Question 46 of 47intermediate🔧 ApplyNumerical5 marks

Calculate the following ratio on the basis of following information: (i) Gross Profit Ratio (ii) Current Ratio (iii) Acid Test Ratio (iv) Inventory Turnover Ratio (v) Fixed Assets Turnover Ratio Gross Profit Rs. 50,000 Revenue from Operations 1,00,000 Inventory 15,000 Trade Receivables 27,500 Cash and Cash Equivalents 17,500 Current Liabilities 40,000 Land & Building 50,000 Plant & Machinery 30,000 Furniture 20,000

Correct Answer

(i) 50%

(ii) 1.5 : 1

(iii) 1.125 : 1

(iv) 3.33 times

(v) 1 : 1

Exercise: Questions for Practice | Q: 21 | (Page 46)
For More Understanding

Explanation

The solution requires calculating five specific accounting ratios using the provided figures. For the Gross Profit Ratio, Gross Profit is compared to Revenue from Operations. For the Current Ratio and Acid Test Ratio, Current Assets must be derived by summing Inventory, Trade Receivables, and Cash; Liquid Assets are derived by subtracting Inventory from Current Assets. The Inventory Turnover Ratio requires calculating the Cost of Revenue from Operations (Revenue - Gross Profit) and assuming the given Inventory value is the Average Inventory. The Fixed Assets Turnover Ratio requires summing all fixed assets (Land, Plant, Furniture) to find the Net Fixed Assets.

Solution Steps

  1. (i) Gross Profit Ratio: Formula: (Gross Profit / Revenue from Operations) × 100 Calculation: (50,000 / 1,00,000) × 100 = 50%

  2. (ii) Current Ratio: Current Assets = Inventory + Trade Receivables + Cash and Cash Equivalents Current Assets = 15,000 + 27,500 + 17,500 = Rs. 60,000 Formula: Current Assets / Current Liabilities Calculation: 60,000 / 40,000 = 1.5 : 1

  3. (iii) Acid Test Ratio: Liquid Assets = Current Assets - Inventory Liquid Assets = 60,000 - 15,000 = Rs. 45,000 Formula: Liquid Assets / Current Liabilities Calculation: 45,000 / 40,000 = 1.125 : 1

  4. (iv) Inventory Turnover Ratio: Cost of Revenue from Operations = Revenue from Operations - Gross Profit Cost = 1,00,000 - 50,000 = Rs. 50,000 Average Inventory = Rs. 15,000 (given) Formula: Cost of Revenue from Operations / Average Inventory Calculation: 50,000 / 15,000 = 3.33 times

  5. (v) Fixed Assets Turnover Ratio: Net Fixed Assets = Land & Building + Plant & Machinery + Furniture Net Fixed Assets = 50,000 + 30,000 + 20,000 = Rs. 1,00,000 Formula: Revenue from Operations / Net Fixed Assets Calculation: 1,00,000 / 1,00,000 = 1 : 1

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