AccountingRatios2026-27

Question 36:

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

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

(i) 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 37:

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 38:

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 39:

From the following information, calculate Debt to Equity Ratio:

	₹
20,000 Equity Shares of ₹10 each fully paid	2,00,000
10,000; 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

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

Question 40:

From the following information, calculate Debt to Equity Ratio: Total Debts ₹6,00,000; Current Liabilities ₹2,00,000 and Capital Employed ₹6,00,000.

Answer:

Debt to Equity Ratio= Debt÷Equity Ratio

Debt to Equity Ratio=4,00,000/2,00,000=2/1

Debt to Equity Ratio=2:1

Working note:

Debt (Non-Current Liabilities)= Total Debt-Current Liabilities

4,00,000= 6,00,000 - 2,00,000

Equity= Capital Employed - Non- Current Liabilities

2,00,000= 6,00,000 - 4,00,000

Ts Grewal Solution 2026-2027