Question

Calculate Current Ratio of a company from the following information:

Stock Turnover Ratio : 4 times

Stock in the end was Rs 20,000 more than stock in the beginning

Sales Rs 3,00,000

Gross Profit Ratio 25%

Current Liabilities Rs 40,000

Quick Ratio 0.75 : 1 

Answer 1

`"Current Ratio"="Current Assets"/"Current Liabilities"` 

Gross Profit Ratio = 25% 

`"Gross Profit Ratio"= "Gross Profit"/"Net Sales"xx100` 

`25="'Gross Profit"/(3,00,000)xx100` 

Or, Gross Profit= Rs` 75,000` 

Cost of Goods Sold = Sales − Gross Profit

= 3,00,000 −75,000 = Rs 2,25,000 

`"Stock Turnover Ratio"="Cost Goods Sold" /"Average Stock"` 

`4=(2,25,000)/"Average stock"` 

`Or, "Avverage Stock"=Rs   56,250` 

`"Average Stock"=(" Opening Stock"+"Closing Stock")/2` 

Let the Opening Stock =  x

Closing Stock = x + 20,000 

∴ `"Average Stock"=(x+x+20,000)/2` 

`56,250=(2x+20,000)/2` 

Or ,` 1,12,500=2x+20,000` 

Or, `92,500=2x` 

Or, `x=46,250` 

∴Opening Stock = Rs 46,250

Closing Stock = x + 20,000 = 46,250 + 20,000 = Rs 66,250 

`"Quick Ratio"="Quick Assets"/"Current Liabilities"` 

`0.75= "Quick Assets"/(Rs  40,000)` 

Quick Assets = Rs 30,000

Current Assets = Quick Assets + Stock (Closing)

= 30,000 + 66,250 = Rs 96,250 

∴ `"Current Ratio"= "Current Assets"/"Current Liabilities"=(96,250)/(40,000)` 

=`2.411:1`