Page 83 - MA12

4.28 Management Accounting (Section B)—ISC XII

Working Notes:
1. Calculation of Credit Revenue from Operations:
Let Credit Revenue from Operations = x
Cash Revenue from Operations = 40% of x = 4x/10
x + 4x/10 = ` 8,40,000
10x + 4x = ` 84,00,000
14x = ` 8,40,000
x = ` 6,00,000 (Credit Revenue from Operations).
Opening Trade Receivables + Closing Trade Receivables
2. Average Trade Receivables =
2
` 1,20,000 + ` 2,00,000
= = ` 1,60,000.
2
Net Profit before Interest and Tax
(b) Interest Coverage Ratio =
Interest on Long-term Debt
` 7,82,000
= = 10.86 Times.
` 72,000

Working Notes:
1. Interest on Debentures = 12% of ` 6,00,000 = ` 72,000.
2. Calculation of Net Profit before Interest and Tax:
Profit after Interest and Tax ` 4,97,000
Rate of Tax 30%
Step 1: Let Profit after Interest and before Tax be x.
It means, Tax = 30% of x
x – 30% of x = ` 4,97,000
70% of x = ` 4,97,000
x = ` 4,97,000 × 100/70 = ` 7,10,000.
Step 2: Calculate ‘Profit before Interest and Tax’:
Profit before Interest and Tax = Profit after Interest and before Tax + Interest
= ` 7,10,000 + ` 72,000 = ` 7,82,000.
Illustration 20.

Current Ratio 2.5, Quick Ratio 1.5, Working Capital ` 1,20,000, Gross Profit @ 25% on Revenue from Operations
was ` 1,00,000, Inventory Turnover Ratio 3 Times. Calculate Opening Inventory, Current Liabilities, Current
Assets and Quick Assets.
Solution:
Current Assets
Current Ratio = = 2.5
Current Liabilities
Current Assets = 2.5 Current Liabilities
Working Capital = ` 1,20,000 (Given) [Working Capital = C.A. – C.L.]
Let Current Liabilities = x
∴ Current Assets = 2.5x