Accounting Ratios (Part - 3) | TS Grewal Solutions - Class 12 Accountancy - Commerce PDF Download

Question:51 

Total Debt 12,00,000; Current Liabilities 4,00,000; Capital Employed `12,00,000. Calculate Total Assets to Debt Ratio. 

Solution: 

Debt = Total Debt - Current Liabilities = 12, 00, 000 − 4, 00, 000 = Rs 8,00,000 

Total Assets = Capital Employed + Current Liabilities 

 = 12,00,000 + 4,00,000 = Rs 16,00,000 
Total Assets to Debt Ratio = Total Assets/Debt 
= 16,00,000/8,00,000  = 2:1

Question:52 

From the following information, calculate Total Assets to Debt Ratio: 

Fixed Assets Gross - 6,00,000 
Accumulated Depreciation - 1,00,000 
Non-current Investments - 10,000 
Long-term Loans and Advances - 40,000 

Current Assets - 2,50,000 
Current Liabilities -  2,00,000 
Long-term Borrowings - 3,00,000 
Long-term Provisions - 1,00,000 

Solution: 

Debts = Long-term Borrowings + Long Term Provisions = 3,00,000 + 1,00,000 = Rs 4,00,000
Total Assets = Non-Current Assets + Current Assets 

 = 6,00,000 -1,00,000 + 10,000 + 2,50,000 + 40,000 = Rs 8,00,000

Total Assets to Debt Ratio = Total Assets/Debt
= 8,00,000/4,00,000 = 2:1

Question:53 

From the following information, calculate Proprietary Ratio: 

Share Capital - 3,00,000 
Reserves and Surplus - 1,80,000 

Non-current Assets - 13,20,000 
Current Assets - 6,00,000 

Solution: 

Proprietary Ratio = Shareholders' Funds/Total Assets 

Proprietary Ratio = (Share Capital + Reserves and Surplus)/(Non-Current Assets + Current Assets)

Proprietary Ratio = (3,00,000 + 1,80,000)/(13,20,000 + 6,00,000) = 0.25:1 or 25%

Question:54 

From the following information, calculate Proprietary Ratio: 

Solution:
Total Assets = Fixed Assets + Current Assets + Investments 
= 3,75,000 + 1,50,000 + 2,25,000 = 7,50,000 
Shareholders’ Funds = Equity Share Capital + Preference Share Capital + Reserves and Surplus 
= 3,00,000 + 1,50,000 + 75,000 = 5,25,000
Proprietary Ratio = Shareholders' Funds/Total Assets = 5,25,000/7,50,000  = 0.70:1

Question:55 

Calculate Proprietary Ratio from the following: 

Equity Shares Capital - 4,50,000 
9% Debentures -  3,00,000 
10% Preference Share Capital - 3,20,000 
Fixed Assets - 7,00,000 
Reserves and Surplus - 65,000 
Trade Investment - 2,45,000 
Creditors - 1,10,000 
Current Assets - 3,00,000 
Solution: 

Total Assets = Fixed Assets + Trade Investments + Current Assets 

= 7,00,000 + 2,45,000 + 3,00,000 = 12,45,000 

Shareholders’ Funds = Equity Share Capital + 10% Preference Share Capital + Reserves and Surplus
= 4,50,000 + 3,20,000 + 65,000 = 8,35,000 

Proprietary Ratio = Shareholders' Funds/Total Assets = 8,35,000 /12,45,000 = 0.67:1

Question:56 

From the following information, calculate Proprietary Ratio: 

                  BALANCE SHEET OF FORTUNE LTD. 

                            as at 31st March, 2019 

Solution: 

Total Assets = Fixed Assets + Short-term Investments + Inventories + Trade Receivables + Cash and Cash Equivalents 
= 5,00,000 + 1,50,000 + 1,00,000 + 1,50,000 + 1,00,000 = 10,00,000 

Shareholders’ Funds = Share Capital + Reserves and Surplus 

= 6,00,000 + 1,50,000 = 7,50,000 
Proprietary Ratio = Shareholders' Funds/Total Assets = 7,50,000 /10,00,000 = 0.75:1

Question:57 

State with reason, whether the Proprietary Ratio will improve, decline or will not change because of the following transactions if Proprietary Ratio is 0.8 : 1: 

i. Obtained a loan of  5,00,000 from State Bank of India payable after five years. 

ii. Purchased machinery of  2,00,000 by cheque. 

iii. Redeemed 7% Redeemable Preference Shares  3,00,000. 

iv. Issued equity shares to the vendor of building purchased for  7,00,000. 

v. Redeemed 10% redeemable debentures of  6,00,000. 
Solution: 

If Profit before Interest and Tax is 5,00,000 and interest on Long-term Funds is 1,00,000, find Interest Coverage Ratio. 

Solution: 

Net Profit before Interest and Tax = 5,00,000

Interest = 1,00,000
Interest Coverage ratio = Net profit before Interest and Tax/Interest
= 5,00,000 /1,00,000
= 5 times

Question:59 

From the following information, calculate Interest Coverage Ratio: Profit after Tax 1,70,000; Tax 30,000; Interest on Long-term Funds 50,000. 
Solution: 

Profit before Interest and Tax = Profit after Tax + Tax + Interest 

= 1,70,000 + 30,000 + 50,000 = 2,50,000
Interest Coverage ratio = Net profit before Interest and Tax/Interest
= 2,50,000/50,000
= 5 times

Question:60 

From the following information, calculate Interest Coverage Ratio: 

10,000 Equity Shares of 10 each - 1,00,000 

8% Preference Shares - 70,000 

10% Debentures - 50,000 

Long-term Loans from Bank - 50,000 

Interest on Long-term Loans from Bank - 5,000 

Profit after Tax - 75,000 

Tax - 9,000 
Solution:
Interest on 10% Debentures = 50,000 x 10/100 = 5000
Profit before Interest and Tax = Profit after Tax + Tax + Interest on Debentures + Interest on Long-term Loans from Bank 

= 75,000 + 9,000 + 5,000 + 5,000 = 94,000 

Total Interest Amount = Interest on Debentures + Interest on Long-term loans from Bank 
= 5000 + 5000 = 10,000
Interest Coverage ratio = Net profit before Interest and Tax/Interest
= 94,000/10,000
= 9.4 times

Question:61 

From the following details, calculate Inventory Turnover Ratio: 

Cost of Revenue from Operations Cost of Goods Sold - 4,50,000 

Inventory in the beginning of the year - 1,25,000 

Inventory at the close of the year - 1,75,000 
Solution: 
Inventory Turnover ratio = Costs of Goods Sold/Average Stock
Cost of Goods Sold = 4,50,000
Average stock = (Opening + Closing Stock)/2
= (1,25,000 + 1,75,000)/2 = 1,50,000
Inventory Turnover Ratio = 4,50,000/1,50,000 = 3 times

Question:62 

Cost of Revenue from Operations Cost of Goods Sold 

 5,00,000; Purchases 5,50,000; Opening Inventory 1,00,000. 

Calculate Inventory Turnover Ratio. 

Solution: 

Cost of Goods Sold = Opening Inventory + Purchases − Closing Inventory 

5,00,000 = 1,00,000 + 5,50,000 − Closing Inventory 

Closing Inventory = 1,50,000
Average Inventory = (Opening Inventory + Closing Inventory)/2
= (1,00,000 + 1,50,000)/2 = 1,25,000
Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory = 5,00,000/1,25,000 = 4 times

Question:63 

Calculate Inventory Turnover Ratio from the following information: 

Opening Inventory is 50,000; Purchases 3,90,000; Revenue from Operations, i.e., Net Sales 6,00,000; Gross Profit Ratio 30%. 

Solution: 

Cost of Goods Sold = Net Sales – Gross Profit 

 = Rs 6,00,000 – 30% of Rs 6,00,000 

 = Rs 6,00,000 – Rs 1,80,000 = Rs 4,20,000 

Cost of Goods Sold = Opening Inventory + Purchases – Closing Inventory 

 Rs 4,20,000 = Rs 50,000 + Rs 3,90,000 – Closing Inventory 

Closing Inventory = Rs 50,000 + Rs 3,90,000 – Rs 4,20,000 

 = Rs 20,000 
Average Stock = (Opening Stock + Closing Stock)/2 = (50,000 + 20,000)/2 = Rs 35,000
Stock Turnover Ratio = Costs of Goods sold/Average Stock = 4,20,000/35,000 = 12 times

Question:64 

Calculate Inventory Turnover Ratio from the following: 

Opening Inventory - 29,000 

Closing Inventory - 31,000 

Revenue from Operations, i.e., Sales - 3,20,000 

Gross Profit Ratio 25% 

Solution: 

Sales = 3,20,000 

Gross Profit = 25% on Sales
Therefore, Gross Profit = 3,20,000 x 25/100 = 80,000
Costs of good sold = Total sales - Gross Profit 
= 3,20,000 - 80,000 = 2,40,000
Average Inventory = (Opening Inventory + Closing Inventory)/2 = (29,000 + 31,000)/2 = Rs 30,000
Inventory Turnover ratio = Costs of Goods sold/Average Inventory = 2,40,000/30,000 = 8 times

Question:65 

From the following information, calculate Inventory Turnover Ratio: 

Revenue from Operations - 16,00,000 

Average Inventory - 2,20,000 

Gross Loss Ratio 5% 

Solution:

Cost of Revenue from Operations = Revenue from Operations + Gross Loss 

 =16,00,000+80,000 = Rs 16,80,000 
Inventory Turnover ratio = Cost of revenue from operation/Average inventory = 16,80,000/2,20,000 
= 7.64 times

Question:66 

Revenue from Operations 4,00,000; Gross Profit 1,00,000; Closing Inventory 1,20,000; Excess of Closing Inventory over Opening Inventory 40,000. Calculate Inventory Turnover Ratio. 
Solution:

Sales = 4,00,000 

Gross Profit = 1,00,000 

Cost of Goods Sold = Sales − Gross Profit 

= 4,00,000 − 1,00,000 = 3,00,000 

Let Opening Inventory = x 

Closing Inventory = x + 40,000 

1,20,000 = x + 40,000 

x = 80,000 

Opening Inventory = 80,000 
Average Inventory = (Opening Inventory + Closing Inventory)/2 = (80,000 + 1.20,000)/2 = Rs 1,00,000
Inventory Turnover ratio = Costs of Goods sold/Average Inventory = 3,00,000/1,00,000 = 3 times

Question:67 

From the following data, calculate Inventory Turnover Ratio: 

Total Sales 5,00,000; Sales Return 50,000; Gross Profit 90,000; Closing Inventory 1,00,000; Excess of Closing Inventory over Opening Inventory 20,000. 
Solution:

Cost of Goods Sold = Net Sales 

Sales– Sales Return – Gross Profit 

 = Rs 5,00,000 – Rs 50,000 – Rs 90,000 = Rs 3,60,000 

Closing Inventory = Rs 1,00,000 

Closing Inventory is Rs 20,000 more than the Opening Inventory 

Therefore, Opening Inventory = Rs 80,000 

Rs1,00,000 – Rs20,000 
Average Stock = (Opening Stock + Closing Stock)/2 = (80,000 + 1,00,000)/2 = Rs 90,000
Stock Turnover Ratio = Costs of Goods sold/Average Stock = 3,60,000/90,000 = 4 times

Question:68 

2,00,000 is the Cost of Revenue from Operations Cost of Goods Sold, during the year. If Inventory Turnover Ratio is 8 times, calculate inventories at the end of the year. Inventories at the end are 1.5 times that of in the beginning. 
Solution:
Inventory Turnover ratio = Costs of Goods sold/Average Inventory
8 = 2,00,000/Average Inventory
Average Inventory = Rs. 25,000
Let Opening Inventory = x 

Closing Inventory = 1.5*x = 1.5x 
Average Inventory = (Opening Inventory + Closing Inventory)/2 
25,000 = (x + 1.5x)/2 
2.5x = 50,000

x = 20,000
Opening Inventory = x = Rs 20,000
Closing Inventory = 1.5x = Rs 30,000

Question:69 

Calculate Inventory Turnover Ratio from the following information: 

Opening Inventory  40,000; Purchases  3,20,000; and Closing Inventory  1,20,000. 

State, giving reason, which of the following transactions would 
I. increase, ii. decrease, iii. neither increase nor decrease the Inventory Turnover Ratio: 

1. Sale of goods for  40,000 Cost 32, 000  

      b. increase in the value of Closing Inventory by  40,000. 

      c. Goods purchased for  80,000. 

      d. Purchases Return  20,000. 

      e. goods costing  10,000 withdrawn for personal use. 

      f. Goods costing  20,000 distributed as free samples. 

Solution: 

Cost of Goods Sold = Opening Stock + Purchases + Closing Stock 

= 40,000 + 3,20,000 − 1,20,000 = 2,40,000 

Average Stock = (Opening Stock + Closing Stock)/2 = (40,000 + 1,20,000)/2 = Rs 80,000
Stock Turnover Ratio = Costs of Goods sold/Average Stock = 2,40,000/80,000 = 3 times

A. Sale of goods for Rs 40,000 Cost Rs 32,000 - Increase 

Reason: This transaction will decrease stock at the end closing stock. Decrease in closing stock will result increase the proportion of Cost of Goods Sold and decrease in Average Stock 

b. Increase in value of Closing Stock by 40,000 - Decrease 

Reason: Increase in Closing Stock results decrease in Cost of Goods Sold and increase in Average Stock. 

c. Goods purchased for Rs 80,000 - Decrease 

Reason: This Transaction increases the amount of Closing Stock. Increase in Closing Stock reduces the proportion of Cost of Goods Sold and Increase in Average Stock. 

d. Purchase Return Rs 20,000 - Increase 

Reason: It will result in a decrease in Cost of Goods Sold and Average Stock with the same amount. 

e. Goods costing Rs 10,000 withdrawn for personal use - Increase 

Reason: Drawing of goods will decrease the amount of Closing Stock and increase in Cost of Goods Sold. 

f. Goods costing Rs 20,000 distributed as free sample - Increase 

Reason: Goods distributed as free samples reduces Closing Stock. Reduction in Closing Stock will result in an increase in Cost of Goods Sold and decrease in Average Stock.

Question:70 

Calculate Inventory Turnover Ratio from the data given Below: 
Inventory in the beginning of the year - 20,000 
Carriage Inwards - 5,000 

Inventory at the end of the year - 10,000 
Revenue from Operations, i.e., Sales - 1,00,000 

Purchases - 50,000 

State the significance of this ratio. 

Solution:

Cost of Goods Sold = Opening Stock + Purchases + Carriage Inwards − Closing Stock 

= 20,000 + 50,000 + 5,000 − 10,000 = 65,000
Average Stock = (Opening Stock + Closing Stock)/2 
= (20,000 + 10,000)/2 = Rs 15,000
Inventory Turnover ratio = Costs of Goods sold/Average Inventory = 65,000/15,000 = 4.33 times

Question:71 

From the following information, calculate value of Opening Inventory: 

Closing Inventory =  68,000 

Total Sales =  4,80,000 including Cash Sales 1, 20, 000 

Total Purchases =  3,60,000 including Credit Purchases 2, 39, 200 

Goods are sold at a profit of 25% on cost.  
Solution:
Let cost of goods sold be = x
Gross Profit = x*25/100 = 25x/100
Costs of good sold = Sales - Gross Profit
Or, x = 4,80,000 - 25x/100
or, x + 25/100 = 4,80,000
or, 125x/100 = 4,80,000
Or, x = (4,80,000*100)/125 = 3,84,000
Cost of Goods Sold = x = Rs 3,84,000 

Cost of Goods Sold = Opening Inventory Stock + Purchases − Closing Inventory Stock 

3,84,000 = Opening Inventory + 3,60,000 − 68,000 

Opening Inventory = 3,84,000 − 2,92,000 = Rs 92,000 

Question:72 

From the following information, determine Opening and Closing inventories: 

Inventory Turnover Ratio 5 Times, Total sales  2,00,000, Gross Profit Ratio 25%. Closing Inventory is more by  4,000 than the Opening Inventory. 

Solution: 

Sales = 2,00,000 

Gross Profit = 25% on Sales 

Gross Profit = 2,00,000 x 25/100 = 50,000
Cost of Goods Sold = Total Sales − Gross Profit 

= 2,00,000 − 50,000 = 1,50,000 

Inventory Turnover ratio = Costs of Goods sold/Average Inventory 
5 = 1,50,000/Average Inventory 
Average Inventory = 30,000
Let Opening Inventory = x
Closing Inventory = x + 4,000 
Average Inventory = (Opening Inventory + Closing Inventory)/2 
30,000 = (x + x + 4000)/2 
60,000 = 2x + 4,000
x = 28,000
Opening Inventory = x = Rs 28,000
Closing Inventory = x + 4000 = 28,000 + 4000 = Rs 32,000

Question:73 

Following figures have been extracted from Shivalika Mills Ltd.: 

Inventory in the beginning of the year  60,000. 

Inventory at the end of the year  1,00,000.  

Inventory Turnover Ratio 8 times. 

Selling price 25% above cost. 

Compute amount of Gross Profit and Revenue from Operations Net Sales.

Solution: 
Average Inventory = (Opening Inventory + Closing Inventory)/2 
= (60,000 + 1,00,000)/2
= 80,000
Inventory Turnover ratio = Costs of Goods sold/Average Inventory 
8 = Costs of Goods sold/80,000 
Costs of Goods sold = Rs. 6,40,000
Gross profit  = 25% on Cost
Therefore, Gross Profit = 6,40,000 x 25/100 = 1.60,000
Sales = Cost of Goods Sold + Gross Profit 
= 6,40,000 + 1,60,000 = 8,00,000

Question:74 

Inventory Turnover Ratio - 5 times; Cost of Revenue from Operations Cost of Goods Sold - 18,90,000. Calculate Opening Inventory and Closing Inventory if Inventory at the end is 2.5 times more than that in the beginning. 

Solution: 

Inventory Turnover ratio = Costs of Goods sold/Average Inventory 
5 = 18,90,000/Average Inventory
Average Inventory = Rs. 3,78,000
Let Opening Inventory = x 
Closing Inventory = 2.5x + x = 3.5x
Average Inventory = (Opening Inventory + Closing Inventory)/2 
3,78,000 = (x + 3.5x)/2
x = 1,68,000
Opening Inventory = x = Rs 1,68,000
Closing Inventory = 3.5x = 3.5*1,68,00 = Rs 5,88,000

Question:75 

 3,00,000 is the Cost of Revenue from Operations Cost of Goods Sold 
Inventory Turnover Ratio 8 times; Inventory in the beginning is 2 times more than the inventory at the end. Calculate value of Opening and Closing 
Solution:
Inventory Turnover ratio = Costs of Goods sold/Average Inventory 
8 = 3,00,000/Average Inventory 
Average Inventory = Rs. 37,500
Let Closing Inventory = x
Opening Inventory = 2x + x = 3x 
Average Inventory = (Opening Inventory + Closing Inventory)/2 
37,500 = (3x + x)/2
x = 18,750
Closing Inventory = x = Rs 18,750
Opening Inventory = 3x = 3 ×18,750 = Rs 56,250