MANAGEMENT ACCOUNTING

CHAPTER 3: RATIO ANALYSIS

QUESTION BANK
1. Given: Current Ratio = 2.8 Acid-test ratio = 1.5 Working Capital = Rs. 1, 2,!!! "ind out: #a$ Current Assets #%$ Current &ia%ilities #c$ &i'uid Assets 2.Given: Current Ratio 2.5 &i'uidit( Ratio 1.5 Working Capital Rs. !,!!! Calculate: #a$ Current &ia%ilities #%$ Current Assets #c$ &i'uid Assets #d$ )tock *. "ind out Current Assets #a$ W+en current ratio is 2., and -orking capital is Rs. 1,,!,!!!. #%$ Calculate #i$ current assets, #ii$ li'uid assets #iii$ inventor(, -+en current lia%ilities are Rs. 8!,!!!, current ratio is 2:1, li'uid ratio is 1.5:1, and prepaid e.penses are Rs. 2,!!!. #c$ Calculate current lia%ilities o/ a %usiness concern -+ose current ratio is 2.2, li'uid ratio 1.,, inventor( Rs. ,!,!!! and prepare e.penses are nil. ,. #a$ 0/ Apple Co1pan( &td2s Current ratio is 5.5:1, 3uick ratio is , to 1. 0nventor( is Rs. *!,!!!, -+at are its Current lia%ilities4 #%$ 0/ 5range Co1pan( &td2s inventor( is Rs. !,!!!, total current lia%ilities are Rs. 1,2!,!!!, 3uick ratio is 2 to 1, calculate Current ratio. #c$ 0/ 67 Co1pan( &td2s Current lia%ilities are Rs. 25,!!!, 3uick ratio is 1.5:1, inventor( is Rs. 12,5!!, calculate current assets.

5. Calculate li'uidit( ratio /ro1 t+e /ollo-ing in/or1ation and co11ent on t+e1:
Balance Sheet of Nariman Ltd. As on 31st March, 2000 Liabilities Equity Share Capital $% &ebentures Lon)+term &ebts Ban. /0erdraft Sundry Creditors Bills ,ayable Liability for 1a4 Rs. 6, *, $(, 6 , ' , * , , , ',( , Assets !ood"ill Land and Buildin) ,lant and -achinery 1rade 2n0estments Sundry &ebtors Bills Recei0ables Cash in 5and Cash at Ban. Stoc. ,repaid E4penses #','(, Rs. #, ', ', 3 , ( , 6 , #, , (, #','(, , , , *,' ,

#,( ,

. ).8. &td. supplies t+e /ollo-ing in/or1ation /or t+e accounting (ear. 1999-2!!!.
1otal sales Returns 2n"ard Stoc. in the be)innin) of the year Stoc. in the end of the year !ross profit for the year ',( , * , 3 , *6, 66

:ou are re'uire to calculate: #a$ 0nventor( turnover Ratio. #%$ 0nventor( Conversion ;eriod <. "ro1 t+e /ollo-ing in/or1ation deter1ine opening = closing stocks: )tock turnover 5 ti1es >otal sales Rs 2,!!,!!! Gross pro/it 25? o/ sales >+e value o/ closing stock is 1ore %( Rs ,,!!! t+an t+e value o/ opening stock. 8. Rate o/ gross pro/it is 25? on cost. >otal sales Rs 5,!!,!!!. Average stock Rs

8!,!!!. Calculate stock turnover ratio.

9. 6r(son &td provides /ollo-ing in/or1ation:

,articular Credit Sales Cash sales Return in"ards 1rade debtors in the be)innin) 1rade debtors at the end Bad debts pro0ision Rs. *,$ , #,( * , ((, 3(, (, ,

Calculate de%tors turnover ratio = average collection period 1!. Calculate average pa(1ent period >otal purc+ases Cas+ ;urc+ases ;urc+asers returns Creditors at t+e end @ills pa(a%le at t+e end Reserve /or discount on creditors >ake * 5 da(s in a (ear. *,!!,!!! *!,!!! 51,!!! 1,!5,!!! !,!!! 8,!!!

11. :ou are suppl( -it+ t+e /ollo-ing in/or1ation /ro1 t+e records o/ 8As. Anand ;ra%+at &td. /or t+e (ear ending *1, 1999.
1rade &ebtors at the end of the year 1rade Creditors in the be)innin) of the year 1rade Creditors at the end of the year Net "or.in) Capital Stoc. turno0er ratio Sales for the year #666 !ross profit ratio 6 , *(, 3(, #,* , (. 1imes (, , * % sales on

Calculate: #a$ Average )tock. #%$ Average ;a(1ent ;eriod. #c$ Credit turnover Ratio. #d$ ;urc+ases. #e$ Average Collection ;eriod. #/$ Working capital turnover ratio. #*. 1he ratios related to Cosmos Ltd. Are )i0en as follo"s7
!ross ,rofit Ratio #(% Stoc. 0elocity 6 months &ebtors 0elocity ' months Creditors 0elocity ' months !ross ,rofit for the year endin) '#st &ecember #666 amounts to Rs.6 , stoc. is equal to openin) stoc.. 8ind out7 i9 Sales ii9 Closin) stoc. iii9 Sundry &ebtors i09 Sundry Creditors

. Closin)

#'. 8ollo"in) is the ,rofit and Loss Account and Balance Sheet of a company. Redraft them for the purpose of analysis and calculate the follo"in) ratios7 a. !ross ,rofit Ratio b. /0erall ,rofitability Ratio c. Current Ratio d. Liquidity Ratio e. Stoc. 1urno0er Ratio f. &ebt : Equity Ratio ,rofit and Loss A;c 1o openin) stoc. of finished )oods 1o openin) stoc. of ra" materials 1o purchases of ra" material 1o manufacturin) e4penses 1o administrati0e e4penses 1o sellin) and distribution e4penses 1o loss on sale of plant 1o interest on debentures 1o net profit By Sales # , (, ', *, #, , , , , , By closin) stoc. of ra" material By closin) stoc. of finished )oods By ,rofit on sale of shares #,( , #, , ( , # , ,

( , *(, # , 3,#(, 1,30,00,000 Rs. #, #, #, *, #, Assets 8i4ed Assets Stoc. of Ra" -aterial Stoc. of 8inished !oods Sundry &ebtors Ban. Balance

1,30,00,000 Rs. *,( #,( #, #, (

Balance sheet Liabilities Equity share capital ,reference share capital Reser0e &ebentures Sundry Creditors

, , , , ,

, , , , ,

Bills ,ayable

( ,

6,50,000 1,. "ro1 t+e /ollo-ing calculate interest coverage ratio: ;ro/it a/ter c+arging interest on de%entures = ta. = Rs 25,!!! 0nterest c+arged = Rs 5,!!! ;rovision o/ ta. = Rs 1!,!!!

6,50,000

15. ;earl &td gives (ou t+e /ollo-ing %alance s+eet /or t+e (ear ending 6ece1%er *1, 2!!5 &ia%ilities Rs Assets Rs 2,5!! e'uit( s+ares o/ rs 1!! eac+ /ull( paid up 2,5!,!!! &and = %uildings ,,5!,!!! 2,!!! 8? pre/erence s+ares o/ Rs 1!! eac+ /ull( paid 2,!!,!!! ;lant = 1ac+iner( ,,!!,!!! Reserves 2,!!,!!! )tock 1,5!,!!! *!!!, 9? de%entures o/ Rs 1!! eac+ *,!!,!!! )undr( de%tors 1,!!,!!! Current lia%ilities 2,!!,!!! Cas+ = %ank ,5,!!! ;repaid e.penses 5,!!! 11,5!,!!! 11,5!,!!! Calculate: 1$ 2$ *$ ,$ 5$ $ 6e%t B'uit( Ratio "unded 6e%t to >otal Capitalisation ;roprietar( Ratio )olvenc( Ratio "i.ed Assets to Cet Wort+ Ratio Current Assets to ;roprietors "unds Ratio t+e >rading = ;ro/it = &oss Account o/ a concern /or t+e (ear Rs < ,25! *,15,25! <,!!! 2,!!,!!! 5,98,5!! ;articulars @( sales @( closing stock Rs 5,!!,!!! 98,5!! 5,98,5!! @( gross pro/it %Ad @( non D operating 5 2,!!,!!!

1 . >+e /ollo-ing is ending *1A12A2!! ;articulars >o opening stock >o purc+ases >o /actor( e.penses >o gross pro/it cAd

>o ad1inistrative e.penses 1,!1,!!! >o selling = distri%ution

e.penses 12,!!! inco1e ,!!! >o non-operating e.penses 9,!!! >o net pro/it 8,,!!! 2,! ,!!! 2,! ,!!! :ou are re'uired to calculate: a$ B.penses ratio #all$ %$ gross pro/it ratio c$ operating ratio d$ operating pro/it ratio e$ net pro/it ratio. 1<. "ro1 t+e /ollo-ing in/or1ation, 1ake out a state1ent o/ proprietor2s /unds -it+ as 1an( details as possi%le: Current Ratio 2 &i'uid Ratio 1.25 ;roprietar( Ratio #"i.ed assetsA;roprietor2s /unds$ !. ! Working Capital 5!,!!! Reserves = )urplus 25,!!! @ank 5verdra/t #&i'uid &ia%ilit($ 1!,!!! >+ere is no &ong ter1 loan or /ictitious asset. 18. <ith the help of follo"in) ratios and further information complete the 1radin) Account,
,rofit and Loss Account and Balance Sheet of Rama = Co !ross ,rofit Ratio * % Net ,rofit Ratio *(% Sales ; 2n0entory Ratio 6 8i4ed Assets ; 1otal current assets *;* 8i4ed Assets ; 1otal capital ';* Capital ; 1otal outside liabilities *;3 8i4ed Assets Rs.* , , Closin) stoc. Rs.', , 1radin) = ,rofit and Loss A;c 1o cost of sales 1o )ross profit 1o e4penses 1o net profit >>>> >>>> 1otal >>> >>> 1otal By Sales >>> 1otal By !ross ,rofit >>> 1otal

Liabilities Capital Balance Add.Net ,rofit 1otal Liabilities

Rs. >>>> >>>>

Balance sheet Assets 8i4ed Assets >>>> Current Assets >>>> Stoc. /ther Current Assets

Rs. >>>> >>>> >>>> >>>>

1otal

1otal

19. Esing t+e /ollo-ing data, co1plete t+e %alance s+eet %elo-: Gross ;ro/it #2!? o/ sales$ !,!!!

)+are+olders2 e'uit( Credit sales to total sales >otal assets turnover #salesAtotal assets$ 0nventor( turnover #to cost o/ sales$ Average collection period #* ! da(s a (ear$ Current Ratio &ong ter1 de%t to B'uit(

5!,!!! 8!? * ti1es 8 ti1es 18 da(s 1. ,!?

Liabilities Creditors Lon) term debt Shareholders? Equity

Rs. >>>> >>>>

Balance sheet Assets Cash >>>> &ebtors >>>> Stoc. 8i4ed Asset

Rs. >>>> >>>> >>>> >>>>

1otal

1otal

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