Page 61 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes Solved Problems for Practice

1. The following is the balance sheet of a company as on 31-3-06
Liabilities ` Assets `
Equity Shares 40,00,000 Land & building 40,00,000
Reserves & Surplus 20,00,000 Plant & machinery 40,00,000
Debentures 30,00,000 Investments 30,00,000
Long term loans 50,00,000 Stock 25,00,000
Creditors 8,00,000 Debtors 15,00,000
Other current liabilities 12,00,000 Other current assets 10,00,000
1,60,00000 1,60,00000
Calculate:

(a) Current ratio
(b) Stock to working capital ratio
(c) Debt-Equity ratio
(d) Net-worth ratio/proprietor/ratio

(e) Fixed assets to net worth ratio
(f) Current assets to net worth ratio
(g) Solvency ratio
Solution:
(a) Current ratio = Current Assets/Current Liabilities
= 50,00,000/20,00,000 = 2.5

(b) Stock to working capital ratio = Stock/Inventory/Working capital × 100
Working capital = Current Assets – Current Liabilities
= 50,00,000 – 20,00,000 = 30,00,000
= 25,00,000/30,00,000 × 100 = 83.33%

(c) Debt-Equity ratio = Debt/Equity
Debt = Long-term loans 30,00,000+50,00,000=80,00,000
Equity = Share capital + Reserves + Surplus
= 40,00,000 + 20,00,000 = 60,00,000
= 80,00,000/60,00,000 = 1.33

(d) Net worth or proprietary ratio = Net worth (equity)/Total assets
(Net worth) = Share capital + Reserves & Surplus
= 60,00,000/1,60,00,000 = 0.375
(e) Fixed assets to net worth ratio = Net fi xed assets

= 80,00,000/60,00,000 = 1.33
(f) Current assets to net worth ratio = Current assets/Net worth
= 50,00,000/60,00,000 = 0.833

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