Q1.

Following is the income statement and balance sheet of the company:

Particulars Rs. Particulars Rs.

Opening stock 90,000 Sales 900,000
Purchases 560,000 Closing stock 90,000
Wages 214,000
Salaries 16,000
Electricity 10,000
Advertisement expenses 10,000
Depreciation 30,000
Net profit 60,000
Equity share capital 180,000 Fixed assets 390,000
Reserves and surplus 120,000 Stock 90,000
Long term loans 210,000 Debtors 105,000
Creditors 90,000 Cash 15,000

Calculate the following ratios:

a) Current ratio
b) Quick ratio
c) Debt – equity ratio
d) Proprietary ratio
e) Net profit ratio
f) Return on shareholder funds

Answer:

a) 2.33:1
b) 1.33:1
c) 0.7:1
d) 50%
e) 10%

Q2. Following is the income statement of the company:

 Opening stock = 76,250

 Purchases = 315,250
 Carriage = 2000
 Wages = 5000
 Sales = 500,000
 Closing stock = 98,500
 Administrative expenses = 100,000
 Selling expenses = 13,000
 Distribution expenses = 7000
 Office expenses = 2000
 Net profit after interest and tax = 84,000

Calculate the following ratios:

a) Gross profit ratio

b) Net profit ratio
 c) Operating ratio
d) Operating profit ratio
e) Stock turnover ratio

Answer:

a) 40%
b) 16.8%
c) 82.6%
d) 17.4%
e) 3.43 times

Q3.

 Cash in hand = 200,000

 Short term investments = 100,000
 Debtors = 100,000
 Stock = 100,000
 Short term borrowings = 100,000
 Creditors = 100,000
 Opening stock = 50,000
 Closing stock = 150,000
 COGS = 1200,000
 Gross profit = 200,000
 Selling expenses = 20,000
 Equity share capital = 700,000
 General reserves = 100,000
 Preference share capital = 300,000
 12% debentures = 200,000

Calculate the following ratios:

a) Current ratio
b) Quick ratio
c) Debt – equity ratio
d) Stock turnover ratio
e) Return on investment

Answer:

a) 2.5:1
b) 2:1
c) 2:11
d) 12 times
e) 15.6%

Q4. Comment on the liquidity position of the firm and calculate the following ratios: -

a) Current ratio
b) Liquid ratio
 Particulars Rs.
Bills receivables 80,000
Sundry debtors 90,000
Bills Payable 50,000
Outstanding expenses 5,000
Temporary investments 25,000
Advance rent 5,000
Cash in hand 10,000
Stock 50,000
Short term borrowings(loan) 70,000
Sundry creditors 30,000
Bank balance 5,000

Answer:

a) 1.70:1

b) 1.4:1

Q5.
Particulars Rs. Particulars Rs.
12% Preference Share 100,000 Fixed assets 950,000
Capital
General reserve 184,000 Current assets 234,000
10% debentures 400,000 Current Liabilities 100,000
400,000
Equity share capital
(40,000 shares of Rs. 10
each)

Net profit after tax = 150,000, tax amount = 50,000, market price of share = Rs. 34

Calculate:

a) Return on investment

b) Return on equity capital

c) EPS and;

d) P/E ratio

Solution

a) 22.14%,
b) 23.97%,
c) Rs. 7.5,
d) 4.5 times

(Hint: 12% preference share capital means, rate of dividend on preference share capital is 12%, the total preference
dividend will be Rs. 12000)
Q6.

From the following information, calculate:

a) Operating ratio

b) Operating profit ratio

Opening Stock = 400,000

Closing Stock = 100,000

Wages = 50,000

Purchases = 40,000

Carriage = 10,000

Administrative expenses = 35,000

Selling and distribution expenses = 45,000

Net sales = 600,000

Solution:

a) 80%

b) 20%

Q7.

From the following information, calculate the required ratios:

Rs. Rs.
Share capital (Rs. 10) 800,000 Fixed assets 1000,000
Reserves 200,000 Current assets 360,000
8% debentures 200,000
Creditors 160,000
1360,000 1360,000

Net operating profit before tax = Rs. 280,000

The tax rate charged on profits is 50%.

The company has declared dividend of Rs. 20,000

Calculate

a) Return on capital employed

b) Return on net worth

Answer
 a) 23.3%
b) 7.2%

Hint = Loan amount is Rs. 92,000

Q8.

Calculate Debtors Turnover Ratio and Average Collection Period (in days) from the following.

Total Sales – 6,00,000

Cash Sales – 20% of Total sales
Trades Receivable at beginning of the year- 80,000
Trades Receivable at the end of the year- 1,60,000

Answer:

a) 4 times
b) 92 days

Q9.

Calculate the following ratios:

a) Creditor turnover ratio

b) Creditors velocity

Particulars 2018 2019

Credit purchases 680,000 750,000
Creditors on Jan 1 80,000 60,000
Creditors on Jan 31 60,000 90,000

Take 360 days in a year

Answer:

a) 9.7 times
b) 37 days
c) 10 times
d) 36 days

Q10.

Calculate and interpret the ‘interest coverage ratio’ from the following information of the company.

• Net profit after tax = 500,000

• 10% long – term loan = 200,000

• 10% debentures = 100,000

• Tax amount = 40000

Answer: 19 times

Q11.

From the following information, calculate the:

a) Debt – equity ratio

b) Proprietary ratio

• Equity share capital = 500,000

• Reserves and surplus = 100,000

• Preference share capital = 100,000

• Long term borrowings = 300,000

• Current liabilities = 50,000

• Fixed assets = 600,000

• Investments = 200,000

• Current assets = 400,000

Answer:

a) 0.66:1
b) 50%