Page 300 - MA-12

4.28 Management Accounting (Section B)—ISC XII

Additional Information:
(i) Revenue from Operations for the Year 2018–19 amounted to ` 20,00,000; Cash Revenue
from Operations ` 4,00,000.
(ii) Net Purchases ` 17,80,000.
(iii) Opening Inventory ` 2,10,000.
(iv) Operating Expenses ` 2,00,000.

Calculate:
(a) Current Ratio; (b) Quick Ratio;
(c) Debt to Equity Ratio; (d) Debt to Total Assets Ratio;
(e) Proprietary Ratio; (f ) Interest Coverage Ratio;
(g) Inventory Turnover Ratio; (h) Trade Receivables Turnover Ratio;
(i) Trade Payables Turnover Ratio; (j) Working Capital Turnover Ratio;
(k) Gross Profit Ratio; (l) Net Profit Ratio;
(m) Operating Ratio; (n) Operating Profit Ratio.
Solution:
Current Assets ` 16,00,000
(a) Current Ratio = = = 2 :1.
Current Liabilities ` 8,00,000

CALCULATION OF CURRENT ASSETS AND CURRENT LIABILITIES
Current Assets ` Current Liabilities `
Current Investments 20,000 Short-term Borrowings 80,000
Inventories 7,90,000 Trade Payables 2,00,000
Trade Receivables 8,00,000 Other Current Liabilities 2,80,000
Less: Provision 40,000 7,60,000 Short-term Provisions 2,40,000
Cash and Bank Balances 10,000 (Provision for Tax)
Short-term Loans and Advances 10,000
Other Current Assets 10,000
(Prepaid Expenses)
16,00,000 8,00,000

Quick Assets ` 8,00,000
(b) Quick Ratio = = = 1:1.
Current Liabilities ` 8,00,000
Note: Quick Assets = Current Assets – Inventories – Prepaid Expenses
= ` 16,00,000 – ` 7,90,000 – ` 10,000 = ` 8,00,000.

Debt ` 16,00,000
(c) Debt to Equity Ratio = = = 2 :1.
Equity ` 8,00,000
Notes:
1. Debt = Long-term Borrowings (12% Debentures) + Long-term Provisions
= ` 10,00,000 + ` 6,00,000 = ` 16,00,000.
2. Equity = Equity Share Capital + Preference Share Capital + Reserves and Surplus
= ` 2,00,000 + ` 2,00,000 + ` 4,00,000 (i.e., ` 1,60,000 + ` 2,40,000) = ` 8,00,000.