Page 77 - MA12

4.22 Management Accounting (Section B)—ISC XII

2. Working Capital = Current Assets – Current Liabilities
Current Assets = Current Investments + Inventories + Trade Receivables
+ Cash and Bank Balances
= ` 1,00,000 + ` 1,00,000 + ` 2,50,000 + ` 1,50,000 = ` 6,00,000
Current Liabilities = Trade Payables + Short-term Provisions
= ` 2,50,000 + ` 50,000 = ` 3,00,000.
Therefore,
Working Capital = ` 6,00,000 – ` 3,00,000 = ` 3,00,000.
Illustration 16.

Opening Inventory ` 1,20,000, Closing Inventory ` 72,000. Inventory Turnover Ratio is
8 Times. Selling Price 25% above cost. Calculate Gross Profit Ratio.

Solution:
Gross Profit ` 1,92,000
Gross Profit Ratio = ¥ 100 = ¥ 100 = 20%.
Revenue from Operations ` 9,60,000

Opening Inventory + Closing Inventory
Average Inventory =
2
` 1,20,000 + ` 72,000
= = ` 96,000
2
Cost of Revenue from Operations = Average Inventory × Inventory Turnover Ratio
= ` 96,000 × 8 = ` 7,68,000
25
Gross Profit = ` 7,68,000 × = ` 1,92,000
100
Revenue from Operations = Cost of Revenue from Operations + Gross Profit
= ` 7,68,000 + ` 1,92,000 = ` 9,60,000.

Master Question and Advanced Level Questions

Illustration 17.

Following sets of final accounts relate to Hindustan Products Ltd., calculate following ratios for the company:
(i) Inventory Turnover Ratio; (ii) Gross Profit Ratio;
(iii) Working Capital Turnover Ratio; (iv) Current Ratio;
(v) Quick Ratio; (vi) Net Profit Ratio;
(vii) Debt to Equity Ratio; (viii) Trade Receivables Turnover Ratio;

(ix) Proprietary Ratio; (x) Debt to Total Assets Ratio;
(xi) Earning Per Share; (xii) Return on Investment (ROI)
(xiii) Price-Earning (assume Market Value of an Equity Share is ` 39.20).