Solution

Class 12 - Accountancy

Exam Revision Sheet Ratio Analysis Hw Sheet

1. Let Current Liabilities = x
So, Quick Assets = 2x
And Current Assets = 3.5x
Inventory = Current Assets - Quick Assets
1,50,000 = 3.5x - 2x
1,50,000 = 1.5x
1,50,000
=x
1.5

x = Rs. 1,00,000
Current Liabilities = Rs. 1,00,000
Current Assets = 3.5 x 1,00,000 = Rs 3,50,000
Total Assets
2. Total Assets to Debt Ratio =
Debt

Current Liabilities = Current Assets - Working Capital

= ₹ 15,00,000 - ₹ 9,00,000 = ₹ 6,00,000
Debt or Long term Debts = Total Debt - Current Liabilities
= ₹ 30,00,000 - ₹ 6,00,000 = ₹ 24,00,000
Total Assets = Total Debt + Shareholder’s Funds
= ₹ 30,00,000 + ₹ 12,00,000 = ₹ 42,00,000
₹42,00,000
Total Assets to Debt Ratio = = 1.75:1
₹24,00,000
3. Cost of Revenue from Operations = Revenue from Operations (Sales) + Gross Loss
= ₹ 6,00,000 + 10% of ₹ 6,00,000
= 6,60,000
Cost of Revenue from Opening = Opening Inventory + Purchases + Carriage Inwards - Closing Inventory
₹ 6,60,000 = ₹ 80,000 + ₹ 6,45,000 + ₹ 20,000 - Closing Inventory
Closing Inventory = ₹ 7,45,000 - ₹ 6,60,000
= ₹ 85,000
Opening Inventory + Closing Inventory
Average Inventory = 2
₹80,000+₹85,000
= = ₹82, 500
2
Cost of Revenue from Operations
Inventory Turnover Ratio =
Average Inventory

₹6,60,000
= = 8 times
₹82,500
4. Gross Profit is 1/4th of cost. Therefore, goods costing ₹ 100 is sold for ₹ 125.
100
Cost is × 2, 00, 000 = ₹ 1,60,000
125
Cost of Revenue from Operations ₹1,60,000
Average Inventory = = = ₹ 32,000
Inventorv Turnover Ratio 5
1
Opening Inventory = ₹ 32,000 - 2
of 5,000 = ₹ 29,500
Closing Inventory = ₹ 32,000 + 1
of 5,000 = ₹ 34,500
2

Current Liabilities are ₹ 60,000 and Quick Ratio is .75, therefore,

Quick Assets = ₹ 60,000 × .75 = ₹ 45,000
Current Assets = Quick Assets + Closing Inventory
= ₹ 45,000 + ₹ 34,500 = ₹ 79,500
Gross Profit ₹1,60,000
5. Gross Profit Ratio = × 100 = × 100 = 20%
Revenue from Operations ₹8,00,000
Working Note:
Calculation of Revenue from Operations, i.e., Net Sales = Credit Sales + Cash Sales
Let Revenue from Operations, i.e., Net Sales be x
Credit Sales (Given) = ₹ 6,00,000
x
∴ Cash Sales = 25% of x or
4

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 x
x = + ₹ 6,00,000 (Credit sales)
4

4x = x + ₹ 24,00,000
3x = ₹ 24,00,000
x = ₹ 8,00,000 (Revenue from Operations, i.e., Net Sales)
25
Cash Sales = ₹ 8,00,000 × = ₹ 2,00,000
100

Cost of Revenue from Operations (Cost of Goods Sold)

= Purchases + Change in Inventories*
= Purchases - Excess of Closing Inventory over Opening Inventory
= ₹ 6,90,000 - ₹ 50,000 = ₹ 6,40,000
Gross Profit = Revenue from Operations, i.e., Net Sales - Cost of Revenue from Operations (Cost of Goods Sold)
= ₹ 8,00,000 - ₹ 6,40,000 = ₹ 1,60,000
Current Assets
6. i. Current Ratio =
Current Liabilities
Current Assets
3 (Given) =
₹3,50,000 (Given )

∴ Current Assets = ₹ 3,50,000 × 3 = ₹ 10,50,000

Liquid Assets
Acid Test Ratio =
Current Liabilities
Liquid Assets
1.75 (Given) =
₹3,50,000( Given )
∴ Liquid Assets = ₹ 3,50,000 × 1.75 = ₹ 6,12,500
Inventory = Current Assets - Liquid Assets
= ₹ 10,50,000 - ₹ 6,12,500 = ₹ 4,37,500
Current Assets
ii. Current Ratio = Current Liabilities

₹3,60,000( Given )
2.4 (Given) =
Current Liabilities

₹3,60,000 10
∴ Current Liabilities = 2.4
= 3, 60, 000 ×
24
= ₹ 1,50,000
Liquid Assets
Acid Test Ratio = Current Liabilities
Liquid Assets
1.3 (Given) =
₹1,50,000 (Calculated as above)

∴ Liquid Assets = ₹ 1.50,000 × 1.3 = ₹ 1,95,000

Inventory = Current Assets - Liquid Assets
= ₹ 3,60,000 - ₹ 1,95,000 = ₹ 1,65,000
iii. a. Working Capital = Current Assets - Current Liabilities
Current Ratio of the company is 2.5 : 1, therefore, based on current ratio the working capital is 2.5 - 1 =
2.5
1. Current Assets = 1.5
× 30, 000 = ₹ 50,000
b. Current Liabilities = Current Assets - Working Capital
= 50,000 - 30,000 = ₹ 20,000
Liquid Assets
c. Acid Test Ratio (Quick Ratio) =
Current Liabilities

Liquid Assets = Current Assets - Inventory

= ₹ 50,000 - ₹ 26,000 = ₹ 24,000
24,000
Acid Test Ratio = 20,000
= 1.2 : 1
7. Cost of Goods Sold = Opening Inventory + Purchases - Closing Inventory
= 1,00,000 + 10,00,000 - 1,50,000 = 9,50,000
Operating Expenses = Administrative and Selling Expenses = 1,70,000
Operating Cost = Cost of Goods Sold + Operating Expenses = 9,50,000 + 1,70,000 = 11,20,000
Net Sales = 14,70,000
Operating cost 11,20,000
Operating Ratio = × 100 = × 100 = 76.19%
Net Sales 14,70,000

Operating Profit Ratio = 100 - Operating Ratio = 100 - 76.19 = 23.81%

Operating ratio + Operating profit ratio = 100%
Opcning Creditors & B/P+ Closing Creditors & B/P 1,50,000+50,000+4,50,000+1,50,006
8. Average Trade Payables = = =₹
2 2

4,00,000
Net Credit Purchases = Total Purchases - Purchases Return - Cash Purchases

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 = Rs.25,00,000 - Rs.1,00,000 - Rs.4,00,000 = ₹ 20,00,000
Net Credit Purchases 20,00,000
Trade Payables Turnover Ratio = =
4,00,000
= 5 times
Λ verage Trade Payables

Average Debt Payment Period = 12

=
12
= 2.4 months
Trade Payable Turnover Ratio 5

9. Interest Coverage Ratio = Profit before Interest and Tax( EBIT ) /Capital employed × 100
Profit after Interest and Tax = ₹6,00,000
Profit before Interest and Tax (EBIT) = ₹6,00,000 + ₹80,000 + ₹4,00,000
Interest Coverage Ratio = ₹10,80,000/₹80,000
= 13.5 times
10. Trade Receivables Turnover Ratio
Credit Revenue from Operations (Net Credit Sales)
=
Average Trade Receivables or Debtors

₹30,000
= = 1 Time
₹30,000
Working Note:
Credit Revenue from Operations, i.e., Net Credit Sales
= Total Net Sales - Net Cash Sales
= ₹ 1,50,000 - ₹ 1,20,000 = ₹ 30,000
Opening Debtors = Closing Debtors - Excess of Closing Debtors over Opening Debtors
= ₹ 40,000 - ₹ 20,000 = ₹ 20,000
Opening Debtors + Closing Debtors
Average Debtors = 2
₹20,000+₹40,000
= = ₹ 30,000
2

x (Net Cash Sales) = ₹ 1,50,000 × 4/5 = ₹ 1,20,000

Net Credit Sales = ₹ 1,20,000 × 25/100 = ₹ 30,000
Long term Debts
Debt
11. i. Debt-Equity Ratio = Equity
or Shareholder's Funds

Long Term Debts = = Debentures + Mortgage Loan

= ₹ 50,000 + ₹ 1,50,000 - ₹ 2,00,000
Shareholder's Funds = Equity Share Capital + Pref. Share Capital + Capital Reserve + Profit & Loss Balance
= ₹ 3,00,000 + ₹ 1,20,000 + ₹ 60,000 + ₹ 1,20,000
= ₹ 6,00,000
₹2,00,000
Debt Equity Ratio = = 33:1
₹6,00,000
Equity Shareholder's Funds
ii. Proprietary Ratio = =
Total Assets Total Assets

Total Assets = = Non Current Assets + Current Assets

= ₹ 4,80,000 + ₹ 6,00,000 = ₹ 10,80,000
₹6,00,000
Proprietary Ratio =
₹10,80,000
= .5556 or 55.56%
Net Profit before Interest and Tax
iii. Interest Coverage Ratio = Fixed Interest Charges

Fixed Interest Charges = 12% Interest on Debentures of ₹ 50,000 + 10% Interest on Mortgage Loan of ₹
1,50,000
= ₹ 6,000 + ₹ 15,000 = ₹ 21,000
Net Profit after Interest and Tax = ₹ 63,000
100
Net Profit before Tax = ₹63, 000 × = ₹1, 26, 000
50

Net Profit before Interest and Tax = ₹ 1,26,000 + Fixed Interest Charges
= ₹ 1,26,000 + ₹ 21,000 = ₹ 1,47,000
₹1,47,000
Interest Coverage Ratio = = 7 times
₹21.000
Total Asscts
12. Total Assets to Debt Ratio =
Long Term Debt

Total Assets = Land and Buildings + Trade Receivables + Cash and Cash Equivalents + Investments (Trade)
= 60,00,000 + 4,00,000 + 5,00,000 + 1,00,000 = ₹ 70,00,000
Long Term Debts = Capital Employed - Shareholders’ funds
= 50,00,000 - 40,00,000 = ₹ 10,00,000

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 Shareholder’s Fund = Share Capital + Reserve and Surplus (general reserve+statement of profit and loss)
= 35,00,000 + 3,00,000 + 2,00,000 = ₹ 40,00,000
70,00,000
Total Assets to Debt Ratio = 10,00,000
=7:1

13. i. Debt Equity Ratio : is computed to assess long term financial soundness of the enterprise. The ratio
expresses the relationship between external equitiesi.e external debts and internal equitiesi.e.
shareholder's funds of the enterprise.
Debt Long-term Debts or Loans ∗
= =
Equity Shareholders" Funds ∗∗

4,00,000
= = 1 : 2
8,00,000

*Long-term Debt = 6% Debentures + 9% Loan

= 3,00,000 + 1,00,000 = Rs. 4,00,000
**Shareholders' Funds = Paid-up Share Capital + Debenture Redemption Reserve
= 6,00,000 + 2,00,000 = Rs. 8,00,000
ii. Working Capital Turnover Ratio: shows the relationship between working capital and revenue from
operationsor net sales. The objective of computing the ratio is to ascertain whether or not working capital
has been effectively used in making sales.
Revenue from Operations
=
Working Capital"

60,00,000
= = 7.5 times
8,00,000

*Working Capital = Current Assets** - Current Liabilities

= 12,00,000 - 4,00,000 = Rs. 8,00,000
**Current Assets = Other Current Assets + Closing Inventory
= 11,00,000 + 1,00,000 = Rs. 12,00,000
Net profit before interest and tax
14. i. Return on Investment = x100
Capital Employed

Net profit before interest and tax = Net profit after interest and tax + tax + interest
= ₹6,00,000 + ₹4,00,000 + ₹60,000
= ₹10,60,000
Capital Employed = ₹20,00,000
₹10,60,000
Return on Investment ( Return on Capital Employed ) = x100
₹20,00,000
= 53%
Debt
ii. Debt Equity Ratio =
Equity

Equity = Capital Employed - Debt

= ₹20,00,000 - ₹10,00,000
= ₹10,00,000
₹10,00,000
Debt Equity Ratio =
₹10,00,000
=1:1
15. Inventory Turnover Ratio = 8 times
Average Inventory = ₹ 3,20,000
cost of Goods Sold Cost of Goods Sold
Stock Turnover Ratio = = = 8 times
Average Stock 3,20,000

Cost of Goods sold or cost of revenue from operations = 25,60,000

Trade Receivables Turnover Ratio = 5 times
Average Trade Receivables = ₹ 4,00,000
Net Credit Sales
Trade Receivables Turnover Ratio =
Average Trade Receivables

Net Credit Sales

5 =
4,00,000

Net Credit Sales = Rs.20,00,000

Total Sales = Cash Sales + Credit Sales
Total Sales = 20% of Total Sales + Credit Sales
80% of Total Sales = 20,00,000
20,00,000
Total Sales = = 25,00,000
80%

Gross Profit = Total Sales - Cost of Goods Sold

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 = 32,00,000 - 25,00,000 =7,00,000
Gross Profit 7,00,000
Gross Profit Ratio = × 100 =
32,00,000
× 100 = 21.875%
Net Sales
Costof sales+OperatingExpenses
16. OperatingRatio =
Netsales
X100

Cost of sales = Opening stock + Net purchases + direct expenses - closing stock
= 75000 + 3,10,000 + 32,000 - 50,000 = 3,67,000
In Operating Expenses only Indirect Expenses are covered.
Operating expenses = Selling expenses + Distribution expenses
= 25000 + 15000 = 40,000
Operating ratio = 3,67,000 + 40,000/5, 40,000 × 100 = 75.37%
17. (i) Debt-Equity Ratio
Long − Term debts or Loans 16,00,000
= Shareholders' Fund
= 9,00,000
= 1.78 : 1
Working Note :
Long-Term Debts = 10% Debentures + Loan from IDBI
= Rs. 10,00,000 + 6,00,000 = Rs. 16,00,000
Shareholders’ Fund = Equity Share Capital + 12 % Preference Share Capital + Reserves and Surplus
= 2,00,000 + 3,00,000 + 2,50,000 + 1,50,000 = Rs. 9,00,000
(ii) Proprietary Ratio
Equity or Shareholders' Funds 9,00,000
= = = 0.28 : 1
Total Assets 31,80,000

Working Note :
Total Assets = Investment + Current Assets + Fixed Assets
= 2,00,000 + 8,80,000 + 21,00,000 = Rs. 31,80,000
(iii) Total Assets to Debt Ratio
Total Assets 31,80,000
= Long - Term Debts
= 16,00,000
= 1.99: 1
18. Current Ratio = 3: 1
Let Current Liabilities = x
Current Assets = 3x
Working Capital = Current Assets - Current Liabilities
Working Capital = CA - CL
Rs. 1,80,000 = 3x - x
Rs. 1,80,000 = 2x
x = Rs. 90,000
Current Liabilities = Rs. 90,000
Therefore,
Current Assets = 3x
= 3 x 90,000
= Rs. 2,70,000
Liquid Assets
Quick Ratio =
Current Liabilities

1.2 Liquid Assets

=
1 90,000

Liquid Assets = 90,000 x 1.2

Liquid Assets = Rs. 1,08,000
Inventory = Current Assets - Liquid Assets
= Rs. 2,70,000 - RS. 1,08,000
= Rs. 1,62,000
19. Statement showing the effect (increase, decrease or no effect) of various transactions on Current Ratio is as
follows:
Current
Tr.
Ratio Reason of effect
No.
will

a Improve Both the current assets and current liabilities are decreased by the same amount.

b Not Neither the current assets not the current liabilities are affected since there is only a

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 Change conversion of one current asset (i.e., Inventory) into another current asset (i.e., Cash).

c Reduce Current liabilities remain unchanged but current assets are decreased by amount of loss.

d Improve Current liabilities remain unchanged but current assets are increased by amount of profit.

e Reduce Both the current assets and current liabilities are increased by the same amount.

Not Neither the current assets not the current liabilities are affected since there is only a
f
change conversion of one current asset (i.e., Cash) into another current asset (i.e., Inventory).

Not Neither the current assets nor the current liabilities are affected since both the non-current
g
change assets and non-current Liabilities are increased by the same amount.

20. i. Purchase of Fixed Assets on a Credit of Two Months

Effect No change
Reason:- Neither the long-term debt nor the shareholders' funds are affected by the purchase of fixed
assets on a credit of two months because it is purchased for short term credit period.
ii. Purchase of Fixed Assets on a Long-term Deferred Payment Basis
Effect Increase
Reason:- The long-term debts are increased by the purchase of fixed assets on a long-term deferred
payment basis, but the shareholders' fund remains unchanged.
iii. Issue of New Shares for Cash
Effect Decrease
Reason:- Shareholders' funds are increased by the issue of new shares for cash as the firm will receive
cash, but the long-term debts remain unchanged.
iv. Issue of Bonus Shares
Effect No change
Reason:- Shareholders' funds will increase and decrease by the same amount because, bonus issue will
only increase the number of shares a shareholder is holding but not the ratio/percentage of holding.
v. Sale of Fixed Assets at a Loss of Rs. 3,000
Effect Increase
Reason:- The shareholders' funds will reduce by the amount of loss of 3,000, but the long-term debt remain
unchanged, because any loss which is not recoverable directly affect the owners funds.
21. Computation of ratios is as follows:-
Gross Profit
i. Gross Profit Ratio = × 100
Revenue from Operations

Gross Profit = Revenue from Operations - Cost of Revenue from Operations

= Revenue from Operations - (Opening Inventory + Purchases + Wages + Carriage Inwards - Closing
Inventory)
= 24,00,000 - (3,00,000 + 14,00,000 + 3,70,000 + 1,50,000 - 4,20,000)
= 24,00,000 - 18,00,000 = 6,00,000.
6,00,000
G.P. Ratio = 24,00,000
× 100 = 25%
Cost of Revenue from Operations + Operating Exp.
ii. Operating Ratio = Revenue from Operations
× 100

Operating Exp. = Administrative Exp. + Selling Exp.

= 84,000 + 36,000 = 1,20,000
18,00,000+1,20,000
Operating Ratio = × 100 = 80%
24,00,000

Operating Profit
iii. Operating Profit Ratio = × 100
Revenue from Operations

Operating Profit = G.P. - Operating Exp. (i.e., Administrative Exp. and Selling Exp.)
= 6,00,000 - 84,000 - 36,000 = 4,80,000
4,80,000
Operating Profit Ratio = × 100 = 20% operating ratio+operating profit ratio=100%
24,00,000

Net Profit
iv. Net Profit Ratio = × 100
Revenue from Operations

Net Profit = G.P. - Administrative Exp. - Selling Exp. - Income Tax + Profit on sale of fixed assets
= 6,00,000 - 84,000 - 36,000 - 1,00,000 + 20,000

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 = 4,00,00
4,00,000
Net Profit Ratio = 24,00,000
× 100 = 16.67%
Credit Revenue from Operations
22. i. Trade Receivables Turnover Ratio =
Debtors + Bills Rece ivables
3,60,00,000
=
40,00,000+8,00,000
= 7.5 times
365 days
ii. Average Collection Period =
Trade Receivables Turnover Ratio
365
= = 49 days
7.5
Credit Purchases
iii. Trade Payables Turnover Ratio =
Creditors + Bills Payable

1,50,00,000
=
12,00,000+60,000
= 11.9 times
365 days 365
iv. Average Payment Period = Trade Payables Turnover Ratio
=
11.9
= 31 days

23. [Link]. Effect Reason

Due to Purchase of goods for cash quick assets is decreasing whereas current liabilities will
i Decrease
remain the same.

ii Increase As quick assets and Current Liabilities are decreasing by the same amount.

iii Increase As quick assets is increasing and Current Liabilities remains the same.

No
iv As neither quick assets nor Current liabilities are changing.
change
Net Profit
24. i. Net Profit Ratio = × 100
Revenue from Operations

Net Profit = Gross - Indirect Expenses & Losses + Other Incomes

Indirect Expenses and Losses = Office Expenses + Selling Expenses + Interest on Debentures + Accidental
Losses
= ₹ 15,000 + ₹ 26,000 + ₹ 5,000 + ₹ 12,000
= ₹ 58,000
Other Incomes = Income from Rent + Commission Received
= ₹ 2,500 + ₹ 2,000 = ₹ 4,500
Net Profit = ₹ 75,000 - ₹ 58,000 + ₹ 4,500 = ₹ 21,500
Revenue from Operations = ₹ 2,00,000
21,500
∴ Net Profit Ratio = ₹ 2,00,000 × 100 = 10.75%
Operating Profit
ii. Operating Income = × 100
Revenue from Operations

Operating Profit = Gross Profit + Operating Income - Operating Expenses

Operating Income = Commission Received
= ₹ 2,000
Operating Expenses = Office Expenses + Selling Expenses
= ₹ 15,000 + ₹ 26,000 = ₹ 41,000
∴ Operating Profit = ₹ 75,000 + ₹ 2,000 - ₹ 41,000 = ₹ 36,000

Revenue from Operations = ₹ 2,00,000

36,000
∴ Operating Profit Ratio = ₹ × 100 = 18%
2,00,000

Net profit ratio = 10.75%

Operating profit ratio = 18%
Net Profits before Interest Tax
25. i. Interest Coverage Ratio =
Interest on long term debts

2,27,000
Interest Coverage Ratio = = 27,000
= 8.4 times
Working Note:
Profits before Interest & Tax
= Net profits after Interest and Tax + Tax + Interest
= 120000 + (120000 x 40/60) + 27000
= Rs. 2,27,000

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 ii. After Purchase of goods on credit:
Current Assets = Rs.3,00,000 + Rs.20,000 = Rs.3,20,000
Current Liabilities = Rs.1,40,000 + Rs.20,000 = Rs.1,60,000
Current Assets 3,20,000
Current Ratio = =
1,60,000
= 2 : 1
Current Labilities

26. Gross Profit = 20% of Cost

6,40,000×100
Sales = 80
= Rs. 8,00,000
Total Sales = Cash Sales + Credit Sales
Let the Credit Sales = x
x
So, Cash Sales =
3
x
8,00,000 = 3
+x
24,00,000 = 3x + x
24,00,000 = 4x
6,00,000 = x
Rs. 6,00,000 = Credit Sales
Debtors' Turnover Ratio
Or Trade Receivables Turnover Ratio
Net Credit Sales
=
Average Debtors

Opening Debtors + Closing Debtors

Average Debtors =
2

Let Opening Debtors = x

So, Closing Debtors = x + 20,000
6,00,000
4 =
x+x+20,000

12,00,000
4 =
x+x+20,000

4x + 4x + 80,000 = 12,00,000
8x = 11,20,000
x = 1,40,000
Opening Debtors = Rs. 1,40,000
Closing Debtors = Opening Debtors + Rs. 20,000
Closing Debtors = Rs. 1,40,000 + Rs. 20,000
Closing Debtors = Rs. 1,60,000
Net Profit before Interest, Tax and Dividend
27. Return on Investment = Capital Employed
× 100

=(1100000/8000000)×100 =13.75%
WORKING NOTES:
Net profit before interest,tax and dividend
Net profit after interest and tax = 6,00,000

(+) Tax (6,00,000 × 40/60) = 4,00,000

(+) Interest (10,00,000 × 10%) = 1,00,000

Rs. 11,00,000

28. i. Decrease: Loan obtained from bank will increase the total assets but the shareholders' funds will remain
the same, so proprietary ratio will decrease.
ii. No change: Machinery purchased for cash will increase the total assets and simultaneously decrease the
total assets, therefore proprietary ratio will remain unchanged.
iii. Decrease: Redemption of preference shares will decrease total assets and shareholders' funds
simultaneously, so proprietary ratio will decrease.
iv. Increase: Machinery purchased by issue of equity shares will increase total assets and shareholders'
funds simultaneously, so proprietary ratio will increase.
Proprietory ratio establishes the relationship between proprietors funds and total assets. This ratio is
computed as follows:
′ ′
Proprieto r s Funds or shareholder s f unds
Proprietory ratio=
T otal assets

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 Proprietors funds = Liabilities Approach: Share capital + Reserves and Surplus
29. (i)First there is a need to calculate Closing Inventory than Liquid ratio is calculated as follows:-
Current Assets - Inventory - Prepaid Expenses
Liquid Ratio =
Current Labilities
1,00,000−7,000−3,000
=
60,000
90,000
=
60,000
= 1.5 : 1
Closing Inventory = Opening inventory - 3,000 = 10,000 - 3,000 = Rs. 7,000
(ii)First there is a need to calculate Gross Profits & Revenue from operations than Gross Profit Ratio is
calculated as follows:-
Gross Profit ∗
Gross Profit Ratio = × 100
Revenue From Operations (Net sales)

57,000
= × 100 = 14.25%
4,00,000

Net Purchases = 80% of Revenue from Operations

80
= 4, 00, 000 ×
100
= Rs. 3,20,000
Cost of Revenue from Operations = Opening Inventory + Net Purchases + Direct Expenses - Closing Inventory
= 10,000 + 3,20,000 + 20,000 - 7,000
= Rs. 3,43,000
*Gross Profit = Revenue from Operations - Cost of Revenue from Operations
= 4,00,000 - 3,43,000 = Rs. 57,000
(iii)First there is a need to calculate Long Term debts & Shareholders Funds both than Debt Equity ratio is
calculated as follows:-
Debt long-term Debts ∗
Debt Equity Ratio = or ′
Equity Shareholders Funds ∗∗
5,50,000
= = 0.5 : 1
11,00,000

*Long-term Debts = 9% Debentures + Long-term Loan from Bank

= 4,00,000 + 1,50,000 = Rs. 5,50,000
**Shareholders' Funds = Equity Share Capital + 8% Preference Share Capital
= 8,00,000 + 3,00,000 = Rs. 11,00,000
30. i. Revenue from operations
= Cost of Revenue from operations + Gross Profit
= Rs. 12,00,000 + Rs. 3,00,000 = Rs. 15,00,000
Working Note:
i. Current assets = Rs. 8,00,000
Current ratio = Current Assets/ Current Liabilities = 2 : 1
So, Current Liabilities = Rs. 4,00,000
ii. Quick ratio = Quick Assets/ Current Liabilities = 1 : 5 : 1
So, Quick Assets = Rs. 4,00,000 × 1.5 = Rs. 6,00,000
iii. Inventory= Current Assets - Quick Assets
= Rs. 8,00,000 - Rs. 6,00,000 = Rs. 2,00,000
iv. Inventory Turnover Ratio = 6 times
Cost of Revenue from operations/ Average Inventory = 6 times
Cost of Revenue from operations/ Rs. 2,00,000 = 6
Cost of Revenue from operations = Rs. 2,00,000 × 6
Cost of Revenue from operations = Rs. 12,00,000
v. Gross Profit is 25% on cost = 25% of Rs. 12,00,000 = Rs. 3,00,000
ii. ‘Purchase of goods costing Rs. 20,000’ will not change the operating ratio.

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