Question

From the following information, calculate any two of the following ratios:

1. Current Ratio
2. Debt to Equity Ratio
3. Operating Ratio

Revenue from Operations (Net Sales) ₹ 1,00,000; cost of Revenue from Operations (Cost of Goods Sold) was 80% of sales; Equity Share Capital ₹ 7,00,000; General Reserve ₹ 3,00,000; Operating Expenses ₹ 10,000; Quick Assets ₹ 6,00,000; 9% Debentures ₹ 5,00,000; Closing Inventory ₹ 50,000; Prepaid Expenses ₹ 10,000 and Current Liabilities ₹ 4,00,000.

From the following information calculate the following ratios:

1. Current Ratio
2. Debt Equity Ratio
3. Operating Ratio

Revenue from Operations ₹ 1,00,000; Cost of Revenue from Operations was 80% of Revenue from Operations; Equity Share Capital ₹ 7,00,000; Reserve and Surplus ₹ 3,00,000; Operating Expenses ₹ 10,000; Quick Assets ₹ 6,00,000; 9% Debentures ₹ 5,00,000; Closing Inventory ₹ 50,000; Prepaid Expenses ₹ 10,000 and Current Liabilities ₹ 4,00,000.

Answer 1

(i)

Current Assets = Quick Assets + Closing Stock + Prepaid Expenses

= ₹ 6,00,000 + ₹ 50,000 + ₹ 10,000

= ₹ 6,60,000

Current Liabilities = ₹ 4,00,000

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

= `(₹ 6,60,000)/(₹ 4,00,000)`

= 1.65 : 1

(ii)

Long-term Debts = 9% Debentures = ₹ 5,00,000

Shareholder’s Funds = Equity Share Capital + General Reserve(Reserve and Surplus)

= ₹ 7,00,000 + ₹ 3,00,000

= ₹ 10,00,000

Debt-equity Ratio = `"Long Term Debts"/"Shareholder’s Funds"`

= `(₹ 5,00,000)/(₹ 10,00,000)`

= 0.5 : 1

(iii) 

Sales = ₹ 1,00,000

Cost of Goods Sold = 80% of Sales

= `80/100 xx ₹ 1,00,000`

= ₹ 80,000

Operating Expenses = ₹ 10,000

Operating Cost = Cost of Goods Sold + Operating Expenses

= ₹ 80,000 + ₹ 10,000

= ₹ 90,000

Operating Ratio = `"Operating Cost"/"Net Sales" xx 100`

= `(₹ 90,000)/(₹ 1,00,000) xx 100`

= 90%