Beruflich Dokumente
Kultur Dokumente
SECTION A
1. A Ratio is a _______
a) Journal Entry b) Business Transaction
c) Relationship between two items d) Published document
6. A Ratio is expressed in
a) Rupees b) Weights
c) Proportion d) Numbers
SECTION – B
REASONING QUESTIONS
Current Ratio 2.8 Liquidity Ratio 1.5; Working Capital Rs.1,62, 000
Soultion:
a) CURRENT LIABILITY
Let us take CL as x
WC=CA-CL
162000=2.8x-1.0x
1 62000=1.8x
X=162000/1.8
= 90000
=LIQUID ASSET/CL
1.5=LA/90000
= 90000*1.5
=1,35,000
2. . Following are the ratios to the trading activates of ABC limited, for the year ended
31.12.2014
25%=400000/SALES
SALES = 400000*100/25
=1600000
b) SUNDARY debtors
=400000
=400000-25000
= 375000
c) CLOSING STOCK
AVG STOCK=1200000*6/12
= 600000
AVG STOCK=OPENING STOCK +CLOSING STOCK /2
= 595000
=605000
3. The Directors of General Cloth Mills Limited are concerned at the persistent decline in their
gross profit rates for the last three years .You are required to list the possible reasons for the
decline.
Soultion:
The type of industry and market segments have a major impact on the gross profit margin of
businesses. The competitive environment within an industry segments influence the selling
price, cost of factors of production and the cost structure of businesses as discussed below.
Selling price is influenced by a number of factors such as:
Product differentiation
Number of competitors
Pricing strategies
Cost of factors of production can vary due to several reasons such as:
Inflation
Lower proportion of fixed costs and overheads in the organization's cost structure
Minimization of waste
Automation
Debt to equity ratio The level of gearing directly affects the proportion of interest expense
deducted from profits. Taxation Tax expense is affected by the following factors:
Non-recurring
gains and losses GP Margin of specific accounting periods can be affected by non-recurring
gains and losses such as:
4. Opening stock Rs.29, 000; Closing stock Rs.31000;Purchases Rs.2,42,000. Calculate Stock
Turnover Ratio
Soultion:
29000+31000/2
= 30000
=29000+242000-31000
=240000/30000
= 8 TIMES
=30000/5500
= 5.45 DAYS
__________
= 67 DAYS
DESCRIPTIVE QUESTIONS
1. What is Ratio Analysis? Explain the steps involved in Ratio Analysis?
The first task of the financial analysis is to select the information relevant to the decision under
consideration from the statements and calculates appropriate ratios. To compare the calculated
ratios with the ratios of the same firm relating to the pas6t or with the industry ratios. It
facilitates in assessing success or failure of the firm. Third step is to interpretation, drawing of
inferences and report writing conclusions are drawn after comparison in the shape of report or
recommended courses of action.
Ratios are tools of quantitative analysis, which ignore qualitative points of view.
3. Ratios give false result, if they are calculated from incorrect accounting data.
4. Ratios are calculated on the basis of past data. Therefore, they do not
provide complete information for future forecasting.
Solution:
90000 = 2.5-1
90000 = 1.5
=60000
4. Ram & co supplies you the following information regarding the year ended 31 st
December2015 Find out Debtors collection period.
Solution:
Drs+B/R
= 90000
90000
500000
= >66 days
5. Aruna Ltd. Furnish the following details for the year 2015. Calculate Gross profit ratio:
Particulars Rs.
Sales 2,00,000
Cost of production 80,000
Opening stock 50,000
Closing stock 31,000
Sales return 20,000
Solution:
Sales = 200000
= 200000
CGS = OS+P-C
= 50000+80000-31000
CGS = 99000
99000
G/P = X 100
180000
G/P = 55
6. From the following information to find out a) Gross Profit Ratio andb) Operating Profit
Ratio:
Sales: Rs .8 crores;
Cost of goods sold : Rs.4 crores;
Selling and administrative overhead expenses: Rs.2crores
Solution:
Elastration of G/P(Rs in crores )
8 -4
G/P =>4
G/p
Net sales
4/8
operating profit
Net sales
8 -(4+2)
8 -6
2 = operating profit
=>25%
7. Calculate current ratio, when inventory is Rs.80, 000, prepaid expenses are Rs.2, 000; quick
ratio is 2.5 to 1 and current liabilities are Rs.50,000
Solution:
QR= QA/CL
QR= QA/50,000
2.5= QA/50,000
QA= 1,25,000
1,25,000 = CA – 82,000
1,25,000 + 82,000 = CA
2,07,000 = CA
CR = CA/CL
CR= 2,07,000/50,000
CR = 4.14
8. Current liability of a company is Rs. 3,00,000. If current ratio is 3: 1 and quick ratio is 1:1
calculate the value of stock in trade.
Solution:
CR = CA/CL
3 = CA/30,000
CA = 30,000 x 3
CA = 90,000
QR = QA/CL
1 = QA/30,000
QA = 30,000 x 1
QA = 30,000
QA = CA – Stock
Stock = 60,000
Particulars Rs.
Total Sales 1,00,000
Cash Sales (included in total sales) 20,000
Sales Returns 7,000
Total Debtors at the end of the year 11,000
Bills Receivable 4,000
Bad debts provision 1,000
Creditors 10,000
Solution:
80000
Drs + B/R
11000+4000
______________ X 365
73000
10. From the following information calculate creditors’ turnover ratio and average payment period:
Particulars Rs.
Total Purchase 4,00,000
Cash purchases (included in above) 50,000
Purchase Returns 20,000
Creditors at the end 60,000
Bills Payable at the end 20,000
Reserve for discount on Creditors 5,000
Take 365 days in a year 5,000
Solution:
Calculation of net purchase
330000
80000
= X No of working days
80000
= X 365
330000
APP = 88 days
SECTION – C
REASONING QUESTIONS
1. The following information is given about M/s. S.P. Ltd for the year ending Dec. 31, 2014
________________________________________________________________________
i. Stock Turnover ratio = 6 times
ii. Gross Profit Ratio = Rs.20% on sales
iii. Sales for 2014 = Rs. 3,00,000
iv. Closing stock is Rs. 10,000 more than the opening stock
v. Opening Creditors = Rs. 20,000
vi. Closing Creditors = Rs.30,000
vii. Trade Debtors at the end = Rs. 60,000
viii. Net working Capital = Rs.50,000
Find out the following:
(a) Average Stock (b) Purchases (b) Creditors Turnover Ratio (d) Average
Payment Period (e) Average Collection Period (f) Working Capital Turnover Ratio
Soultion:
1)
300000-(20%OF SALES )
= 300000-60000
=240000
a)AVERAGE STOCK
6 =240000/AVERAGE STOCK
=40000
b) PURCHASE
= 35000
=45000
PURCHASES= 240000+45000-35000
=250000
=10 TIMES
D) AVG PAYMENT PERIOD =AVG TRADE CREDITORS * N0: OF WORKING DAYS /NET ANNUAL
PURCHASE
=25000/250000*365
=36.5 OR 37 DAYS
E)AVERAGE COLLECTION PERIOD = AVG TRADE DEBTORS *NO: OF WORKING DAYS /NET
ANNUAL SALES
60000*365/300000
=73 DAYS
F) WORKING CAPITAL
=240000/50000=4.8 TIMES
2. With the following ratios and further information given below, prepare a Trading Account
Profit and Loss A/c and Balance sheet of Shree &co
Gross profit Ratio : 25% Fixed Assets /Total current Assets :5/7
Fixed Assets :Rs.10, 00,000 Closing Stock :1,00,000
Net profit /Sales :20% Stock turnover Ratio: 10
Net profit / Capital : 1/5 Capital to Total liabilities: 1/2
Fixed Assets / Capital :5/4
Soultion:
10=60000/AVG STOCK
AVG STOCK =60000
=20000
900000 900000
200000 200000
2400000 240000
Soultion:
Analysis refers to the methodical classification of the data given the financial statement.the
term interpretation means explaining the meaning and signification of the data so arranged
.it is the the study of the relationship between various financial factors
4. From the following details prepare statement of proprietary funds with as many details as
possible.
Soultion:
CALCULATION OF SALES:
SINCE G/P RATIO IS 20% AND GROOS PROFIT IS RUPEES 60000 , SALES ARE
400000
20/100 = 60000/SALES
300000
CALCULATION OF PURCHASE
= 240000
PURCHASE =240000+5000=245000
CALCULATION OF STOCK:
6= 240000/AVG STOCK
=37500
=37500+5000
=42500
CALCULATION OF DEBTORS =
=50000
CALCULATION OF CREDITORS
73=TOTAL CREDITORS/245000*365
365*TOTAL CREDITORS=245000*73
TOTAL CREDITORS=245000*73/365
=49000
CALCULATIO OF FIXED ASSET
=60000
CALCULATIN OF CAPITAL
2=24000/CAPITAL
2*CAPITAL=240000
CAPITAL=120000
=120000-20000
=100000
BALANSE SHEET
169000 169000
Soultion:
1)SALES :
SALES IS 100%
GP IS 25%
100/25*400000
=1600000
2)DEBTORS :
400000-B/R
=375000
=1200000
3) CLOSING STOCK:
=800000
=795000
=805000
4)
=1200000+805000-795000
=1210000
201667-10000(B.F) =191667
DESCRIPTIVE QUESTIONS
1. Explain briefly the different ratios that are commonly used in financial statement analysis.
2. What is meant by Ratio Analysis? Discuss the Uses and Significance of Ratio analysis
1. Decision Making:
Planning and forecasting can be done only by knowing the past and the present. Ratio help the
management in understanding the past and the present of the unit. These also provide useful
idea about the existing strength and weaknesses of the unit. This knowledge is vital for the
management to plan and forecast the future of the unit.
3. Communication:
Ratios have the capability of communicating the desired information to the relevant persons in a
manner easily understood by them to enable them to take stock of the existing situation:
4. Co-ordination is Facilitated:
Being precise, brief and pointing to the specific areas the ratios are likely to attract immediate
grasping and attention of all concerned and is likely to result in improved coordination from all
quarters of management.
System of planning and forecasting establishes budgets, develops forecast statements and lays
down standards. Ratios provide actual basis. Actual can be compared with the standards.
Variances to be computed an analyzed by reasons and individuals. So it is great help in
administering an effective system of control.
Existing as well as prospective owners or shareholders are fundamentally interested in the (a)
long-term solvency and (b) profitability of the unit. Ratio analysis can help them by analyzing
and interpreting both the aspects of their unit.
Creditors may broadly be classified into short-term and long term. Short-term creditors are
trade creditors, bills payables, creditors for expenses etc., they are interested in analyzing the
liquidity of the unit. Long-term creditors are financial institutions, debenture holders, mortgage
creditors etc., they are interested in analyzing the capacity of the unit to repay periodical
interest and repayment of loans on schedule. Ratio analysis provides, both type of creditors,
answers to their questions.
Usefulness to Employees:
Employees are interested in fair wages: adequate fringe benefits and bonus linked with
productivity/profitability. Ratio analysis provides them adequate information regarding efficiency
and profitability of the unit. This knowledge helps them to bargain with the management
regarding their demands for improved wages, bonus etc.
Govt. is interested in the financial information of the units both at macro as well as micro levels.
Individual unit's information regarding production, sales and profit is required for excise duty,
sales tax and income tax purposes. Group information for the industry is required for
formulating national policies and planning. In the absence of dependable information, Govt.
plans and policies may not achieve desired results.
3. From the following information make out a statement of proprietors funds with as
many details as possible.
Current Ratio 2.5: Liquid Ratio 1.5: Proprietary Ratio (Fixed assets /Proprietary fund): 0.75
Working Capital Rs.60,000 Reserves and surplus Rs.40,000Bank overdraft Rs.10,000
There is no long term loan or fictitious asset.
Solution:
60,000 = 1.5X
Calculation of Stock
= 1.5(given)
.25X = 60,000
X = Rs.2, 40,000
Calculation of Capital
4. From the following information given below, You are required to prepare a Balance sheet of
Shree &co
Particulars Rs
I Equity and Liabilities
Equity share capital 3,00,000
9% Preference share capital 1,00,000
Reserves and surplus 50,000
Non Current Liabilities:
10% Debentures 2,00,000
Long Term Loans 25,000
Current Liabilities 2,25,000
Total 9,00,000
II Assets
Non-current Assets:
Fixed Assets 6,00,000
Investments 50,000
Current Assets 2,50,000
Total 9,00,000
(i)Debt - Equity Ratio - (Long - Term Debt to Equity)(ii) Proprietary Ratio (iii) Solvency Ratio
(iv) Fixed Assets to Proprietors Funds Ratio(v) Fixed Assets Ratio(vi) Current Assets to
Proprietors Funds Ratio
Solution:
=Rs 2,25,000
=Rs 3,00,000+1,00,000+50,000
=Rs4,50,000
=1: 2
= Rs4,50,000/9,00,000
=0.50 or 50%
=Rs2,00,000+25,000+2,25,000/Rs
9,00,000
=Rs4,50,000/9,00,000
=0.50 or 50%
=6,00,000/4,50,000
=1.33 or 1.33.33%
=6,00,000/4,50,000+2,25,000=6,00,000/6,75,000
=2,25,000/4,50,000
6.Pearl Ltd gives you the following Balance Sheet for the year ending December 31, 2015
BALANCE SHEET
(a) Debt - Equity Ratio (b) Funded Debt to Total Capitalization(c) Proprietary Ratio
(d) Solvency Ratio(e) Fixed Assets to Net worth Ratio(f) Current Assets to Proprietors Funds
Ratio.
Solution:
= 300000
= 450000
= 0.67
b) Funded Debt to total equilisation = funded debt (longterm debt)*100 / Total capitalization
= 220000
= 670000
= 0.33
= 300000
= 0.4
= 450000 / 750000
= 0.6
FA = 50000+250000+70000
= 370000
= 370000 / 450000
f) CA to proprietor’s fund
CA = 20000+125000+65000+20000
CA = 230000
= 0.51
7. From the following particulars extracted from the financial statements of XYZ Ltd. compute
(a) Current Ratio (b) Liquid Ratio (c) Inventory Turnover Ratio (i) Net Sales/Average Inventory and(ii)
Cost of Goods Sold/Average Inventory (d) Debtors Turnover Ratio (e) Creditors Turnover Ratio
a)current ratio = CA / CL
CA = CS+Drs+Cash+Bank+BillsReceivable+Marketable securities
CA = 53000+42000+10000+8000+15000+8000
CA = 136000
= 32000+2000+15000+29000
CL = 78000
= 1.74 times
b)QR = QA / CL
QA = CA-Stock
= 136000-53000
QA = 83000
QR = 83000 / 78000
LR (or) QR = 1.06
= 47000+53000 / 2
= 47000+180000-53000
CGS= 174000
=174000 / 50000
=42000+15000
= 252000 / 57000
DTR = 4.42
= 32000+29000
CGS = OS+P-CS
174000 = 47000+P-53000
174000-47000+53000 = P
P = 180000
= 180000 / 61000
CTR = 2.95
8. Following is the Profit and Loss Account of Electro Matrix Ltd for the year ended 31 st
December 2015.
(Dr) Rs Rs (Cr)
Solution:
Alternatively, Net Profit Ratio =Net Operating Profit / Net Sales X 100
=1,00,000+3,50,000+9,000-1,00,000=Rs 3,59,000
9. Rearrange the following statement in a form suitable for analysis and calculate 5 significant
ratios to analyze the financial trend of the business.
Solution:
Current Ratio
CR = CA / CL
I Year
= 15380+11260+56160
CA = 82800
CL = Creditors + BP
= 20000+12750
= 32750
CR = 82800 / 32750
= 2.53:1
II Year
CA = 26020+11210+50460
CA = 87730
CL = 16500+6500
=23000
CR = 87730 / 23000
= 3.81:1 times
Current ratio of the firm for the first year and second year are satisfied when compare
with standard normal.
Liquid Ratio
LR = LA / CL
I Year
LA = CA-Stock
= 82800-56160
= 26640
LR = 26640 / 32750
LR = 0.81:1
II year
LA = 87730-50460
LA = 37270
LR = 37270 / 23000
= 1.62:1
The liquid ratio of the firm in the first year is not satisfied and the second year shows
good symptom.
I Year
= 100000+12750+20000
Debt = 132750
= 100000+67250
= 132750 / 167250
II year
Debt = 16500+6500+100000
= 123000
Equity = 84500+100000
= 184500
= 0.67
Debt-equity ratio shows decreased when compare with I year. It shows poor situation
I Year
= 167250 / 300000
FA ratio = 2.17
FA ratio = 2.20
FA ratio of the company has increased from the first year to second year.
Solution:
CR = CA / CL
CA = Stock+Drs+Tradeinvestments+cash
= 60000+40000+30000+10000
=140000
= 12000+20000+2000+26000
= 60000
CR = 140000 / 60000
CR = 2.33:1
LR = LA / CL
LA = CA-Stock
= 140000-60000
= 80000
LR = 80000 / 60000
= 1.33:1
=100000+20000+80000
= 200000
= 0.5:1
= 140000+12000+20000+2000+26000
= 200000
Equity (or) proprietor’s funds = 200000
= 200000 / 200000
FA to proprietor’s funds = FA / PF
= 260000 / 200000
FA to PF ratio = 1.3:1
Interest coverage ratio = N/P (before Interest and taxes) / Fixed interest charges
= 140000*6%
= 8400
= 4.76 times
= 200000 / 400000
= 0.5:1