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Question
Calculate Current Ratio, Quick Ratio, Debt-Equity Ratio and the Proprietary Ratio from the figures given below:
| ₹ | |
| Inventory | 30,000 |
| Prepaid Expenses | 2,000 |
| Liquid Assets | 50,000 |
| Current Liabilities | 40,000 |
| 12% Debentures | 30,000 |
| Accumulated Profits | 10,000 |
| Equity Share Capital | 1,00,000 |
| Long-term investments | 15,000 |
| Property, Plant and Equipment | 83,000 |
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Solution
(i)
Current Assets = Liquid Assets + Inventory + Prepaid Expenses
= ₹ 50,000 + ₹ 30,000 + ₹ 2,000
= ₹ 82,000
Current Liabilities = ₹ 40,000
Current Ratio = `"Current Assets"/"Current Liabilities"`
= `(₹ 82,000)/(₹ 40,000)`
= 2.05 : 1
(ii)
Quick Ratio = `"Liquid Assets"/"Current Liabilities"`
= `(₹ 50,000)/(₹ 40,000)`
= 1.25 : 1
(iii)
Long-term Debts = 12% Debentures = ₹ 30,000
Shareholder’s Funds = Equity Share Capital + Accumulated Profits
= ₹ 1,00,000 + ₹ 10,000
= ₹ 1,10,000
Debt-Equity Ratio = `"Long term Debts"/"Shareholder’s Funds"`
= `(₹ 30,000)/(₹ 1,10,000)`
= 0.27 : 1
(iv)
Shareholder’s Funds = ₹ 1,10,000
Total Assets = Property, Plant and Equipment + Long-term investments + Liquid Assets + Inventory + Prepaid Expenses
= ₹ 83,000 + ₹ 15,000 + ₹ 50,000 + ₹ 30,000 + ₹ 2,000
= ₹ 1,80,000
Proprietary Ratio = `"Shareholder’s Funds"/"Total Assets"`
= `(₹ 1,10,000)/(₹ 1,80,000)`
= 0.6111
= 61.11%
