Question 35 of 47intermediate🔧 ApplyNumerical4 marks

Calculate following ratios from the following information: (i) Current ratio (ii) Liquid ratio (iii) Operating Ratio (iv) Gross profit ratio Current Assets Rs. 35,000 Current Liabilities Rs. 17,500 Inventory Rs. 15,000 Operating Expenses Rs. 20,000 Revenue from Operations Rs. 60,000 Cost of Revenue from operation Rs. 30,000

Correct Answer

(i) 2 : 1

(ii) 1.14 : 1

(iii) 83.3%

(iv) 50%

Exercise: Questions for Practice | Q: 10 | (Page 43)
For More Understanding

Explanation

The solution is derived using the standard formulas for accounting ratios found within the provided context. The Current Ratio measures the ability to pay short-term obligations, while the Liquid Ratio measures the ability to pay short-term obligations without relying on inventory. The Operating Ratio indicates operational efficiency, and the Gross Profit Ratio indicates the margin of profit. The calculated answers match the answer key provided in the text for Question 10.

Solution Steps

  1. Step 1: Current Ratio = Current Assets / Current Liabilities = Rs. 35,000 / Rs. 17,500 = 2 : 1.

  2. Step 2: Liquid Assets = Current Assets - Inventory = Rs. 35,000 - Rs. 15,000 = Rs. 20,000. Liquid Ratio = Liquid Assets / Current Liabilities = Rs. 20,000 / Rs. 17,500 = 1.14 : 1.

  3. Step 3: Operating Ratio = (Cost of Revenue from Operations + Operating Expenses) / Revenue from Operations × 100 = (Rs. 30,000 + Rs. 20,000) / Rs. 60,000×100000 \times 100 = 83.3%.

  4. Step 4: Gross Profit = Revenue from Operations - Cost of Revenue from Operations = Rs. 60,000 - Rs. 30,000 = Rs. 30,000. Gross Profit Ratio = Gross Profit / Revenue from Operations × 100 = Rs. 30,000 / Rs. 60,000×100000 \times 100 = 50%.

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