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4.6 Management Accounting (Section B)—ISC XII

Solved Questions

Illustration 1.
From the given information, calculate following ratios:
(i) Operating Ratio, (ii) Quick Ratio and (iii) Working Capital Turnover Ratio.
Information:
Equity Share Capital ` 1,00,000; 12% Preference Share Capital ` 80,000; 12% Debentures ` 60,000;
General Reserve ` 40,000; Revenue from Operations ` 3,00,000; Opening Inventory (Stock)
` 10,000; Purchases ` 1,20,000; Wages ` 30,000; Closing Inventory (Stock) ` 30,000; Selling and
Distribution Expenses ` 10,000; Other Current Assets ` 2,00,000; Current Liabilities ` 1,20,000.

Solution:
(i) Operating Ratio
Cost of Revenue from Operations (Cost of Goods Sold) + Operating Expenses
= ¥ 100
Revenue from Operations

` 1,30,000 + ` 10,000 ` 1,40,000
= ¥ 100 = × 100 = 46.67%.
` 3,00,000 ` 3,00,000
Cost of Revenue from Operations (Cost of Goods Sold)
= Opening Inventory + Purchases + Wages – Closing Inventory
= ` 10,000 + ` 1,20,000 + ` 30,000 – ` 30,000 = ` 1,30,000.
Operating Expenses = Selling and Distribution Expenses = ` 10,000.

Quick Assets ` 2,00,000
(ii) Quick Ratio = = = 1.67 : 1.
Current Liabilities ` 1,20,000

Revenue from Operations
(iii) Working Capital Turnover Ratio =
Working Capital

= ` 3,00,000 = 2.73 Times.
` 1,10,000
Working Capital = Closing Inventory + Other Current Assets – Current Liabilities
= ` 30,000 + ` 2,00,000 – ` 1,20,000 = ` 1,10,000.

Illustration 2.

From the information given below, calculate following ratios:
(i) Gross Profit Ratio, (ii) Working Capital Turnover Ratio and (iii) Proprietary Ratio.

Information:
Revenue from Operations ` 5,00,000; Cost of Revenue from Operations (Cost of Goods
Sold) ` 3,00,000; Current Assets ` 2,00,000; Current Liabilities ` 1,40,000; Share Capital
` 2,50,000; 13% Debentures ` 1,00,000.