Blog

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) Rs. 1,00,000; cost of Revenue from Operations (Cost of Goods Sold) was 80% of sales; Equity Share Capital Rs. 7,00,000; General Reserve Rs. 3,00,000; Operating Expenses Rs. 10,000; Quick Assets Rs. 6,00,000; 9% Debentures Rs. 5,00,000; Closing Inventory Rs. 50,000; Prepaid Expenses Rs. 10,000 and Current Liabilities Rs. 4,00,000.

SOLUTION

(i)Current Assets = Quick Assets + Closing Stock + Prepaid Expenses
= 6,00,000 + 50,000 + 10,000
= 6,60,000

Current Liabilities = 4,00,000
Current ratio = Current assets / Current liabilities= 4,00,000 / 2,00,000=2:1
= 6,60,000 / 4,00,000
= 1.65 : 1

(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

Debt equity ratio = Long-term Debts / Shareholder’s Funds
= 5,00,000 / 10,00,000
= 0.5: 1

(iii)Sales = 1,00,000
Cost of Goods Sold = 80% of Sales
= 80 / 100 × 1,00,000
= 80,000

Operating Expenses = 10,000
Operating Cost = Cost of Goods Sold+ Operating Expenses
= 80,000 + 10,000
= 90,000

Operating Ratio= Operating Cost /  Net Sales ×100
= 90,000 / 1,00,000 × 100
= 90%

Leave a Reply