Question

A Company had a liquid ratio of 1.6 : 1 and a current ratio of 2.4 : 1. Its inventory turnover ratio was 5 times. It had total current liabilities of ₹ 1,50,000.

Find out revenue from operations if the goods are sold at 40% profit on cost.

Answer 1

Current Ratio = 2.4 : 1

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

2.4 = `"Current Assets"/(₹ 1,50,000)`

Current Assets = ₹ 1,50,000 × 2.4

= ₹ 3,60,000

Liquid ratio = 1.6 : 1

Liquid ratio = `"Liquid Assets"/"Current Liabilities"`

1.6 = `"Liquid Assets"/(₹ 1,50,000)`

Liquid Assets = ₹ 1,50,000 × 1.6

= ₹ 2,40,000

Average Inventory = Current Assets − Liquid Assets

= ₹ 3,60,000 − ₹ 2,40,000

= ₹ 1,20,000

Inventory Turnover Ratio = `"Cost of Revenue from Operations"/"Average Inventory"`

5 = `"Cost of Revenue from Operations"/(₹ 1,20,000)`

Cost of Revenue from Operations = ₹ 1,20,000 × 5

= ₹ 6,00,000

Gross Profit = Revenue from Operations − Cost of Revenue from Operations

40% of ₹ 6,00,000 = Revenue from Operations − ₹ 6,00,000

₹ 2,40,000 = Revenue from Operations − ₹ 6,00,000

Revenue from Operations = ₹ 2,40,000 + ₹ 6,00,000

= ₹ 8,40,000