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Important Questions Class 12 Accountancy Chapter 13 Accounting Ratios

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1: Working Capital Rs. 36,000; Current Ratio 2.8:1; Inventory Rs. 16,000. Calculate Current Assets, Current Liabilities and Quick Ratio. Solution : Current Ratio =  =  Let the Current Liabilities be Rs. X The Current Assets will be Rs. 2.8X Working Capital = Current Assets – Current Liabilities 36,000 = 2.8X – X = 1.8 X X =  = Rs. 20,000 Quick Ratio =  Liquid Assets = Current Assets – Inventory Rs. 56,000 – 16,000 = Rs. 40,000 Quick Ratio =  = 2:1

2: Current Assets of a company are Rs. 15,00,000. Its current ratio 2.5 and liquid Ratio is 0.85. Calculate Current liabilities, Liquid Assets and Inventory. Solution : Current Ratio =  2.5=  Current Liabilities =  = Rs. 6,00,000 Liquid Ratio =  0.85 =  Liquid Assets =  = Rs. 5,10,000 Inventory = Current Assets – Liquid Assets = Rs. 15,00,000 – Rs. 5,10,000 = Rs. 9,90,000

3: Calculate ‘Debt-Equity Ratio’ from the following information: Total Assets : Rs. 3,50,000 Total Debt : Rs. 2,50,000 Current Liabilities : Rs. 80,000 Solution : Debt Equity Ratio =  Debt = Total Debt – Current Liabilities = Rs. 2,500,000-Rs. 80,000 = Rs. 1,70,000 Equity = Total Assets – Total Debts = Rs. 3,50,000 – Rs. 2,50,000 = Rs. 1,00,000 Debt – Equity Ratio =  = 1.7:1

4:  From the following information calculate Proprietary Ratio and Total Assets to Debt Ratio Balance Sheet of ABC Ltd. As at

  Solution : Proprietary Ratio =  Shareholders’ Funds = Share Capital + Reserves and Surplus = Rs. 4,50,000+Rs.1,80,000 = Rs. 6.30.000 Proprietary Ratio =  = 0.84 : 1 Total Assets to Debt Ratio =  =  = 10 Total Assets to Debt Ratio = 10 : 1

5: Calculate Interest Coverage Ratio from the following information Net Profit (after taxes) = Rs. 1,00,000 Fixed interest charges on long term borrowing = Rs. 20,000 Rate of Income Tax 50% Solution : Interest Coverage Ratio =  Interest Coverage Ratio =  =   = 11 Times

6: From the following information calculate interest coverage ratio: Rs. 10,000 equity shares to Rs. 10 each 1,00,000 8% Preference Shares 70,000 10% Debentures 50,000 Long term Loans from Banks 50,000 Interest on longs term loans from bank 5,000 Profit after tax 75,000 Tax 9,000 Solution : Interest Coverage Ratio =  = Rs. 5000 Profit before Interest & Tax = Profit after tax + Interest on debentures + Interest Long term Loans = Rs. 75,000+9,000+5000+5000 = Rs. 94,000 Interest Coverage Ratio =  =  = 9.4 Times

7: For the following information compute Debt-Equity Ratio : Rs. Long term borrowing 8,00,000 Long term provisions 4,00,000 Current Liabilities 2,00,000 Non Current Assets 14,40,000 Current Assets 3,60,000 Solution : Debt Equity Ratio =  Debt = Long term borrowing + Long term Provision = Rs. 8,00,000+4,00,000 = Rs. 12,00,000 Equity = Non Current Assets + Current Assets – Debt – Current Liabilities = Rs. 14,40,000+360,000-12,00,000-2,00,000 = Rs. 18,00,000-14,00,000 = Rs. 4,00,000 Debt Equity Ratio =  = 3 : 1

8: Cost of Revenue from Operations is Rs. 5,00,000. The opening stock is Rs. 40,000 and the closing stock is Rs. 60,000 (at cost). Calculate inventory turnover ratio. Solution : Inventory Turnover Ratio =  Average Stock =  = Rs. 40,000+ = Rs. 50,000 Inventory Turnover Ratio =  =  10 Times

9:  Cost of Revenue from operation = Rs. 2,00,000 Inventory Turnover Ratio = Rs. 8 Times Inventory in the beginning is 1.5 times more than the inventory at the end. Calculate values of opening and closing inventory. Solution : 8 =  Average Inventory =  Average Inventory = Rs. 25,000 =  Opening Inventory +Closing Inventory = = Rs. 50,000 Let the closing Inventory = x Then opening Inventory will be = x+1.5x = 2.5x Hence, x+2.5x = 50000 3.5x = 50,000 X =  Closing Inventory = Rs. 14,286 Opening Inventory=   = Rs. 35,714

10: Calculate Debtors Turnover Ratio if Closing Debtors are Rs. 40,000; Opening Debtors Rs. 60,000; Cash Sales is 25% of Credit Sales and Total Sales are Rs. 2,00,000. Solution : Debtors Turnover Ratio =  Cash Sales = 25% of Credit Sales Let the Credit Sales be Rs. X Then Cash Sales is 25% of X = Total Sales = Cash Sales + Credit Sales = Rs. 2,00,000 = X = Credit Sales = Average Debtors = Debtors Turnover Ratio =

11: Compute Working Capital Turnover Ratio from the following information: Rs. Cash Sales 1,30,000 Credit Sales 3,80,000 Sales Return 10,000 Liquid Assets 1,40,000 Inventory 90,000 Current Liabilities 1,05,000 Solution: Working Capital Turnover Ratio = Net Sales = Cash Sales + Credit Sales – Sales Return = 1,30,000+3,80,000-10,000 = Rs. 5,00,000 Working Capital = Current Assets – Current Liabilities Current Assets = Liquid Assets + Inventory = 1,40,000+90,000 = Rs. 2,30,000 Working Capital = 2,30,000 – 1,05,000 = Rs. 1,25,000 Working Capital Turnover Ratio =

12: Calculate ‘Gross Profit Ratio’ from the following information: Rs. Net Revenue from Operations 80,000 Cost of Revenue from Operations 60,000 Operating Expenses 10,000 Indirect Expenses 60,000 Solution : Gross Profit Ratio =  = Rs. 80,000-60,000 = Rs. 20,000

13: Calculate ‘Operating Profit Ration’ and ‘Operating Ratio’ from the following information: Rs. Net Revenue from Operations80,000 Cost of Revenue from Operations60,000 Operating Expenses10,000 Indirect Expenses60,000 Solution : Operating profit Ratio =  Operating profit = Net Revenue from Operation – Operating Cost Operating Cost = Cost of Revenue from Operation + Operating Expenses = Rs. 60,000+10,000 = Rs. 70,000 Operating profit =80,000 -70,000 = Rs. 10,000 Operating profit Ratio =  Operating Ratio =  = 

14: Calculate ‘Net Profit ration’ from the following Information: Rs. Net Revenue from Operations 80,000 Cost of Revenue from Operations 60,000 Operating Expenses 10,000 Indirect Expenses 6,000 Indirect Income 4,000 Solution : Net Profit Ratio =  Net Profit =  Net Revenue from Operations – Cost of Revenue from operation Operating Expenses – Indirect Expenses + Indirect Income = Rs. 80,000 – 60,000 – 10,000 – 6,000 + 4,000 = 8,000 Net profit Ratio =  =

15: Calculate ‘Return on Investment’ with the following information: Rs. Net Profit after interest and Tax2,10,000 Rate of income Tax30% Shareholders’ Funds13,00,000 12% Long term Debts1,00,000 10% Debentures2,00,000 Solution : Retrun on Investment =  Profits before Tax = = Profits before Interest, Tax and Dividend = Profits before Tax + Interest on Long Debts + Intere3st on Debentures = 3,00,000 +12,000 + 20,000 = 3,32,000. Capital Employed = Shareholders’ Funds + 12% Long term debts + 10% Debentures = 13,00,000 +1,00,000 +2,00,000 = 16,00,000. Returns on Investment =

16 : The Quick ratio of X Ltd. Is 1:1. State with reason which of the following transactions would (i) increase; (ii) decrease or (iii) not change the ratio: 1. Included in the trade payable was a Bill payable of Rs. 3,000 which was met on maturity . 2. Debentures of Rs. 50,000 were converted into Equity Shares. Solution: (1) No Change Reason:  Both current Assets and current Liabilities are decreasing with the same amount. (2) No Change Reason:  Neither current Assets and current Liabilities are decreasing with the same amount.

17: Calculate ‘Return on Investment’ and ‘Debt-Equity Ratio’ from the following information: Rs. Net Profit after interest and Tax 6,00,000 10 % Debentures 10,00,000 Tax Rate40 % Capital Employed 80,00,000 Solution: Retrun on Investment =  Net Profits before Tax = = Interest on 10 % Debentures = Net Profit before Interest and Tax = Rs. 10,00,000 + Rs. 1,00,000 = Rs. 11,00,000 Return on Investment = Debt – Equity Ratio = Equity = Capital Employed – Debt = Rs. 80,00,000 – 10,00,000 = Rs. 70,00,000. Debt Equity Ratio = = 0.14:1

18: Complete the Balance Sheet of Raj Ltd. From the following information : Balance Sheet As at 31st March, 2015

Additional Information : 1. Current Ratio is 2.5:1 2. Debt-equity Ratio is 2:1 3. Inventory Turnover Ratio is 8 Times 4. Cost of Revenue from operation is Rs. 4,00,000 Solution : (i)  Inventory Turnover Ratio =  8 =  Inventory =  (ii)   Current Assets =  = Rs. 1,30,000 (iii)  Debt Equity Ratio =  = Rs. 7,00,000 Equity = Share Capital + Reserves and Surplus Rs. 7,00,000 = Share Capital + 50,000 Share Capital = Rs. 7,00,000-50,000 = Rs. 6,50,000 Balance Sheet As at 31st March, 2015

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1. EQUITY AND LIABILITIES  (1) Shareholders’ funds (a) Share capital (b) Reserves and surplus (2) Non-current Liabilities Long-term borrowings (3) Current liabilities Trade payables Total

II. ASSETS  (1)Non-current assets (a)Fixed assets (b)Non-current investments (2)Current Assets Inventories Total

1. EQUITY AND LIABILITIES  (1) Shareholders’ funds (a) Share capital (b) Reserves and surplus (2) Non-current Liabilities – Long-term borrowings (3) Current liabilities – Trade payables Total

II. ASSETS  (1)Non-current assets (a)Fixed assets (2)Current Assets (a) Inventories (b) Trade Receivables (c) Cash and Cash Equivalents Total

1. EQUITY AND LIABILITIES  (1) Shareholders’ funds (a) Share capital (b) Reserves and surplus (2) Non-current Liabilities Long-term borrowings (3) Current liabilities Trade payables Total

II. ASSETS  (1)Non-current assets (a)Fixed assets (2)Current Assets (a) Inventories (b) Trade Receivables (c) Cash and Cash Equivalents Total