12th | Accounting Ratio | Question No. 36 To 40 | Ts Grewal Solution 2024-2025

From the following calculate: (i) Current Ratio; and (ii) Quick Ratio:

	`			`
Total Debt	12,00,000		Long-term Borrowings	4,00,000
Total Assets	16,00,000		Long-term Provisions	4,00,000
Fixed Assets (Tangible)	6,00,000		Inventories	1,90,000
Non-current Investment	1,00,000		Prepaid Expenses	10,000
Long-term Loans and Advances	1,00,000

(i)                 Current ratio

Current RatioCurrent Assets=Total Assets-Fixed Assets-Non-Current Investment - Long term Loans and Advances                       

=16,00,000-6,00,000-1,00,000-1,00,000= ` 8,00,000

 

Current Liabilities=Total Debt - Non-Current Liabilities                             

=12,00,000-4,00,000-4,00,000= ` 4,00,000

 

Current Ratio=Current AssetsCurrent Liabilities                     

=8,00,000/4,00,000=2:1

 

(ii)               ​ Quick Ratio 

Quick Assets=Current Assets-Stock-Prepaid Expenses                   

=8,00,000-1,90,000−10,000= ` 6,00,000

Quick Ratio=Quick Assets/Current Liabilities                     

=6,00,000/4,00,000=1.5:1

 

Following is the Balance Sheet of Crescent Chemical Works Limited as at 31st March, 2021:

Particulars	Note No.	`
I. EQUITY AND LIABILITIES : 1. Shareholder's Funds :
(a) Share Capital		70,000
(b) Reserves and Surplus		35,000
2. Non-Current Liabilities :
Long-term Borrowings		25,000
3. Current Liabilities :
(a) Short-term Borrowings		3,000
(b) Trade Payables (Creditors)		13,000
(b) Short-term Provisions: Provision for Tax		4,000
Total		1,50,000
II. ASSETS :
1. Non-Current Assets
(a) Fixed Assets (Tangible)		45,000
(b) Non-current Investments		5,000
2. Current Assets
(a) Inventories (Stock)		50,000
(b) Trade Receivables (Debtors)		30,000
(c) Cash and Cash Equivalents		20,000
Total		1,50,000

Compute Current Ratio and Liquid Ratio 

Current Assets = Inventory + Trade Receivables + Cash and Cash Equivalents

= 50,000 + 30,000 + 20,000 = 1,00,000

Current Liabilities = Short-term Borrowings + Trade Payables + Provision for Tax

= 3,000 + 13,000 + 4,000 = 20,000

Quick Assets = Trade Receivables + Cash and Cash Equivalents

= 30,000 + 20,000 = 50,000

Current ratio= Current Assets/ Current liabilities=1,00,000/20,000=5:1

Quick ratio= Liquid Assets/ Current liabilities=50,000/20,000=2.5:1

 

Comments:

1. Ideal Current Ratio for a business is considered to be 2:1. But in this case the ratio is quite high i.e. 5:1. This may be due to the following reasons:

(i) Blockage of Funds in Stock

(ii) High Amount outstanding from Debtors

(iii)             Huge Cash and Bank Balances

 

2. Ideal Quick Ratio of a business is supposed to be 1:1. This implies that Liquid Assets should be equal to the Current Liabilities. But in the given case Quick Ratio is 2.5 : 1 which indicates that the Liquid Assets are quite high in comparison to the Current Liabilities.

 

Total Assets  ` 2,60,000; Total Debts  ` 1,80,000; Current Liabilities  ` 20,000. Calculate Debt to Equity Ratio. 

Total Debts = 1,80,000

Current Liabilities = 20,000

Long-term Debts = Total Debts − Current Liabilities

= 1,80,000 − 20,000 = 1,60,000

Equity = Total Assets − Total Liabilities

= 2,60,000 − 1,80,000 = 80,000

Debt equity ratio= Long-term Debt /equity=1,60,000/80,000=2:1

 

Calculate Debt to Equity Ratio: Equity Share Capital  ` 5,00,000; General Reserve  ` 90,000; Accumulated Profits  ` 50,000; 10% Debentures  ` 1,30,000; Current Liabilities  ` 1,00,000.

Equity = Equity Share Capital + General Reserve + Accumulated Profits

= 5,00,000 + 90,000 + 50,000 = 6,40,000

Debt = 10% Debentures = 1,30,000

Debt equity ratio= Debt /equity=1,30,000/6,40,000=0.203:1

 

From the following information, calculate Debt to Equity Ratio: 

	`
10,000 Equity Shares of ` 10 each fully paid	2,00,000
5,000; 9% Preference Shares of ` 10 each fully paid	1,00,000
General Reserve	90,000
Surplus, i.e., Balance in Statement of Profit & Loss	40,000
10% Debentures	1,50,000
Current Liabilities	1,00,000

Note: Either Number of shares or Price of par share is wrongly printed in the book, either of both must have been changed.

Long-Term Debt = Debentures =  ` 1,50,000
Shareholder’s Funds = Equity Share Capital + Preference Share Capital + General Reserve + Surplus
=  ` 2,00,000 +  ` 1,00,000 +  ` 90,000 +  `40,000 =  ` 4,30,000

Debt-equity ratio= Long-Term Debt /Equity = 1,50,000/4,30,000 = 0.35:1