(a)From the following information, compute Debt-Equity Ratio:

Long Term Borrowings 2,00,000
Long Term Provisions 1,00,000
Current Liabilities 50,000
Non-Current-Assets 3,60,000
Current - Assets 90,000

(b) The current ratio of X. Ltd is 2:1. State with reason which of the following transaction could (i) increase; (ii) decrease or (iii) not change the ratio.
(1) Included in the trade payables was a bills payable of Rs 9,000 which was met on maturity.
(2) Company issued 1,00,000 equity shares of Rs 10 each to the Vendors of machinery purchased.


(a) Debt- Equity Ratio = Long term Debt/ Share holder’s fund or Debt/ Equity.
Debt = 200000 + 100000 (borrowings+ provisions) = Rs 3,00,000
Equity = Current Assets + Non Current Assets –debts - Current Liabilities= 90,000+3,60,000-3,00,000—50,000  =   Rs 1,00,000

(b)
(1) A bill payable of Rs 9,000 was met on maturity:
a) Trade Payables will reduce by Rs 9,000 (liability reduced)
b) Cash will reduce by Rs 9,000 (asset reduced)
This simultaneous decrease in both current assets and current liabilities leads to increase in ratio.
(2) Issue of shares of Rs 10,00,000 to vendor of Machinery will affect the following:
Neither Current Assets nor Current Liabilities are changing hence no change in the ratio.

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Compute Debt Equity Ratio using the following information:

Particulars Amount (RS.)
Total Assets 3,50,000
Total Debts 2,50,000
Current Liabilities 80,000

b) Debt Equity Ratio = Debts/ Equity
Debt = Total Debt – CL         
        = 2,50,000 – 80,000 = 1,70,000
Equity = Total Assets – Total Debts          
        = 3,50,000 – 2,50,000 = 1,00,000
Debt Equity Ratio =   1,70,000/1,00,000=1.7:1  

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O.M. Ltd has a Current Ratio of 3.5:1 and Quick Ratio of 2:1. If the excess of Current Assets over Quick Assets as represented by Stock is Rs 1,50,000, calculate Current Assets and Current Liabilities.


Current ratio= current assets/current liabilities=3.5
Current assets =3.5 current liabilities 
Quick ratio= quick assets/ current liabilities=2
Quick assets= current assets- stock
(3.5 current liabilities-150000)/current liabilities=2
3.5 current liabilities-150000=2 current liabilities
3.5 Current liabilities-2 current liabilities = 150000
1.5 current liabilities= 150000
Current liabilities = 150000/1.5= 100000
Current assets=3.5*100000=350000

1995 Views

On the basis of the following information, calculate:

(i) Debt-Equity Ratio and

(ii) Working Capital Turnover Ratio

Information:                                                                            Rs.

Net Sales                                                                          60,00,000

Cost of goods sold                                                              45,00,000

Other current assets                                                          11,00,000

Current liabilities                                                             4,00,000

Paid up share capital                                                          6,00,000

6% Debentures                                                                 3,00,000

9% Loan                                                                           1,00,000

Debenture Redemption Reserve                                          2,00,000

Closing Stock                                                                   1,00,000 


(i) Debt Equity ratio = (Debt / Equity)    = 4,00,000 / 8,00,000  =   0.5 : 1
Debt =( 6% Debentures + 9% Loan)    =  Rs. 3,00,000   + Rs.1,00,000 = Rs. 4,00,000
Equity = (Paid up Share Capital + Debenture Redemption Reserve) = Rs.6,00,000 +Rs. 2,00,000 = Rs.8,00,000

 

(ii) Working Capital Turnover Ratio = (Cost of goods sold / Working Capital) OR    (Net Sales / Working Capital)
                                   = 45,00,000 / 8,00,000         or   60,00,000 / 8,00,000
                                   = 5.63 times                         or   7.5 times

Working capital =    (Other Current Assets + Closing Stock - Current Liabilities)
= Rs. 11,00,000 + Rs.1,00,000 – Rs.4,00,000=   Rs. 8,00,000

 

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Compute Working Capital Turnover Ratio using the following information:

Particulars Amount (Rs)
Cash Sales 1,30,000
Credit Sales 3,80,000
Sales Returns 10,000
Liquid Assets 1,40,000
Current Liabilities 1,05,000
Inventory 90,000


Working capital Turnover ratio = Net sales/Working capital.
Net sales = Total sales - sales return
               (1,30,000 + 3,80,000) – 10,000 = 5,00,000
Working capital = Current assets - current liabilities
                     = (1,40,000 + 90,000) - 1,05,000 = 1,25,000
Working capital turnover ratio = 5,00,000/1,25,000 = 4 times.

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