Page 506 - AAAXII

Model Test Papers M.485

20. (a) Sub-heads under the head ‘Current Assets’ (Any two):
(i) Current Investments.
(ii) Inventories.
(iii) Trade Receivables.
(iv) Cash and Cash Equivalents.
(v) Short-term Loans and Advances.
(vi) Other Current Assets.
(b) Objectives of Financial Analysis:
(i) To determine Liquidity (short-term solvency), i.e., ability of the enterprise to
meet its short-term financial obligations as and when they become due.
(ii) To determine Long-term solvency, i.e., ability of the enterprise to pay the
interest regularly and to repay the principal on maturity.
(iii) To determine Profitability of the enterprise.

Or

Case Current Assets or Non Current Asset Reason
1 Current Assets Expected Realisation Period is less than the Operating Cycle period and is
within 12 months.
2 Current Assets Expected Realisation Period is within 12 months although it is more than
Operating Cycle period.
3 Non-current Assets Expected Realisation Period is more than the Operating Cycle period and
12 months period.
4 Current Assets Expected Realisation Period is less than the Operating Cycle period
although it is more than 12 months period.
21. Gross Profit (GP) = 25% of ` 6,00,000 = ` 1,50,000.
Cost of Revenue from Operations = Revenue from Operations – Gross Profit

= ` 6,00,000 – ` 1,50,000 = ` 4,50,000.
Cost of Revenue from Operations
Inventory Turnover Ratio =
Average Inventory
` 4,50,000
4 =
Average Inventory

` 4,50,000
Average Inventory = = ` 1,12,500
4
Opening Inventory + Closing Inventory
Average Inventory =
2
Let the Opening Inventory = x, Closing Inventory = x + ` 40,000
x + x + ` 40,000
` 1,12,500 =
2