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Question
A company had a liquid ratio of 1.5: 1 and a current ratio of 2: 1. Its inventory turnover ratio was 6 times. It had total current assets of 2,00,000.
Find out revenue from operations if the goods are sold at a 25% profit on cost.
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Solution
|
Current Assets |
= |
₹ 2,00,000 |
|
Current Ratio of the firm |
= |
Current Assets/Current Liabilities |
|
2 |
= |
2,00,000/Current Liabilities |
|
Current Liabilities |
= |
₹1,00,000 |
|
Quick Ratio |
= |
Quick Assets/Current Liabilities |
|
1.5 |
= |
Quick Assets/1,00,000 |
|
Quick Assets |
= |
₹ 1,50,000 |
|
We know that, Quick Assets |
= |
Current Assets – Stock |
|
Using the above formula, Stock |
= |
Current Assets – Quick Assets |
|
= |
₹(2,00,000 – 1,50,000) |
|
|
= |
₹ 50,000 |
|
|
Assuming stock to be average stock |
||
|
Inventory Turnover Ratio |
= |
Cost of goods sold/Average Stock |
|
6 |
= |
Cost of Goods sold/50,000 |
|
Cost of Goods Sold |
= |
₹ 3,00,000 |
|
Profit on Sale of Goods |
= |
₹(3,00,000 × 25/100) = ₹ 75,000 |
|
Revenue from Operations |
= |
Cost of Goods Sold + Gross Profit |
|
= |
₹ (3,00,000 + 75,000) = ₹ 3,75,000 |
