Question 36:
From the following calculate: (i) Current Ratio; and (ii) Quick Ratio:
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` |
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` |
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Total Debt |
12,00,000 |
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Long-term Borrowings |
4,00,000 |
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Total Assets |
16,00,000 |
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Long-term Provisions |
4,00,000 |
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Fixed Assets (Tangible) |
6,00,000 |
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Inventories |
1,90,000 |
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Non-current Investment |
1,00,000 |
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Prepaid Expenses |
10,000 |
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Long-term Loans and Advances |
1,00,000 |
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Answer:
(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
Question 37:
Following is the Balance Sheet of Crescent Chemical Works Limited as at 31st March, 2021:
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Particulars |
Note |
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I. EQUITY AND LIABILITIES : |
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(a) Share Capital |
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70,000 |
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(b) Reserves and Surplus |
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35,000 |
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2. Non-Current Liabilities : |
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Long-term Borrowings |
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25,000 |
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3. Current Liabilities : |
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(a) Short-term Borrowings |
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3,000 |
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(b) Trade Payables (Creditors) |
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13,000 |
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(b) Short-term Provisions: Provision for Tax |
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4,000 |
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Total |
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1,50,000 |
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II. ASSETS : |
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1. Non-Current Assets |
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(a) Fixed Assets (Tangible) |
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45,000 |
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(b) Non-current Investments |
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5,000 |
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2. Current Assets |
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(a) Inventories (Stock) |
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50,000 |
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(b) Trade Receivables (Debtors) |
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30,000 |
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(c) Cash and Cash Equivalents |
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20,000 |
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Total |
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1,50,000 |
Compute Current Ratio and Liquid Ratio
Answer:
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.
Question 38:
Total Assets ` 2,60,000; Total Debts ` 1,80,000; Current Liabilities ` 20,000. Calculate Debt to Equity Ratio.
Answer:
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
Question 39:
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.
Answer:
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
Question 40:
From the following information, calculate Debt to Equity Ratio:
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10,000 Equity Shares of ` 10 each fully paid |
2,00,000 |
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5,000; 9% Preference Shares of ` 10 each fully paid |
1,00,000 |
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General Reserve |
90,000 |
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Surplus, i.e., Balance in Statement of Profit & Loss |
40,000 |
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10% Debentures |
1,50,000 |
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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.
Answer:
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