Question 26 of 47beginner🔧 ApplyNumerical4 marks

Following is the Balance Sheet of Raj Oil Mills Limited as at March 31, 2017. Calculate current ratio. I. Equity and Liabilities:

  1. Shareholders’ funds: a) Share capital 7,90,000; b) Reserves and surplus 35,000
  2. Current Liabilities: Trade Payables 72,000 Total: 8,97,000 II. Assets
  3. Non-current Assets: Fixed assets 7,53,000 – Tangible assets 55,800
  4. Current Assets: a) Inventories 28,800; b) Trade Receivables 59,400; c) Cash and cash equivalents 59,400 Total: 8,97,000
Correct Answer

Current Ratio = 2 : 1

Exercise: Questions for Practice | Q: 1 | (Page 41)
For More Understanding

Explanation

The Current Ratio is calculated by dividing Current Assets by Current Liabilities. Based on the provided Balance Sheet totals, Current Assets are derived by subtracting Non-current Assets from Total Assets (Rs. 8,97,000 - Rs. 7,53,000 = Rs. 1,44,000). Current Liabilities are given as Trade Payables (Rs. 72,000). The ratio is therefore 2:1. Note: While the text lists Cash as 59,400, using the Total Assets figure implies a balancing figure of 55,800 for Cash to match the provided answer key and total.

Solution Steps

  1. Step 1: Calculate Total Current Assets. Current Assets = Total Assets - Non-current Assets = Rs. 8,97,000 - Rs. 7,53,000 = Rs. 1,44,000

  2. Step 2: Identify Current Liabilities. Current Liabilities = Trade Payables = Rs. 72,000

  3. Step 3: Apply the Current Ratio Formula. Current Ratio = Current Assets / Current Liabilities = Rs. 1,44,000 / Rs. 72,000 = 2 : 1

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