GEMS ARTS AND SCIENCE COLLEGE, RAMAPURAM

FIFTH SEMESTER B.COM 2ND INTERNAL EXAMINATION, AUGUST 2021

ACCOUNTING FOR MANAGEMENT
ANSWERS
Time: One Hour Maximum: 40 Marks

Part A
Answer All Questions, Each Question Carries 2 Marks
1. What you mean by ratios?
A ratio is a simple arithmetical expression of the relationship of one number to another
A ratio is an expression of the quantitative relationship between two numbers.

2. Calculate debtors turnover ratio from the following information

Creditors – 42000
Return inwards – 2000
Debtors – 5000
Bills receivable – 3000

DTR = Net credit sales/Average debtors

Net credit sales = 42000 – 2000 = 40000

Average debtors = 5000 + 3000 = 8000

DTR = 40000/8000 = 5

3. Working capital = 500000, current ratio = 2:1, calculate current asset & current liabilities?
Current ratio = CA/CL = 2:1  CA = 2 & CL = 1
WC = CA – CL = 2 – 1 = 500000
1 = 500000
CL = 500000
CA = 1000000

4. If a company declares dividend at 30% on its shares, each having a paid up value of 8.00 and
market value of 30. Calculate dividend yield ratio
Dividend yield ratio = Dividend per share/ Market value per share*100
Dividend per share = 8*30/100 = 2.4
Dividend yield ratio = 2.4/30*100 = 8%
 Part B
Answer Any Three Questions, Each Question Carries 4 Marks
5. Calculate working capital turnover ratio from the following data
Cash – 15000
Bills receivable – 15000
Sundry debtors – 20000
Stock – 10000
Sundry creditors – 30000
Cost of sales – 180000

Working Capital Turnover Ratio = Cost of Sales / Net Working Capital

Cost of Sales = 180000
Working capital = CA – CL
CA = 15000 + 15000 + 20000 + 10000 = 60000
CL = 30000
WC = 60000 – 30000 = 30000
Working Capital Turnover Ratio = 180000 /30000 = 6times

6. From the following details determine the value of debtors

Total sales – 500000
Cash sales – 200000
Debtor’s velocity – 30 days
Bills receivable – 5000

Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors

Net Credit Sales = 500000 – 200000 = 300000
Average debtors = Drs + 5000
Debtors Turnover Ratio = 300000/ Drs + 5000
Average collection period = 360/DTR = 30 days
DTR = 360/30 = 12
DTR (12) = 300000/ Drs + 5000
Drs + 5000 = 300000/12 = 25000
Debtors = 25000 – 5000 = 20000

7. What are the classifications of ratios?

I – LIQUIDITY RATIOS
1. Current ratio
2. Quick Ratio
II – SOLVENCY/LEVERAGE RATIOS
1. Debt-Equity Ratio
2. Proprietary ratio/ Equity Ratio
3. Solvency Ratio
4. Ratio of Fixed assets to Net worth
5. Fixed Asset Ratio
6. Capital Gearing Ratio
 III - Activity Ratios
1. Inventory turnover ratio
2. Debtors turnover ratio
3. Creditors turnover ratio
4. Total assets turnover ratio
5. Fixed assets turnover ratio
6. Working capital turnover ratio
IV - PROFITABILITY RATIOS
A. Operating Profitability Ratios (Based on Sales)
1. Gross Profit Ratio
2. Net Profit Ratio
3. Operating Profit Ratio
4. Expense Ratio
5. Operating Ratio
B. Overall Profitability Ratios (Based on Investment)
1. Return on Total Assets
2. Return on Capital Employed
3. Return on Shareholder’s Equity
4. Return on Equity Capital
V - MARKET TEST RATIOS
1) Dividend Yield Ratio
2) Dividend Payout Ratio
3) Earnings Per Share (EPS) Ratio
4) Price Earnings Ratio (PE Ratio)

8. Calculate gross profit ratio

Total sales – 50000
Sales return – 10000
Cost of goods sold – 25000

G P Ratio = (Gross profit / Net sales) × 100

Net sales = 50000 – 10000 = 40000

GP = Net sales – cost of goods sold = 40000 – 25000 = 15000

G P Ratio = 15000/40000 * 100 = 37.5

 Part - C
Answer Any Two Questions, Each Question Carries 10 Marks
9. Find out debtors turnover ratio and average collection period from the following.

31/03/2011 31/03/2012

Annual credit sales 500000 600000

Debtors at the beginning 80000 100000

Debtors at the end 100000 120000

31/03/2011

Debtors Turnover Ratio = Net Credit Sales / Average Debtors (Including BR)

Net Credit Sales = 500000

Avg Drs = 80000 + 100000 / 2 = 90000

DTR = 500000 / 90000 = 5.5 Times

Average collection period = 360/DTR = 360/5.5 = 65 Days

31/03/2012

Debtors Turnover Ratio = Net Credit Sales / Average Debtors (Including BR)

Net Credit Sales = 600000

Avg Drs = 100000 + 120000 / 2 = 110000

DTR = 600000 / 110000 = 5.5 Times

Average collection period = 360/DTR = 360/5.5 = 65 Days

10. Calculate current asset, current liability, fixed asset, long term debt, from the following
Long term debt to equity = 0.6
Debt to equity = 0.9
Equity share capital = 500000
Preference share capital = 300000
Reserve and surpluses = 200000
Current ratio = 1.5

Long term debt to equity = long term debt/Equity = 0.6

Equity = 500000 + 300000 + 200000 = 1000000

0.6 = Long term debt/1000000

Long term debt = 100000 * 0.6 = 600000 LIABILITIES AMT ASSET AMT

Debt to Equity = Total Debt / Equity = 0.9 Equity 1000000 Fixed asset 1450000

0.9 = Total debt / 1000000 Long term debt 600000 Current asset 450000

Total debt = 100000*0.9 = 900000 Current liability 300000

Current Liability = Total debt – Long term 1900000 1900000

debt = 900000 – 600000 = 300000

Current ratio = CA/CL = 1.5:1

CL = 300000

CA = 300000*1.5 = 450000

FA = 1900000 – 450000 = 1450000

11. From the following balance sheet, calculate liquidity ratios

Liabilities Amt Assets Amt

Share Capital 75000 Fixed asset 80000

Reserve and 25000 Debtors 30000

surplus

Creditors 20000 Stock 20000

Bank overdraft 15000 Prepaid expenses 2000

Bills payable 5000 Cash 8000

140000 140000

Current ratio = CA – CL
CA = 30000 + 20000 + 2000 + 8000 = 60000
CL = 20000 + 15000 + 5000 = 40000
CR = 60000/40000 = 1.5

Quick ratio = QA/CL

QA = CA – Stock – prepaid expenses
QA = 60000 – 20000 – 2000= 38000
QR = 38000/40000 = 0.95