18.CHAPTER 4: RATIO ANALYSIS : MISCELLANEOUS PROBLEMS.ASSIGNMENT # 11 WITH ANSWERS

LEARNING OUTCOMES:

INTRODUCTION

ASSIGNMENT # 1

INTRODUCTION

HELLO BOYS,
PRACTICE  MISCELLANEOUS EXERCISE:


TASK

DO ASSIGNMENT #  11

Ques 1  

A company has a liquid ratio of 1.5, current ratio of 2 and

inventory turnover ratio 6 times. Its current assets are 800000.

Compute Revenue from operations if goods are sold at 25% profit on cost.

Ans.1500000

Ques 2  

The following information, Calculate the Current ratio.
Inventory turnover ratio 4 times, Closing inventory is 20000 more than Opening inventory,
Revenue from operations 300000 g

Gross profit ratio 25%, 

Current liabilities 40000,
Liquid ratio 0.75.

Ans. 2.4: 1

Ques 3   

Following information is given by a company from its books of accounts as on march 31, 2020.

Inventory                                   100000
Current asset                               160000
Shareholders funds                    400000
13% Debentures                         300000
Current liabilities                       100000
Net profit before tax                  351000
Revenue from operation             600000

Gross profit 20% on cost.

Calculate:

1.Current ratio
2.Liquid ratio
3.Debt equity ratio
4. Interest coverage ratio
5. Inventory turnover ratio

Ans. 1.6:1, 0.6:1,0.75:1, 10 times,5 times.

TASK 

ANSWERS TO THE ASSIGNMENT # 11

ANS.1

Current ratio= Liquid assets/ Current liabilities 

2 = 8 lakh/ Current liabilities 

Current liabilities = 4 lakh
Liquid ratio =Liquid assets /Current liability 

1.5 = Liquid assets /Current liability 

1.5 = Liquid assets /400000 

Liquid assets = 6 lakh 

Therefore, Closing inventory = Current assets - Liquid assets 

= 8 lakh - 6 lakh = 2 lakh 

Now, Inventory turnover ratio = Cost of revenue from operation /Average inventory
6 = Cost of revenue from operations/ 2 lakh
Cost revenue from operations = 12 lakh
Gross profit = 25% of 12 lakh = 3 lakh
Therefore, Revenue from operations = Cost of revenue from operations + gross profit
= 1200000 + 300000 = 15 lakh

ANS. 2

Liquid ratio = Liquid assets /Current liabilities 

Liquid assets /40,000 = 0.75 

Liquid assets = 30000
Cost of revenue from operations = Revenue from operations - Gross profit

= 300000 - 25% of 3 lakh

 = 3 lakh - 75000 = 225000
Suppose opening inventory = X.

 Therefore, Closing inventory = X + 20000
Average inventory = opening inventory + closing inventory /2 

= X + X + 20000/2

 = X + 10000
Now, Inventory turnover ratio = Cost of revenue from operations/ Average inventory
4 = 225000/ X + 10000
X + 10000 = 56250
X = 46250
Therefore, Closing inventory = 46250 + 20000 = 66250
Current assets = Liquid assets + Closing inventory 

= 30000 + 66250 =96250
Thus, Current ratio = Current assets /Current liabilities

 = 96250 /40000= 2.4 :1

ANS. 3

i)Current ratio = current assets/ current liability 

=160000/1 lakh = 1.6:1 

ii) Liquid ratio = liquid assets /current liabilities 

Liquid assets = current assets - inventory

 = 160000 - 100000= 60000
Therefore, Liquid ratio = 60000/100000 

=0.6:1 

iii) Debt equity ratio = Long term debts /Shareholders funds 

= 300000/ 4 lakh 

= 0.75 :1
Note: Long term debts=13% debentures = 3 lakh 

iv) Interest coverage ratio = Net profit before interest and tax /Interest on long term debts
Net profit before interest and tax = Net profit before tax + Interest on long term debts
= 351000 + 13% of 3 lakh
= 351000 + 39000
= 390000
Therefore, Interest coverage ratio = 390000/ 39000 

= 10 times 

v) Inventory turnover ratio = Cost of revenue from operations /Average inventory 

Gross profit = 20% 1/5 on cost

 = 1/6 of Revenue from operations 

= 1/6 x 6 lakh = 1 lakh 

Cost of revenue from operations =Revenue from operations - Gross profit

=6 lakh - 1 lakh = 5 lakh
Therefore, Inventory turnover ratio = 5 lakh /1 lakh 

= 5 times

Note: In absence of information regarding inventory in the beginning and inventory at the end, the inventory is treated as average inventory.