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Questions:

Generic 3

5 x 3 = 15

A company has a loan of Rs.30,00,000 as part of its capital employed. The interest payable on loan is 10% and the RoI of the company is 15%. The rate of income tax is 50%. What is the gain to the shareholders due to the loan raised by the company?

How the solvency of a business assessed by financial statement analysis?

Umesh Ltd.'s Debt Equity Ratio is 2:1. State with reason whether this will increase, decrease or there will be no change in it due to the following transactions:
(i) A trade payable of Rs.5,000 was paid
(ii) Issued equity shares of Rs. 2,00,000.
(iii) Issued 9% Debentures of Rs.1,000.

Current liabilities of a company are Rs.1,60,000. Its Liquid ratio is 1.5:1 and Current ratio is 2.1:1. Calculate Quick assets and Current assets.

A business has a current ratio of 3:1 and quick ratio of 1:2:1. If the working capital is Rs.1,80,000, calculate the total current assets and value of inventory.

Fill up / 1 Marks

3 x 1 = 3

A business has a current ratio of 3:1. Its networking capital is Rs.4,00,000 and its stocks are valued at Rs.2,50,000. Calculate the quick ratio. Is it satisfactory? Identify the value shown by the company in maintaining such a quick ratio

What will be the operating profit ratio if operating ratio is 83.64%?

The debt-equity ratio of a company is 0.8:1. State whether the long-term loan obtained by the company will improve, decrease or not change the ratio.

Generic 8

2 x 8 = 16

Calculate the current ratio of a company from the following information.
Inventory turnover ratio = 4 times
Inventory at the end is 20,000 more than inventory in the beginning.
Revenue from operations, i.e. sales Rs.3,00,000, gross profit ratio 25% on sales, current liabilities Rs.40,000, quick ratio 0.75 : 1.

10.

The current ratio of a company is 21:1.2. State with reasons which of the following transactions will increase, decrease or not change the ratio.
(i) Redeemed 9% debentures of Rs.1,00,000 at a premium of 10%.
(ii) Received from debtors Rs.17,000.
(iii)Issued Rs.2,00,000 equity shares to the vendors of machinery.
(iv) Accepted bills of exchange drawn by the creditors Rs.7,000.

Generic 6

1 x 6 = 6

11.

Calculate the current ratio if working capital Rs.15,000, total liabilities (other than shareholders' funds) Rs.32,500, long-term debt Rs.25,000.

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Answers Key:

Generic 3

5 x 3 = 15

Gain to shareholders = 10%

The solvency of a business can be assessed through solvency ratios

(i) No change: Reason: Neither Debt nor shareholders' fund is affected.
(ii) Decrease: Reason: Long-term debt remain same but shareholders' fund is increasing.
(iii) Increase: Reason: Long-term debts are increased but shareholders' funds remain unchanged.

Current assets Rs.4,00,000 (i.e., Rs.1,60,000X2.5), Quick assets Rs.2,40,000 (i.e., Rs.1,60,000X1.5).

Current Assets Rs.2,70,000 (i.e., Rs.90,000); Value of inventiry Rs.1,62,000 (i.e., 2,70,000 - Rs.1,08,000)
Hints: (i) Current Liabilities = Rs.90,000 (i.e. Rs. \(1,80,000\div 2\) )
(ii) Liquid Assets Rs.1,08,000 (i.e. Rs.90,000X 1.2)

Fill up / 1 Marks

3 x 1 = 3

()
Ouick ratio = 7:4

()
Operating Profit Ratio=100-83.64% =16.36%.

()
Debt Equity Ratio will improve because of increase in long-term debts.

Generic 8

2 x 8 = 16

Current ratio=Current assets/Current liabilities=96,250/60,000 or 1.60:1
Let the opening inventory=x
Closing inventory=x+20,000
Average inventory=Opening inventory+Closing inventory/2
Average inventory=x+x+20,000/2=2x+20,000/2=x+10,000
Cost of revenue from operations=Revenue from operations-Gross profit
=3,00,000-(3,00,000*25/100)
Cost of revenue from operations=3,00,000-75,000=Rs.2,25,000
Inventory turnover ratio=Cost of revenue from operations/Average inventory
4=2,25,000/x+10,000
4x+40,000=2,25,000
4x+40,000=2,25,000
4x=2,25,000-40,000
x(Opening inventory)=1,85,000/4=Rs.46,250
Closing inventory=x+20,000
=46,250+20,000=66,250
Quick ratio=Quick assets/Current liabilities
0.75=Quick assets/40,000
Quick or liquid assets=40,000*0.75=Rs.30,000
Current assets=Quick or Liquid assets+Inventory
=30,000+66,250
=Rs.96,250

10.

Given that current ratio = 2.1 : 1.2
Let current assets = Rs.2,10,000
Current liabilities = Rs.1,20,000
(i) Due to redemption of Rs.1,00,000, 9% debentures at a premium of 10%.
Currant assets.will decrease by Rs.1,10,000.
ஃ New current assets = 2,10,000 - 1,10,000
=Rs.1,00,000
ஃ New current ratio =\(\frac { 1,00,000 }{ 1,20,000 } =0.83:1\)
Current ratio will decrease.
(ii) Received from debtors ~ 17,000.
It will not change the current assets and current liabilities.
ஃ The current ratio will not change.
(iii) Issued Rs.2,00,000 equity shares to the vendors of machinery. Current assets and current liabilities will not change and thus, there will be no change in current ratio.
(iv) Accepted bills of exchange drawn by the creditors Rs.7,000.
It will not change the value of current assets and current liabilities and thus current ratio will not change.