹ 59,80,000. You are required to:

Fill in the missing figures in the Comparative Balance Sheet.
Compute Inventory Turnover Ratio.

Answer

Percentage Change in Share Capital 60.00; Reserve and Surplus 37.50; Long term Borrowings 57.14; Trade Payables (25.00); Fixed Assets 50.00; Non Current Investments 200.00; Inventories 13.95; Trade Receivables 14.40; Cash and Cash Equivalents (10.00).

Inventory Turnover Ratio:	31st March 2014 : 6 Times
	31st March 2015 : 6.5 Times

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Question 303 Marks

Compute Inventory Turnover Ratio from the following:

Answer

Cost of Revenue from Operations = Opening Inventory + Purchases + Direct Charges (i.e. Wages, Carriage Inwards) - Closing Inventory
₹ 5,60,000 = ₹ 75,000 + ₹ 4,40,000 + ₹ 1,30,000 + ₹ 15,000 - Closing Inventory
Closing Inventory = ₹ 6,60,000 - ₹ 5,60,000 = ₹ 1,00,000
Average Inventory $=\frac{\text{Opening Inventory + Closing Inventory}}{2}$
$=\frac{₹\ 75,000 + ₹\ 1,00,000}{2}=₹\ 87,500$
Inventory Turnover Ratio $=\frac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}$
$=\frac{₹\ 5,60,000}{₹\ 87,500}=6.4\text{ times}$

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Question 313 Marks

Compute Total Assets to Debt Ratio from the following information:

Answer

Total Assets to Debt Ratio $=\frac{\text{Total Assets}}{\text{Debt (i.e., Long Term Debts)}}$
Long Term Debts = Total Debts - Creditors - Bills Payables - Short term Borrowings - Outstanding Exp.
= ₹ 32,00,000 - ₹ 2,50,000 - ₹ 20,000 - ₹ 1,00,000 - ₹ 30,000
= ₹ 28,00,000
Total Assets to Debt Ratio $=\frac{35,00,000}{28,00,000}=1.25:1$

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Question 323 Marks

Current Ratio 2.6 : 1; Current Assets ₹ 1,95,000; Inventory ₹ 90,000. Calculate Acid Test Ratio.

Answer

Current Ratio $=\frac{\text{Current Assets}}{\text{Current Liabilities}}$2.6 (Given) $=\frac{ ₹\ 1,95,000\text{( Given )}}{\text{Current Liabilities}}$
$\therefore $ Current Liabilities $=\frac{₹\ 1,50,000}{2.6}=₹\ 75,000$
Liquid Assets = Current Assets - Inventory
₹ 1,95,000 - ₹ 90,000 = ₹ 1,05,000
Acid Test Ratio $=\frac{\text{Liquid Assets}}{\text{Current Liabilities}}$
$=\frac{₹\ 1,05,000}{₹\ 75,000}=1.4:1$

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Question 333 Marks

Calculate Trade Payables Turnover Ratio and Average Payment Period from the following:

Answer

Trade Payables Turnover Ratio $=\frac{\text{Net Credit Purchases}}{\text{Average Creditors + Average B/P}}$
Net Credit Purchases = ₹ 24,00,000 - ₹ 6,40,000 - ₹ 60,000 = ₹ 17,00,000
Average Creditors & B/P $=\frac{₹\ 3,00,000 + ₹\ 3,50,000 + ₹\ 20,000 + ₹\ 10,000}{2}$
$=₹\ 3,40,000$
Trade Payables Turnover Ratio $=\frac{₹\ 17,00,000}{₹\ 3,40,000}=5\text{ Times}$
Average Payment Period $=\frac{365\text{ day}}{\text{Trade Payables Turnover Ratio}}=\frac{365}{5\text{ Times}}$
$=73\text{ days}$

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Question 343 Marks

Universe Ltd. is into the business of manufacturing woolen garments. It decided to help the poor people by donating Woolen clothes and blankets during winter season. Following is the Comparative Balance Sheet of Universe Ltd. for two consecutive years:

You are required to:

Fill in the missing figures in the Comparative Balance Sheet.
Compute the Current Ratio for both the years.
Identify the value involved.

Answer

Percentage Change in Share Capital 33.33; Reserve & Surplus (25); Non Current Liabilities 50; Current Liabilities 50; Tangible Assets 33.33; Intangible Assets 50; Inventories (25); Cash. & Cash Equivalents 50. Total of Balance Sheet 29.63.
Current Ratio: 31.3.2011 3:1; 2012 2:1.
Value involved: Sympathy/ Charity/ Fulfillment of Social Responsibility.

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Question 353 Marks

Quick Ratio 2.2; Current Assets ₹ 40,000; Inventory ₹ 32,000. Calculate Current Assets.

Answer

Quick Ratio $=\frac{\text{Liquid Assets}}{\text{Current Liabilities}}$
2.2 (Given) $=\frac{\text{Liquid Assets}}{₹\ 40,000\text{(Given)}}$
$\therefore$ Liquid Assets = ₹ 40,000 × 2.2 = ₹ 88,000
Current Assets = Liquid Assets + Inventory
= ₹ 88,000 + ₹ 32,000
= ₹ 1,20,000

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Question 363 Marks

Current Ratio 3 : 1; Acid Test Ratio 0.9 : 1; Current Liabilities ₹ 1,20,000 Calculate Current Assets; Liquid Assets and Inventory.

Answer

Current Ratio $=\frac{\text{Current Assets}}{\text{Current Liabilities}}$
3 (Given) $=\frac{\text{Current Assets}}{₹\ 1,20,000 \text{(Given)}}$
$\therefore$ Current Assets = ₹ 1,20,000 x 3 = ₹ 3,60,000
Acid Test Ratio $=\frac{\text{Liquid Assets}}{\text{Current Liabilities}}$
0.9(Given) $=\frac{\text{Liquid Assets}}{₹\ 1,20,000 \text{(Given)}}$
$\therefore$ Liquid Assets = ₹ 1 ,20,000 x 0.9 = ₹ 1,08,000
Inventory = Current Assets - Liquid Assets
= ₹ 3,60,000- ₹ 1,08,000 = ₹ 2,52,000

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Question 373 Marks

The following figures have been taken from the published accounts of G. Associates for the two successive years:

Comment upon the profitability for the two years.

Answer

Gross Profit Ratio $=\frac{\text{Gross Profit}}{\text{Revenue from Operations}}\times100$
For 2015 $=\frac{₹\ 52,500}{₹\ 2,10,000}\times100=25\%$
For 2016 $=\frac{₹\ 84,000}{₹\ 4,20,000}\times100=20\%$

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Question 383 Marks

Calculate inventory turnover ratio from the following:

Answer

Inventory Turnover Ratio $=\frac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}$
Cost of Revenue from Operations = ₹ 92,400 + ₹ 2,75,200 - ₹ 67,600 = ₹ 3,00,000
Average Inventory $=\frac{₹\ 92,400 + ₹\ 67,600}{2}=\frac{₹\ 1,60,000}{2}=₹\ 80,000$
Inventory Turnover Ratio $=\frac{₹\ 3,00,000}{₹\ 80,000}=3.75\text{ times.}$

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Question 393 Marks

Credit Revenue from Operations ₹ 5,60,000; Trade Receivables Turnover Ratio 7 times; Closing Trade Receivables were three times than that in the beginning. Calculate Opening and Closing Trade Receivables.

Answer

Trade Receivables Turnover Ratio $=\frac{\text{Credit Revenue from Operations}}{\text{Average Trade Receivables}}$
$7\text{ (Given)} =\frac{₹\ 5,60,000 \text{(Given)}}{\text{Average Trade Receivables}}$
Average Trade Receivables $=\frac{₹\ 5,60,000}{7} = ₹\ 80,000$
Opening Trade Receivables + Closing Trade Receivables = ₹ 80,000 × 2
= ₹ 1,60,000
Ratio of Opening Trade Receivables to Closing Trade Receivables = 1:.3
$\therefore$ Opening Trade Receivables $=₹ \ 1,60,000 \times \frac{1}{4}= ₹ \ 40,000$
Closing Trade Receivables $=₹ \ 1,60,000 \times \frac{3}{4}= ₹ \ 1,20,000$

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Question 403 Marks

What does debt-equity ratio indicate?
The debt-equity ratios of Alpha Co. and Salpha Co. are 1 : 1 and 2: 1 respectively. Which company in your opinion, has got better debt-equity ratio and why? Presume that both the companies produce and sell similar kind of products, having growing demand.

Answer

Debt Equity Ratio $=\frac{\text{Debt}}{\text{Equity}}\text{ or }\frac{\text{Long term Debts}}{\text{Shareholder's Funds}}$
This ratio indicates the degree of protection enjoyed by Long-term lenders. Lower the ratio from its ideal standard of 2 : 1, higher will be the degree of protection available to Long-term lenders. As such, the debt-equity ratio of Alpha Co. is better in comparison to Salpha Co.

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Question 413 Marks

From the following, calculate the Debt-Equity Ratio:

Answer

Debt-Equity Ratio $=\frac{\text{Debt}}{\text{Equity}}= \frac{\text{Long Term Debts}}{\text{Shareholder's Funds}}$ Shareholder's Funds = Equity Share Capital + General Reserve + Profit & Loss Balance.
= ₹ 1,00,000 + ₹ 45,000 + ₹ 30,000
= ₹ 1,75,000
$=\frac{₹\ 75,000 }{₹\ 1,75,000}=0.43:1$

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Question 423 Marks

Calculate Working Capital Turnover Ratio from the following:

Answer

Working Capital Turnover Ratio $=\frac{\text{Revenue from Operations}}{\text{Working Capital}}$
Revenue from ₹ 39,20,000
Working Capital = Current Assets - Current Liabilities
Current Assets = Total Assets - Non Current Assets.
= ₹ 36,00,000 - ₹ 21,00,000 = ₹ 15,00,000
Current Liabilities = Total Assets - Shareholder's Funds - Non Current Liabilities
= ₹ 36,00,000 - ₹ 18,00,000 - ₹ 10,00,000
= ₹ 8,00,000
Working Capital = ₹ 15,00,000 - ₹ 8,00,000 = ₹ 7,00,000
Working Capital Turnover Ratio $=\frac{₹\ 39,20,000}{₹\ 7,00,000}=5.6\text{Times}$

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Question 433 Marks

A business has a Current Ratio of 4 : 1 and a Quick Ratio of 1.2 : 1. If the Working Capital is ₹ 1,80,000, calculate the total Current Assets and Inventory.

Answer

Working Capital = Current Assets - Current Liabilities Current Ratio = 4 : 1, therefore, based on current ratio, the working capital is 4 - 1 = 3

If Working Capital is 3,	Current Assets	$=$	$4$
If Working Capital is 1,	Current Assets	$=$	$\frac{4}{3}$
If Working Capital is 1,80,000,	Current Assets	$=$	$\frac{4}{3}\times₹\ 1,80,000$
		$=$	$₹\ 2,40,000$

Current Liabilities = Current Assets - Working Capital = ₹ 2,40,000 - ₹ 1,80,000 = ₹ 60,000 Quick Ratio $=\frac{\text{Liquid Assets}}{\text{Current Liabilities}}$ 1.2 (Given) $=\frac{\text{Liquid Assets}}{₹\ 60,000}$ $\therefore$ Liquid Assets = ₹ 60,000 × 1.2 = ₹ 72,000 Inventory = Current Assets - Liquid Assets = ₹ 2,40,000 - ₹ 72,000 = ₹ 1,68,000

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Question 443 Marks

Mr. Arun Birla owns a business and gives the following figures for two successive years:

	1st Year	2nd Year
	₹	₹
Revenue from Operations	60,000	1,20,00
Gross Profit	15,000	24,000

Mr. Arun Birla speaks very high of his Manager who has increased the profits from ₹ 15,000 to ₹ 24,000 and describes him very 'Efficient'. Do you agree with him? If not, why?

Answer

Gross Profit Ratio of 1st Year $=\frac{₹\ 15,000}{₹\ 60,000}\times100= 25\%$ Gross Profit Ratio of 2nd Year $=\frac{₹\ 24,000}{₹\ 1,20,000}\times100= 20\%$We do not agree with Mr. Arun Birla. The manager is not very efficient. Although his revenue from operations have doubled this year compared to the last year, his gross profit ratio has come down from 25% to 20%. This can either be due to lower selling prices or higher purchase prices or due to inefficiency.

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Question 453 Marks

Gross Profit of a Company is 20% of Cost of revenue from operations. Its Cash Revenue from Operations are $\frac{1}{3}\text{rd}$ of its Credit revenue from operations. Calculate the G.P. Ratio if the Cash Revenue from Operations are ₹ 3,00,000.

Answer

Cash Revenue from Operations	=	₹ 3,00,000
$\therefore$ Cash Revenue from Operations	=	₹ 9,00,000
Hence, Total Revenue from Operations	=	$\underline{\underline{\overline{₹\ 12,00,000}}}$

Gross profit is 25% of Cost of Revenue from Operations.
Therefore, goods costing ₹ 100 must have been sold for ₹ 120
Hence, If revenue from operations are ₹ 120 G.P. = ₹ 20
If revenue from operations are ₹ 12,00,000 G.P. $=\frac{₹\ 20}{₹\ 120}\times₹\ 12,00,000$
$=₹\ 2,00,000$
Gross Profit Ratio $=\frac{\text{Gross Profit}}{\text{Net Revenue from Operations}}\times100$
$=\frac{₹\ 2,00,000}{₹\ 12,00,000}\times100=16.67\%$

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Question 463 Marks

Quick Assets ₹ 90,000 Inventory ₹ 1,08,000 Prepaid Expenses ₹ 2,000 Working Capital ₹ 1,50,000. Calculate Current Ratio.

Answer

Calculation of Current Ratio:
Current Assets = Quick Assets + Inventory + Prepaid Expenses.
= ₹ 90,000 + ₹ 1,08,000 + ₹ 2,000
= ₹ 2,00,000
Current Liabilities = Current Assets- Working Capital.
= ₹ 2,00,000 - ₹ 1,50,000
= ₹ 50,000
Current Ratio $=\frac{\text{Current Assets}}{\text{Current Liabilities}}=\frac{₹\ 2,00,000}{₹\ 50,000}=4:1.$

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Question 473 Marks

What does too high 'Trade Receivables Turnover Ratio' indicate?

Answer

Normally, a high trade receivables turnover ratio indicates the prompt payments by trade receivables but a too high ratio may be the result of restrictive credit and collection policy of the management which may curtail the sales and hence may adversely affect the profit.

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Question 483 Marks

Calculate the value of Current Assets of X Ltd. from the following information:

Answer

Proprietary Ratio $=\frac{\text{Shareholder's Funds}}{\text{Total Assets}}$ Or $0.75 =\frac{25,00,000 + 5,00,000 + 8,00,000 - 2,00,000}{\text{Total Assets}}$ $0.75 =\frac{36,00,000}{\text{Total Assets}}$ Total Assets $=\frac{36,00,000}{0.75}$$= ₹\ 48,00,000$
Current Assets = Total Assets - Fixed Assets = ₹ 48,00,000 - ₹ 30,00,000 = ₹ 18,00,000

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Question 493 Marks

Calculate Current Ratio from the following information:

Answer

Current Assets = Total Assets - Fixed Assets - Non Current Investments.
= ₹ 12,00,000 - ₹ 6,00,000 - ₹ 1,00,000 - ₹ 1,40,000
Total Assets will be equal to the Total of Equity & Liabilities.
Hence,
Current Liabilities = Total Assets - Shareholder's Funds - Non Current Liabilities.
= ₹ 12,00,000 - ₹ 8,50,000 - ₹ 1,10,000 = ₹ 2,40,000
Current Ratio $=\frac{\text{Current Assets}}{\text{Current Liabilities}}=\frac{₹\ 3,60,000}{₹\ 2,40,000}=1.5:1$

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Question 503 Marks

Net Profit after Interest and Tax ₹ 44,000; Equity Share Capital (20,000 Shares of ₹ 10 each) ₹ 2,00,000; 12% Preference Share Capital ₹ 40,000; 15% Debentures ₹ 80,000; Reserves and Surplus ₹ 80,000; Tax Paid ₹ 44,000. Calculate Return on Investment.

Answer

Return on Investment $=\frac{\text{Net Profit before interest and tax}}{\text{Capital Employed}}\times100$

	₹
Net Profit after interest and tax Add: Interest (15% on ₹ 80,000) Add: Tax Net Profit before interest and tax	44,000 12,000 44,000 $\underline{\underline{\overline{1,00,000}}}$

Capital Employed = Equity Share Capital + Pref. Share Capital + Debentures + Reserves and Surplus
= ₹ 2,00,000 + ₹ 40,000 + ₹ 80,000 + ₹ 80,000
= ₹ 4,00,000
Return on Investment $=\frac{1,00,000}{4,00,000}\times100=25\%$
Note: It is assumed that Reserves and Surplus include the Current Year's profit.

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