Long Type & (HOTS) Questions - Business Arithmetic, Entrepreneurship, Class 12 | Additional Study Material for Commerce PDF Download

 Page 1


 
    
   
    
 LONG ANSWER TYPE QUESTIONS [5-6 Marks each]  
     
 
Q. 1. Explain ABC Analysis of Inventory Control. 
 
Or 
Which items of inventory claim bulk of the value ? 
 
Or 
 
What is ABC Analysis ? What does it indicate ? 
 
Ans. A firm maintains several types of inventories. The firm adopts a selective approach which is called ABC analysis. In 
this, the firm classifies all items acording to values so that the most valuable items may be paid highly. More attention 
is given regarding their safety and care as compared to other items. It has been observed that out of the long list of 
inventory, ‘A’ category list is small in number say 5 to 10 per cent of the total number of items but they are quite 
valuable of total value. The value being 70-75 per cent of the total value of stocks. 
 
‘B’ category is in between A and C categories having 15 to 20 per cent of the number of items and 15 to 20% 
of the total value. ‘C’ category items comprise of 70-75% in number but carrying little value ranging from 5-10 
percent. We can see following categorization : 
 
Category Value No. of items 
A 70 10 
   
B 20 20 
   
C 10 70 
   
 
The above three categories vary from product to product and organization to organization. Great care and 
control is to be exercised on items of ‘A’ list, as any loss or breakage or wastage of any item of this list may 
prove to be very costly. Proper care is to be taken on ‘B’ list items and comparatively less control is needed for 
‘C’ list items. 
 
ABC analysis indicates the following : 
 
(a) About the items to be stocked in more quantities.  
 
(b) The working capital needed for sustaining an enterprise.  
 
(c) The relative importance of the various items needed by an enterprise. 6 
Q. 2. What is Inventory Control ? What are its functions ?  
 
Ans. Inventory control is a process of deciding what and how much of various items to be kept in stock. It also 
determines the time and quantity of various items to be procured. The basic objective of inventory control is to 
find out idle level of inventory, so that there is no extra inventory and production level does not suffer due to lack 
of inventories. 
 
The inventory control must perform the following functions : 
 
(i) Determine items to be stocked.  
 
(ii) Determine when and how much to be stocked and replenished.  
 
(iii) Keep suitable record.  
 
(iv) Need out obsolete items. 6 
Q. 3. State the benefits of inventory control.  
 
Ans. (i) It ensures adequate supply of materials, stores, spares, etc. There is no shortage of any item at any stage of 
production. 
 
(ii) It reduces investment in inventory.  
 
(iii) Materials are made available at most economic rates.  
 
(iv) Exact and accurate delivery dates can be forecast.  
 
(v) Production schedule and delivery date are maintained. There is an increase in overall efficiency of the  
 
organization. 6 
 
Q. 4. What are the levels of quantities fixed to order inventory ? 
 
Ans. (i) Minimum Inventory Level : It represents the lowest quantity of a particular material, below which stock 
should not be allowed to fall. This level mut be maintained at every time so that production does not get 
interrupted due to shortage of raw materials. Minimum level of inventory can be determined by the following 
factors : 
 
(a) Average rate of consumption of materials.  
 
(b) Lead Time : Normal time taken between ordering and recieving of inventory.  
Page 2


 
    
   
    
 LONG ANSWER TYPE QUESTIONS [5-6 Marks each]  
     
 
Q. 1. Explain ABC Analysis of Inventory Control. 
 
Or 
Which items of inventory claim bulk of the value ? 
 
Or 
 
What is ABC Analysis ? What does it indicate ? 
 
Ans. A firm maintains several types of inventories. The firm adopts a selective approach which is called ABC analysis. In 
this, the firm classifies all items acording to values so that the most valuable items may be paid highly. More attention 
is given regarding their safety and care as compared to other items. It has been observed that out of the long list of 
inventory, ‘A’ category list is small in number say 5 to 10 per cent of the total number of items but they are quite 
valuable of total value. The value being 70-75 per cent of the total value of stocks. 
 
‘B’ category is in between A and C categories having 15 to 20 per cent of the number of items and 15 to 20% 
of the total value. ‘C’ category items comprise of 70-75% in number but carrying little value ranging from 5-10 
percent. We can see following categorization : 
 
Category Value No. of items 
A 70 10 
   
B 20 20 
   
C 10 70 
   
 
The above three categories vary from product to product and organization to organization. Great care and 
control is to be exercised on items of ‘A’ list, as any loss or breakage or wastage of any item of this list may 
prove to be very costly. Proper care is to be taken on ‘B’ list items and comparatively less control is needed for 
‘C’ list items. 
 
ABC analysis indicates the following : 
 
(a) About the items to be stocked in more quantities.  
 
(b) The working capital needed for sustaining an enterprise.  
 
(c) The relative importance of the various items needed by an enterprise. 6 
Q. 2. What is Inventory Control ? What are its functions ?  
 
Ans. Inventory control is a process of deciding what and how much of various items to be kept in stock. It also 
determines the time and quantity of various items to be procured. The basic objective of inventory control is to 
find out idle level of inventory, so that there is no extra inventory and production level does not suffer due to lack 
of inventories. 
 
The inventory control must perform the following functions : 
 
(i) Determine items to be stocked.  
 
(ii) Determine when and how much to be stocked and replenished.  
 
(iii) Keep suitable record.  
 
(iv) Need out obsolete items. 6 
Q. 3. State the benefits of inventory control.  
 
Ans. (i) It ensures adequate supply of materials, stores, spares, etc. There is no shortage of any item at any stage of 
production. 
 
(ii) It reduces investment in inventory.  
 
(iii) Materials are made available at most economic rates.  
 
(iv) Exact and accurate delivery dates can be forecast.  
 
(v) Production schedule and delivery date are maintained. There is an increase in overall efficiency of the  
 
organization. 6 
 
Q. 4. What are the levels of quantities fixed to order inventory ? 
 
Ans. (i) Minimum Inventory Level : It represents the lowest quantity of a particular material, below which stock 
should not be allowed to fall. This level mut be maintained at every time so that production does not get 
interrupted due to shortage of raw materials. Minimum level of inventory can be determined by the following 
factors : 
 
(a) Average rate of consumption of materials.  
 
(b) Lead Time : Normal time taken between ordering and recieving of inventory.  
 
   
   
 
(c) Safety Margin : Some extra time is added to lead time as safety margin.  
 
(d) Availability of Substitutes : Are there any substitutes for materials required ?  
 
(ii) Maximum Inventory Level : It represents the largest quantity of a particular material which should be kept in 
store at one time. The fixation of maximum level is essential to avoid unnecessary blocking up of capital in 
inventory. It is fixed keeping in mind the following factors :  
 
(a) Rate of consumption of material  
 
(b) Storage of space available  
 
(c) Lead time  
 
(d) Nature of material  
 
(e) Cost of inventory  
 
(f) Working capital required  
 
(g) Market trends such as fashion trends  
 
(h) Government restriction  
 
(i) Economic order quantity (EOQ)  
 
(j) Risk involved  
 
Maximum level = Reordering level + Reordering quantity. 
 
(iii) Recording level : It is the level of inventory at which purchase requisition should be issued and purchase order 
should be made. The ordering level is fixed somewhere between the maximum and minimum level. When this 
level is reached, stock keeper will issue the purchase requisition.  
 
Reorder level = (Maximum consumption during the period) X (Maximum period required for delivery)  
 
(iv) Danger level : This is generally fixed below the minimum level because general stock should not reach below minimum 
level and if it reaches, it indicates alarming situation. If it reaches the danger level at any point of time,  
 
urgent actions for replenishment of stock must be taken to prevent stock out. 6 
 
Q. 5. Re-order quantity 
Maximum consumption 
Minimum consumption 
Normal consumption 
Re-order point 
Calculate :  
 
(i) Re order level  
 
(ii) Minimum level  
 
(iii) Maximum level  
 
= 3600 units  
 
= 900 units per week  
 
= 300 units per week  
 
= 600 units per week  
 
= 3 to 5 weeks  
 
Ans. (i) Recorder level = Maximum consumption × Maximum delivery period.  
  = 900 × 5  
  = 4500 units 2 
(ii) Minimum level = Reorder level – (Normal usage per week  
  × Average delivery time) 
  = 4500 – (600×4)  
  = 2100 units 2 
(iii) Maximum level = (Reorder level + Reorder quantity)  
  – (Minimum consumption × Mimimum reorder period) 
  = (4500 + 3600) – (300 × 3)  
  = 7200 units 2 
 
Q. 6. Explain Economic Order Quantity. Also give an example. 
 
Ans. Economic Order Quantity (E.O.Q.) represents the quantity of an item which is most economic to order when 
fresh supplies are required. At such level of re-order, the total ordering cost and inventory carrying cost would 
be minimum. E.O.Q. is the quantity at which the ordering cost is equal to the inventory cost. At this level, total 
cost of inventory would be minimum and most favourable to the buyer. The quantity of a material which is 
 
Page 3


 
    
   
    
 LONG ANSWER TYPE QUESTIONS [5-6 Marks each]  
     
 
Q. 1. Explain ABC Analysis of Inventory Control. 
 
Or 
Which items of inventory claim bulk of the value ? 
 
Or 
 
What is ABC Analysis ? What does it indicate ? 
 
Ans. A firm maintains several types of inventories. The firm adopts a selective approach which is called ABC analysis. In 
this, the firm classifies all items acording to values so that the most valuable items may be paid highly. More attention 
is given regarding their safety and care as compared to other items. It has been observed that out of the long list of 
inventory, ‘A’ category list is small in number say 5 to 10 per cent of the total number of items but they are quite 
valuable of total value. The value being 70-75 per cent of the total value of stocks. 
 
‘B’ category is in between A and C categories having 15 to 20 per cent of the number of items and 15 to 20% 
of the total value. ‘C’ category items comprise of 70-75% in number but carrying little value ranging from 5-10 
percent. We can see following categorization : 
 
Category Value No. of items 
A 70 10 
   
B 20 20 
   
C 10 70 
   
 
The above three categories vary from product to product and organization to organization. Great care and 
control is to be exercised on items of ‘A’ list, as any loss or breakage or wastage of any item of this list may 
prove to be very costly. Proper care is to be taken on ‘B’ list items and comparatively less control is needed for 
‘C’ list items. 
 
ABC analysis indicates the following : 
 
(a) About the items to be stocked in more quantities.  
 
(b) The working capital needed for sustaining an enterprise.  
 
(c) The relative importance of the various items needed by an enterprise. 6 
Q. 2. What is Inventory Control ? What are its functions ?  
 
Ans. Inventory control is a process of deciding what and how much of various items to be kept in stock. It also 
determines the time and quantity of various items to be procured. The basic objective of inventory control is to 
find out idle level of inventory, so that there is no extra inventory and production level does not suffer due to lack 
of inventories. 
 
The inventory control must perform the following functions : 
 
(i) Determine items to be stocked.  
 
(ii) Determine when and how much to be stocked and replenished.  
 
(iii) Keep suitable record.  
 
(iv) Need out obsolete items. 6 
Q. 3. State the benefits of inventory control.  
 
Ans. (i) It ensures adequate supply of materials, stores, spares, etc. There is no shortage of any item at any stage of 
production. 
 
(ii) It reduces investment in inventory.  
 
(iii) Materials are made available at most economic rates.  
 
(iv) Exact and accurate delivery dates can be forecast.  
 
(v) Production schedule and delivery date are maintained. There is an increase in overall efficiency of the  
 
organization. 6 
 
Q. 4. What are the levels of quantities fixed to order inventory ? 
 
Ans. (i) Minimum Inventory Level : It represents the lowest quantity of a particular material, below which stock 
should not be allowed to fall. This level mut be maintained at every time so that production does not get 
interrupted due to shortage of raw materials. Minimum level of inventory can be determined by the following 
factors : 
 
(a) Average rate of consumption of materials.  
 
(b) Lead Time : Normal time taken between ordering and recieving of inventory.  
 
   
   
 
(c) Safety Margin : Some extra time is added to lead time as safety margin.  
 
(d) Availability of Substitutes : Are there any substitutes for materials required ?  
 
(ii) Maximum Inventory Level : It represents the largest quantity of a particular material which should be kept in 
store at one time. The fixation of maximum level is essential to avoid unnecessary blocking up of capital in 
inventory. It is fixed keeping in mind the following factors :  
 
(a) Rate of consumption of material  
 
(b) Storage of space available  
 
(c) Lead time  
 
(d) Nature of material  
 
(e) Cost of inventory  
 
(f) Working capital required  
 
(g) Market trends such as fashion trends  
 
(h) Government restriction  
 
(i) Economic order quantity (EOQ)  
 
(j) Risk involved  
 
Maximum level = Reordering level + Reordering quantity. 
 
(iii) Recording level : It is the level of inventory at which purchase requisition should be issued and purchase order 
should be made. The ordering level is fixed somewhere between the maximum and minimum level. When this 
level is reached, stock keeper will issue the purchase requisition.  
 
Reorder level = (Maximum consumption during the period) X (Maximum period required for delivery)  
 
(iv) Danger level : This is generally fixed below the minimum level because general stock should not reach below minimum 
level and if it reaches, it indicates alarming situation. If it reaches the danger level at any point of time,  
 
urgent actions for replenishment of stock must be taken to prevent stock out. 6 
 
Q. 5. Re-order quantity 
Maximum consumption 
Minimum consumption 
Normal consumption 
Re-order point 
Calculate :  
 
(i) Re order level  
 
(ii) Minimum level  
 
(iii) Maximum level  
 
= 3600 units  
 
= 900 units per week  
 
= 300 units per week  
 
= 600 units per week  
 
= 3 to 5 weeks  
 
Ans. (i) Recorder level = Maximum consumption × Maximum delivery period.  
  = 900 × 5  
  = 4500 units 2 
(ii) Minimum level = Reorder level – (Normal usage per week  
  × Average delivery time) 
  = 4500 – (600×4)  
  = 2100 units 2 
(iii) Maximum level = (Reorder level + Reorder quantity)  
  – (Minimum consumption × Mimimum reorder period) 
  = (4500 + 3600) – (300 × 3)  
  = 7200 units 2 
 
Q. 6. Explain Economic Order Quantity. Also give an example. 
 
Ans. Economic Order Quantity (E.O.Q.) represents the quantity of an item which is most economic to order when 
fresh supplies are required. At such level of re-order, the total ordering cost and inventory carrying cost would 
be minimum. E.O.Q. is the quantity at which the ordering cost is equal to the inventory cost. At this level, total 
cost of inventory would be minimum and most favourable to the buyer. The quantity of a material which is 
 
 
   
   
   
 
Economic order quantity is determined at that level where the total ordering cost and carrying cost is minimum. 
 
 Total cost   
 
  
ing 
cost 
 
`
(
) 
rry 
 
 
  
 
 Ca   
 
C
o
s
t 
ering 
 
Ord 
  
 
    
 EOQ cost 
 
O Quantity   
 
E.O.Q. is calculated by the following formula : 
 
1 
 
E.O.Q. =  
 
Where : 
 
 
 
Example : 
 
2 DO 
C  
 
D = Annual demand 
 
O = Ordering cost per unit 
C = Carrying cost per unit 
Annual usage = 600 units 
Cost of placing order = ` 48 
 
Price of material per unit = ` 20 
 
Cost of storage = 20% of inventory value. 
 
 
1 
 
Calculate EOQ and number of orders to be placed. 
 
Solution : EOQ = 
  
2 DO 
    
 
     C 
 
         
  
= 
 2 ? 600 ? `48  
 
  ` 20 ? 20%  
 
       
 
  
= 
  ` 57,600    
 
  
` 4 
    
 
        
  
= 120 units. 
 
 No. of orders to be placed = Annual usage 
 
     E.O.Q. 
 
 
= 600 units  
 120 units  
= 5 2 
 
Q. 7. Explain Return on Equity (ROE). 
 
Ans. ROE measures the profitability of the company from common stock holder’s (Equity shareholder’s ) point of view. 
This is calculated to find out how efficiently the funds supplied by equity shareholders, have been used. It is the 
expectation of high return that motivates equity shareholder to continue with the company and the new investors 
to put their money in company’s share. 
 
It is computed by dividing net income available for equity shareholders by average equity shareholders’ fund. 
When preference shareholders are present, the preference dividend and deducted from net income to compute 
income available for equity stock holders. 
 
ROE = Net profit after tax – Preference dividend / Equity shareholder’s fund × 100 
 
Higher is the ratio, the more efficient the management and utilization of equity shareholders’ fund. The return 
 
on equity may be substantially higher than its return on assets due to trading on equity. 6 
Q. 8. From the following information calculate ROI :  
Equity share capital ` 5,00,000  
Preference share capital ` 2,00,000  
Page 4


 
    
   
    
 LONG ANSWER TYPE QUESTIONS [5-6 Marks each]  
     
 
Q. 1. Explain ABC Analysis of Inventory Control. 
 
Or 
Which items of inventory claim bulk of the value ? 
 
Or 
 
What is ABC Analysis ? What does it indicate ? 
 
Ans. A firm maintains several types of inventories. The firm adopts a selective approach which is called ABC analysis. In 
this, the firm classifies all items acording to values so that the most valuable items may be paid highly. More attention 
is given regarding their safety and care as compared to other items. It has been observed that out of the long list of 
inventory, ‘A’ category list is small in number say 5 to 10 per cent of the total number of items but they are quite 
valuable of total value. The value being 70-75 per cent of the total value of stocks. 
 
‘B’ category is in between A and C categories having 15 to 20 per cent of the number of items and 15 to 20% 
of the total value. ‘C’ category items comprise of 70-75% in number but carrying little value ranging from 5-10 
percent. We can see following categorization : 
 
Category Value No. of items 
A 70 10 
   
B 20 20 
   
C 10 70 
   
 
The above three categories vary from product to product and organization to organization. Great care and 
control is to be exercised on items of ‘A’ list, as any loss or breakage or wastage of any item of this list may 
prove to be very costly. Proper care is to be taken on ‘B’ list items and comparatively less control is needed for 
‘C’ list items. 
 
ABC analysis indicates the following : 
 
(a) About the items to be stocked in more quantities.  
 
(b) The working capital needed for sustaining an enterprise.  
 
(c) The relative importance of the various items needed by an enterprise. 6 
Q. 2. What is Inventory Control ? What are its functions ?  
 
Ans. Inventory control is a process of deciding what and how much of various items to be kept in stock. It also 
determines the time and quantity of various items to be procured. The basic objective of inventory control is to 
find out idle level of inventory, so that there is no extra inventory and production level does not suffer due to lack 
of inventories. 
 
The inventory control must perform the following functions : 
 
(i) Determine items to be stocked.  
 
(ii) Determine when and how much to be stocked and replenished.  
 
(iii) Keep suitable record.  
 
(iv) Need out obsolete items. 6 
Q. 3. State the benefits of inventory control.  
 
Ans. (i) It ensures adequate supply of materials, stores, spares, etc. There is no shortage of any item at any stage of 
production. 
 
(ii) It reduces investment in inventory.  
 
(iii) Materials are made available at most economic rates.  
 
(iv) Exact and accurate delivery dates can be forecast.  
 
(v) Production schedule and delivery date are maintained. There is an increase in overall efficiency of the  
 
organization. 6 
 
Q. 4. What are the levels of quantities fixed to order inventory ? 
 
Ans. (i) Minimum Inventory Level : It represents the lowest quantity of a particular material, below which stock 
should not be allowed to fall. This level mut be maintained at every time so that production does not get 
interrupted due to shortage of raw materials. Minimum level of inventory can be determined by the following 
factors : 
 
(a) Average rate of consumption of materials.  
 
(b) Lead Time : Normal time taken between ordering and recieving of inventory.  
 
   
   
 
(c) Safety Margin : Some extra time is added to lead time as safety margin.  
 
(d) Availability of Substitutes : Are there any substitutes for materials required ?  
 
(ii) Maximum Inventory Level : It represents the largest quantity of a particular material which should be kept in 
store at one time. The fixation of maximum level is essential to avoid unnecessary blocking up of capital in 
inventory. It is fixed keeping in mind the following factors :  
 
(a) Rate of consumption of material  
 
(b) Storage of space available  
 
(c) Lead time  
 
(d) Nature of material  
 
(e) Cost of inventory  
 
(f) Working capital required  
 
(g) Market trends such as fashion trends  
 
(h) Government restriction  
 
(i) Economic order quantity (EOQ)  
 
(j) Risk involved  
 
Maximum level = Reordering level + Reordering quantity. 
 
(iii) Recording level : It is the level of inventory at which purchase requisition should be issued and purchase order 
should be made. The ordering level is fixed somewhere between the maximum and minimum level. When this 
level is reached, stock keeper will issue the purchase requisition.  
 
Reorder level = (Maximum consumption during the period) X (Maximum period required for delivery)  
 
(iv) Danger level : This is generally fixed below the minimum level because general stock should not reach below minimum 
level and if it reaches, it indicates alarming situation. If it reaches the danger level at any point of time,  
 
urgent actions for replenishment of stock must be taken to prevent stock out. 6 
 
Q. 5. Re-order quantity 
Maximum consumption 
Minimum consumption 
Normal consumption 
Re-order point 
Calculate :  
 
(i) Re order level  
 
(ii) Minimum level  
 
(iii) Maximum level  
 
= 3600 units  
 
= 900 units per week  
 
= 300 units per week  
 
= 600 units per week  
 
= 3 to 5 weeks  
 
Ans. (i) Recorder level = Maximum consumption × Maximum delivery period.  
  = 900 × 5  
  = 4500 units 2 
(ii) Minimum level = Reorder level – (Normal usage per week  
  × Average delivery time) 
  = 4500 – (600×4)  
  = 2100 units 2 
(iii) Maximum level = (Reorder level + Reorder quantity)  
  – (Minimum consumption × Mimimum reorder period) 
  = (4500 + 3600) – (300 × 3)  
  = 7200 units 2 
 
Q. 6. Explain Economic Order Quantity. Also give an example. 
 
Ans. Economic Order Quantity (E.O.Q.) represents the quantity of an item which is most economic to order when 
fresh supplies are required. At such level of re-order, the total ordering cost and inventory carrying cost would 
be minimum. E.O.Q. is the quantity at which the ordering cost is equal to the inventory cost. At this level, total 
cost of inventory would be minimum and most favourable to the buyer. The quantity of a material which is 
 
 
   
   
   
 
Economic order quantity is determined at that level where the total ordering cost and carrying cost is minimum. 
 
 Total cost   
 
  
ing 
cost 
 
`
(
) 
rry 
 
 
  
 
 Ca   
 
C
o
s
t 
ering 
 
Ord 
  
 
    
 EOQ cost 
 
O Quantity   
 
E.O.Q. is calculated by the following formula : 
 
1 
 
E.O.Q. =  
 
Where : 
 
 
 
Example : 
 
2 DO 
C  
 
D = Annual demand 
 
O = Ordering cost per unit 
C = Carrying cost per unit 
Annual usage = 600 units 
Cost of placing order = ` 48 
 
Price of material per unit = ` 20 
 
Cost of storage = 20% of inventory value. 
 
 
1 
 
Calculate EOQ and number of orders to be placed. 
 
Solution : EOQ = 
  
2 DO 
    
 
     C 
 
         
  
= 
 2 ? 600 ? `48  
 
  ` 20 ? 20%  
 
       
 
  
= 
  ` 57,600    
 
  
` 4 
    
 
        
  
= 120 units. 
 
 No. of orders to be placed = Annual usage 
 
     E.O.Q. 
 
 
= 600 units  
 120 units  
= 5 2 
 
Q. 7. Explain Return on Equity (ROE). 
 
Ans. ROE measures the profitability of the company from common stock holder’s (Equity shareholder’s ) point of view. 
This is calculated to find out how efficiently the funds supplied by equity shareholders, have been used. It is the 
expectation of high return that motivates equity shareholder to continue with the company and the new investors 
to put their money in company’s share. 
 
It is computed by dividing net income available for equity shareholders by average equity shareholders’ fund. 
When preference shareholders are present, the preference dividend and deducted from net income to compute 
income available for equity stock holders. 
 
ROE = Net profit after tax – Preference dividend / Equity shareholder’s fund × 100 
 
Higher is the ratio, the more efficient the management and utilization of equity shareholders’ fund. The return 
 
on equity may be substantially higher than its return on assets due to trading on equity. 6 
Q. 8. From the following information calculate ROI :  
Equity share capital ` 5,00,000  
Preference share capital ` 2,00,000  
 
     
     
  10% Debentures ` 5,00,000  
  Current liabilities ` 1,00,000  
  Net profit after interest but before tax ` 1,00,000  
Ans. ROI = Earning before interest, tax and depreciation / Total investment 
  Net profit before interest and tax = Net profit + Interest on debentures 
   = ` 1,00,000 + ` 50,000  
   = ` 1,50,000  
 
Total investment / Capital employed = Equity share capital + Preference share capital + 10% debentures 
 
= ` 5,00,000 + ` 2,00,000 + ` 5,00,000  
= ` 12,00,000  
ROI = 1,50,000 / ` 12,00,000 × 100 = 12.5% 6 
  
HIGH ORDER THINKING SKILLS (HOTS) [4 Marks] 
  
 
Q. 1. Raja & Co. has the following items in its Balance Sheet : 
 
Stock `  50,000; Trade creditors `  32,000; Debtors `  75,000; Cash `  1,00,000; Dividend Payable 
` 50,000; Tax ` 44,000; Short term loan ` 61,000; Short term investment ` 76,000. Calculate gross and net working 
capital.    (TBQ) 
Ans. Gross working capital = Total current assets  
  = ` 50,000 + ` 75,000 + ` 1,00,000 + ` 76,000   
  = ` 3,01,000   
 Net working capital = Gross working capital – Current liabilities  
  = ` 3,01,000 – ` 32,000 – ` 50,000 – ` 44,000 – ` 61,000  
  = ` 1,14,000  4