Chapter 9 Analysis of Financial Statements Book - Keeping and Accountancy 12th Standard HSC

Maharashtra State Board 2020 Latest

Chapter 9: Analysis of Financial Statements

Select the most appropriate alternative from the given below and rewrite the sentence

Gross Profit Ratio indicates the relationship of gross profit to the___________.

Net-Cash
Net-Sales
Net Purchases
Gross Sales

Current Ratio =
Current Liabilities
Current Liabilities
Quick Assets
Quick Liabilities
Current Assets
None of these

Liquid Assets =____________

Current Assets + Stock

Current Assets - Stock
Current Assets - stock + prepaid Expenses
None of these

Cost of goods sold___________

Sales - Gross profit

Sales - Net Profit
Sales Proceeds
None of these

Net-Profit Ratio is equal to______________

Operating ratio
Operating net-profit ratio
Gross Profit Ratio
Current Ratio
The Common Size Statement requires______________

Common base
Journal Entries
Cash Flow
Current Ratio

Bill Payable is_________________

Long term loan

Current Liabilities
Liquid Assets
Net Loss

Generally Current Ratio should be___________

2:1
1:1
1:2
3:1

From financial statement analysis the creditors are specially interested to

know_________________

Liquidity
Profits
Sale
Share Capital

Give one word/term/phrase for the following statement.

The statement showing profitability of two different periods

Comparative Income Statement.

The ratio measures the relationship between Gross Profit and Net Sales.

Gross Profit Ratio

Critical evaluation of financial statements to measure profitability.

Analysis of Financial Statement

A particular mathematical number showing relationship between two accounting figures.

Ratio

An asset which can be converted into cash immediately

Liquid Asset

The ratio measuring the relationship between net profit and ownership capital employed.

ROCE

The statement showing financial position for different periods of previous year and current year.

Comparative Balance Sheet

Statement showing changes in cash and cash equivalent during a particular period.

Cash Flow Statement

Activity related to acquisition of long term assets and investment.

Financing Activities

The ratio that establishes relationship between Quick Assets and Current Liabilities

Liquid Ratio

State true or false with reason.

Financial Statement includes only Balance Sheets.

True
False
This statement is False.
Financial statements include Balance Sheet and Profit and Loss A/c. This is because financial statements
are prepared by business organisations to find out efficiency, solvency, profitability, growth, strength and
status of the business. For this they need information from the balance sheet as well as from Profit and
Loss A/c.

Analysis of financial statements is a tool but not a remedy.

Options
True
False
This statement is True.
Based on analysis of financial statement one can get idea of financial strength and weakness of the
business. However, based on this one cannot take decision about the business on various issues. Hence
analysis of financial statement is a tool but not a remedy.

Purchase of Fixed Assets is operating cash flow.

Options
True
False
This statement is False.
Purchase of fixed assets is cash flow from investing activities. It is not a day to day operations activities
like office/selling/distribution finance expenses/activities.

Dividend paid is not a source of fund

Options
True
False
This statement is True.
Dividend is always paid on shares issued by a company is an expense. Shares itself is a source of fund.
In payment of dividend cash goes out from the company. It is an out flow of cash and not a source of fund.
Gross Profit depends upon Net Sales.

Options
True
False
This statement is True.
Gross profit ratio discloses the relation between gross profit and total net sales. Gross profit ratio is an
income-based ratio, where gross profit is an income. There is direct relation between net sales and gross
profit. Higher the net sales higher the gross profit.

Payment of cash against purchase of stock is use of fund.

Options
True
False
This statement is True.
Cash payment for purchase of stock is made from cash balance or/and from bank balance which is a part
of business fund. When stock or materials we purchase we use cash for payment.

Ratio Analysis is useful for inter-firm comparison

Options
True
False
This statement is True.
The comparision of the operating performance of a business entity with the other business entities is
known as inter-firm comparision. This ratio analysis assist to know how and to what extent a business
entity is strong or weak as compared to other business entity

The short term deposits are considered as cash equivalent.

Options
True
False
This statement is True.
The short-term deposits are liquid assets. It means deposits kept for some period (usually less than one
year) and they are kept with an intention to get money quickly as and when required. They are as good as
cash and considered as cash equivalent

Activity Ratios Turnover Ratios are the same.

Options
True
False
This statement is True.
Turnover ratio is an efficiency ratio to check how efficiently company is using different assets to extract
earnings from them. Activity ratio are financial analysis tools used to measure a business ability to convert
its assets into cash. From both these definitions we can say that Activity ratios and Turnover ratios are
same.

Current Ratio measures the liquidity of the business.

Options

True
False
This statement is True.
Current ratio shows relation between current assets and current liabilities. If the proportion of current
assets is higher than current liabilities, liquidity position of business entity is considered good. More
liquidity means more short-term solvency. From the above it is proved that current ratio measures the
liquidity of the business.

Ratio analysis measures profitability efficiency and financial soundness of the business.
Options

True
False
This statement is True.
With the help of profitability ratios (Gross profit, Net profit and Operating profit) one can get the idea of
profitability efficiency of the firm and with the help of liquidity ratios (Current ratio and liquid ratio) one can
get the idea of solvency or financial soundness of the business.

Usually the current ratio should be 3:1.

Options
True
False
This statement is False.
Usually the current ratio should be 2:1. It means current assets are double of current liabilities. It shows
the short-term solvency of business enterprises.

Answer in one sentence only.

Mention two objectives of comparative statement?

Objectives of comparative statements are :
(i) Compare financial data at two points of time and
(ii) Helps in deriving the meaning and conclusions regarding the changes in financial positions and
operating results.

State three examples of cash inflows?

Examples of cash inflows are :
(1) Interest received,
(2) Dividend received,
(3) Sale of asset/investment,
(4) Rent received.

State three examples of cash outflows?

Examples of cash outflows are :
(1) Interest paid,
(2) Loss on sale of asset,
(3) Dividend paid,
(4) Repayment of short-term borrowings.

Give the formula of Gross Profit Ratio?

Gross profit ratio = (Gross profit / Net sales) x 100
Where Gross profit = Net sales – Cost of goods sold
Cost of goods sold = Opening stock + Purchase – Purchase return + Direct expense – Closing stock
Net sales = Sales – Sales return.

Give the formula of gross profit?

Gross profit = Net sales – Cost of goods sold.
Cost of goods sold = Opening stock + Purchase – Purchase return + Direct expense – Closing stock
Net sales = Sales – Sales return.

Give any three examples of current assets?

Cash or cash equivalent short-term lending and advances,
expenses paid in advance,
taxes paid in advance, etc.
are the examples of current assets.

Give the formula of current ratio?

Current ratio = Current assets / Current liabilities

Give the formula of quick assets?

Quick assets = Current assets – (Stock + Prepaid expense)

State the formula of Cost of goods sold?

Cost of goods sold = Opening stock + Purchase – Purchase return + Direct expense – Closing stock

State the formula of Average Stock?

Average stock = (Opening stock of goods + Closing stock of goods) / 2

Practical Problems.

Accounts Chapter 9: Analysis of Financial Statements.

Practical problem | Q 1 | Page 376

From the Balance Sheet of Amar Traders as on 31st March 2018 and 31st, March 2019 prepare
comparative Balance Sheet.
Liabilities 31.3.2018 31.3.2019 Assets 31.3.2018 31.3.2019
(₹) (₹) (₹) (₹)
Capital 60,000 72,000 Fixed 1,20,000 1,50,000
Assets
Reserves and 24,000 30,000 Current 28,000 27,000
Surplus Assets
Loans 34,000 51,000
Creditors 30,000 24,000
1,48,000 1,77,000 1,48,000 1,77,000
Solution:

Comparative Balance Sheet of Amar Traders as on 31st March 2018 and 31st March 2019

Particulars 31 – 03 – 31 – 03 – Absolute Percentage Change

2018 (₹) 2019 (₹) Change (₹)
I. Sources of Funds
(a) Capital 60,000 72,000 12,000 20 % Increase
(b) Reserve and 24,000 30,000 6,000 25 % Increase
Surplus
(A) Net Worth 84,000 1,02,000 18,000 21.43 % Increase
Borrowed Funds
(a) Loans 34,000 51,000 17,000 50 % Increase
(B) Total Borrowed 34,000 51,000 17,000 50 % Increase
Funds
Total Funds 1,18,000 1,53,000 35,000 29.66 % Increase
Available (A + B)

II. Application of Funds

A. Fixed Assets 1,20,000 1,50,000 30,000 25 % Increase
B. Working Capital
(1) Current Assets 28,000 27,000 (1,000) (3.57 %)
Decrease
Less : (2) Current Liabilities 30,000 24,000 (6,000) (20 %) Decrease
Creditors
Working Capital
(Current Assets – Current (2,000) 3,000 5,000 (250 %) Increase
Liabilities)
Total Funds Applied (A + B) 1,18,000 1,53,000 35,000 29.66 % Increase
Percentage change = (Amount of Absolute Change ÷ Amount of Previous Year) × 100

Practical problem | Q 2 | Page 376

From the following Balance Sheet of Alpha Limited prepare a comparative Balance Sheet as on
31st March 2018 and 31st March 2019.
Balance Sheet As on 31st March 2018 and 31st March 2019
Liabilities 31.3.2018 31.3.2019 Assets 31.3.2018 31.3.2019 (₹)
(₹) (₹) (₹)
Equity Share 2,00,000 2,50,000 Land 80,000 1,00,000
Capital
12% 80,000 80,000 Building 60,000 90,000
Preference
Shares
Reserves and 1,00,000 1,40,000 Plant and 73,000 1,73,000
Surplus Machinery
15% 60,000 51,000 Stock 1,50,000 1,10,000
Debentures
Creditors 50,000 80,000 Debtors 1,28,000 1,40,000
Bills Payable 10,000 6,000 Bank 34,000 37,000
Provision for 25,000 43,000
Taxation
5,25,000 6,50,000 5,25,000 6,50,000

Solution:

Balance Sheet As on 31st March 2018 and 31st March 2019

Comparative Balance Sheet of Alpha Limited as on 31st March, 2018 and 31st March, 2019

Particulars 31 – 03 – 31 – 03 – Absolute Percentage Change

2018 (₹) 2019 (₹) Change (₹)
I. Sources of Funds
(a) Equity Share Capital 2,00,000 2,50,000 50,000 25 % Increase
(b) 12 % Preference 80,000 80,000 – –
Shares
(c) Reserve and Surplus 1,00,000 1,40,000 40,000 40 % Increase
(A) Net Worth 3,80,000 4,70,000 90,000 23.68 % Increase
Borrowed Funds
Secured Loan – 15 % 60,000 51,000 (9,000) (15 %) Decrease
Debentures
(B) Total Borrowed 60,000 51,000 (9,000) (15 %) Decrease
Funds
Total Funds Available 4,40,000 5,21,000 81,000 18.41 % Increase
(A + B)

II. Application of Funds

A. Fixed Assets – Land 80,000 1,00,000 20,000 25 %

Increase
Building 60,000 90,000 30,000 50 %
Increase
Plant and Machinery 73,000 1,73,000 1,00,000 137 %
Increase
2,13,000 3,63,000 1,50,000 70.42 %
Increase
I. B. Working Capital
Current Assets – Stock 1,50,000 1,10,000 (40,000) (26.67) %
Decrease
Debtors 1,28,000 1,40,000 12,000 9.375 %
Increase
Bank 34,000 37,000 3,000 8.82 %
Increase
Less : Current Liabilities
Creditors 50,000 80,000 30,000 60 %
Increase
Bills Payable 10,000 6,000 (4,000) (40 %)
Decrease
Provision for Taxation 25,000 43,000 18,000 72 %
Increase
Working Capital
(Current Assets – Current 2,27,000 1,58,000 (69,000) (30.40 %)
Liabilities) Decrease
Total Funds Applied (A + 4,40,000 5,21,000 81,000 18.41 %
B) Increase

Practical problem | Q 3 | Page 377

Prepare Comparative Balance Sheet for the year ended 31.3.18 and 31.3.19 Assets & Liabilities as
follows
Particulars 31.3.18 (₹) 31.3.19 (₹)
1) Fixed Assets 1,20,000 1,50,000
2) Share Capital 60,000 72,000
3) Current Assets 28,000 27,000
4) Reserve & Surplus 24,000 30,000
5) Loan 34,000 57,000
6) Current liabilities 30,000 24,000

Solution:

Comparative Balance Sheet as on 31st March 2018 and 31st March 2019

I. Sources of Funds
Particulars 31 – 03 – 31 – 03 – Absolute Percentage
2018 (₹) 2019 (₹) Change (₹) Change
(a) Share Capital 60,000 72,000 12,000 20 % Increase
(b) Reserve and 24,000 30,000 6,000 25 % Increase
Surplus
(A) Net Worth 84,000 1,02,000 18,000 21.43 %
 Increase
(B) Borrowed Funds 34,000 57,000 23,000 67.65 %
– Loan Increase
Total Funds 1,18,000 1,59,000 41,000 34.74 %
Available (A + B) Increase

II. Application of Funds

A. Fixed Assets 1,20,000 1,50,000 30,000 25 % Increase
Working Capital
(1) Current Assets 28,000 27,000 (1,000) (3.57 %) Decrease
Less : (2) Current Liabilities 30,000 24,000 (6,000) (20 %) Decrease
B. Working Capital
(Current Assets – Current Liabilities) (2,000) 3,000 5,000 (250 %) Decrease
Total Funds Applied (A + B) 1,18,000 1,53,000 35,000 29.66 % Increase

Practical problem | Q 4 | Page 377

Prepare Comparative Balance Sheet for the year ended 31.3.17 and 31.3.18
Particulars 31.3.17 (₹) 31.3.18 (₹)
1) Current liabilities 60,000 48,000
2) Fixed Assets 2,40,000 3,00,000
3) Loan 68,000 1,02,000
4) Share Capital 1,20,000 1,44,000
5) Reserve & Surplus 48,000 60,000
6) Current Assets 56,000 54,000

Solution:

Comparative Balance Sheet as on 31st March 2017 and 31st March 2018

Particulars 31 – 03 – 31 – 03 – Absolute Percentage Change

2017 (₹) 2018 (₹) Change (₹)
I. Sources of Funds
(a) Share Capital 1,20,000 1,44,000 24,000 20 % Increase
(b) Reserve and Surplus 48,000 60,000 12,000 25 % Increase
(A) Net Worth 1,68,000 2,04,000 36,000 21.43 % Increase
(B) Borrowed Funds – 68,000 1,02,000 34,000 50 % Increase
Loan
Total Funds Available (A 2,36,000 3,06,000 70,000 29.66 % Increase
+ B)
II. Application of Funds
A. Fixed Assets 2,40,000 3,00,000 60,000 25 % Increase
B. (1) Current Assets 56,000 54,000 (2,000) (3.57 %) Decrease
Less : (2) Current 60,000 48,000 (12,000) (20 %) Decrease
Liabilities
B. Working Capital
(Current Assets – (4,000) 6,000 10,000 (250 %) Decrease
Current Liabilities
Total Funds Applied (A 2,36,000 3,06,000 70,000 29.66 % Increase
+ B)

Practical problem | Q 5 | Page 377

Prepare Comparative Income Statement of Noha Limited for the year ended 31.3.17 and 31.3.18
Particulars 31.3.17 (₹) 31.3.18 (₹)
Sales 2,00,000 3,00,000
Income Tax 50% 50%
Cost of Sales 1,20,000 80,000
Indirect Expenses 8,000 12,000

Solution:

Comparative Income Statement of Noha Limited For the year ended 31st March, 2017 and 31st
March, 2018

Particulars 31 – 03 – 31 – 03 – Absolute Percentage

2017 (₹) 2018 (₹) Change (₹) Change
Sales 2,00,000 3,00,000 1,00,000 50 % Increase
Less: Cost of 1,20,000 80,000 (40,000) (33.33 %)
Sales Decrease
Gross Profit 80,000 2,20,000 1,40,000 175 % Increase
Less : Indirect 8,000 12,000 4,000 50 % Increase
Expenses
Net Profit before 72,000 2,08,000 1,36,000 188.89 %
Tax Increase
Less : Tax 50 % 36,000 1,04,000 68,000 188.89 %
Increase
Net Profit after 36,000 1,04,000 68,000 188.89 %
Tax Increase

Practical problem | Q 6 | Page 378

Prepare comparative Income Statement of Sourabh Limited for the year ended 31.3.17 and 31.3.18
Particulars 31.3.17 (₹) 31.3.18 (₹)
Sales 4,00,000 6,00,000
Indirect Expenses 16,000 24,000
Cost of Sales 24,000 56,000
Income Tax 50% 50%

Solution:

Comparative Income Statement of Sourabh Limited For the year ended on 31 st March, 2017 and
31st March, 2018

Particulars 31 – 03 – 31 – 03 – Absolute Percentage (%)

2017 (₹) 2018 (₹) Change (₹) Change
Sales 4,00,000 6,00,000 2,00,000 50 % Increase
Less : Cost of 24,000 56,000 32,000 133.33 % Increase
Sales
Gross Profit 3,76,000 5,44,000 1,68,000 44.68 % Increase
Less : Indirect 16,000 24,000 8,000 50 % Increase
Expences
Net Profit before 3,60,000 5,20,000 1,60,000 44.44 % Increase
Tax
Less : Tax 50 % 1,80,000 2,60,000 80,000 44.44 % Increase
Net Profit after 1,80,000 2,60,000 80,000 44.44 % Increase
tax

Practical problem | Q 7 | Page 378

Following is the Balance Sheet of Sakshi Traders for the year ended 31.3.17 and 31.3.18
Liabilities 31.3.17 (₹) 31.3.18 (₹) Assets 31.3.17 (₹) 31.3.18 (₹)
Equity Share 80,000 80,000 Fixed Assets 1,20,000 1,44,000
Capital
Pref. Share 20,000 20,000 Investment 20,000 20,000
Capita
Reserve & 20,000 24,000 Current 60,000 48,000
Surplus Assets
Secured 40,000 16,000
Loan
Unsecured 20,000 36,000
Loan
Current 20,000 36,000
Liabilities
2,00,000 2,12,000 2,00,000 2,12,000
Prepare common-size Balance Sheet for the year 31.3.17 and 31.3.18

Solution:

Common Size Statement of Balance Sheet of Sakshi Traders as on 31st March 2017 and
31st March 2018
Particulars Amount (₹) % to total of Balance Sheet
31 – 03 – 31 – 03 – 2018 31 – 03 – 31 – 03 – 2018 (₹)
2017 (₹) (₹) 2017 (₹)
I. Sources of Funds :
(1) Owner’s Equity
Equity Share Capital 80,000 80,000 44.45 45.45
Preference Shares 20,000 20,000 11.11 11.36
Capital
Reserve and Surplus 20,000 24,000 11.11 13.64
Net Worth 1,20,000 1,24,000 66.67 70.45
(2) Borrowed Funds
Secured Loans 40,000 16,000 22.22 9.09
Unsecured Loans 20,000 36,000 11.11 20.46
60,000 52,000 33.33 29.55
Total Borrowed 1,80,000 1,76,000 100 100
Funds
II. Application of Funds
(1) Fixed Assets 1,20,000 1,44,000 66.67 81.82
(2) Investments 20,000 20,000 11.11 11.36
1,40,000 1,64,000 77.78 93.18
(3) Working Capital
(A) Current Assets 60,000 48,000 - -
Less : (B) Current 20,000 36,000 - -
Liabilities
40,000 12,000 22.22 6.82
Total Funds Applied 1,80,000 1,76,000 100 100

Practical problem | Q 8 | Page 378

Prepare common size Income Statement for the year ended 31.3.17 and 31.3.18.
Particulars 31.3.17 (₹) 31.3.18 (₹)
Sales 2,00,000 2,50,000
Cost of goods sold 1,50,000 1,70,000
Office and Administrative Expenses 4,000 6,000
Selling and Distribution Expenses 6,000 1,000

Solution:

Common Size Statement for the year ended on 31st March, 2017 and 31st March, 2018

Particulars Amount Percentage Amount Percentage

(₹) (%) (₹) (%)
Sales 2,00,000 100 2,50,000 100
Less: Cost of goods sold 1,50,000 75 1,70,000 68
Gross Profit 50,000 25 80,000 32
Less: Office and 4,000 2 6,000 2.4
Administrative Expenses
Less: Selling and 6,000 3 1,000 0.4
Distribution Expenses
Net Profit 40,000 20 73,000 29.2

Practical problem | Q 9 | Page 378

Following is the Balance Sheet of Sakshi Limited. Prepare cashflow statement.:

Liabilities 31.3.17 (₹) 31.3.18 (₹) Assets 31.3.17 (₹) 31.3.18 (₹)
Share 2,00,000 3,00,000 Cash 20,000 30,000
Capital
Creditors 60,000 90,000 Debtors 1,40,000 2,50,000
Profit and 40,000 70,000 Stock 80,000 70,000
Loss A/c
Land 60,000 1,10,000
3,00,000 4,60,000 3,00,000 4,60,000

Solution:

Cash Flow Statement For the year ended 31st March, 2017 and 31st March, 2018

Particulars Amount Amount

(₹) (₹)
(A) Cash flow from Operating activities
Closing balance of Profit and Loss A/c 70,000
Less: Opening balance of Profit and Loss A/c 40,000
30,000
Add: Decrease in Current Asset – Stock 10,000
Add: Increase in Current Liabilities – Creditors 30,000
 70,000
Less: Increase in Current Asset – Debtors 1,10,000
Net Cash from Operating activities (A) (40,000)
(B) Cash flow from Investing activities
Purchase of Land 50,000 50,000
Net Cash used in Investing activities (B)
(C) Cash flow from Financing activities
Amount of share capital received 1,00,000 1,00,000
Net Cash from Financing activities (C)
Net increase in cash and cash equivalent (A + C – B) 10,000
Cash equivalent in the beginning of period 20,000
Cash equivalent at the end of period 30,000

Practical problem | Q 10 | Page 378

From the following Balance Sheet of Konal Traders prepare cash flow statement.
Liabilities 31.3.17 (₹) 31.3.18 (₹) Assets 31.3.17 (₹) 31.3.178 (₹)
Share 2,00,000 2,50,000 Cash 30,000 47,000
Capital
Creditors 70,000 45,000 Debtors 1,20,000 1,15,000
Profit and 10,000 23,000 Stock 80,000 90,000
Loss A/c
Land 50,000 66,000
2,80,000 3,18,000 2,80,000 3,18,000

Solution:

Cash Flow Statement For the year ended on 31st March 2017 and 31st March 2018

Particular Amount Amount

(₹) (₹)
(A) Cash flow from Operating activities
Closing balance of Profit and Loss A/c 23,000
Less: Opening balance of Profit and Loss A/c 10,000
13,000
Add: Decrease in Current Assets – Debtors 5,000
18,000
Less: Increase in Current Assets – Stock (10,000)
Less: Decrease in Current Liabilities – Creditors (25,000)
Net Cash from Operating activities (A) (17,000)
(B) Cash flow from Investing activities
Purchase of Land 16,000 16,000
Net Cash used in Investing activities (B)
(C) Cash flow from Financing activities
Amount of share capital received 50,000 50,000
Net Cash used in Financing activities (C)
Net increase in cash and cash equivalent (A+ C – B) 17,000
Cash equivalent in the beginning of period 30,000
Cash equivalent at the end of period. 47,000

Practical problem | Q 11 | Page 379

A Compay had the following Current Assets and Current Liabilities

Debtors ₹ 1,20000 Creditors ₹ 60,000
Bills Payable ₹ 40,000 Stock ₹ 60,000
Loose Tools ₹ 20,000 Bank overdraft ₹ 20,000
Calculate Current Ratio.

Solution:

(1) Current Assets = Debtors + Stock + Loose Tools

= 1,20,000 + 60,000 + 20,000
= ₹ 2,00,000
(2) Current liabilities = Creditors + Bills payable + Bank overdraft
= 60,000 + 40,000 + 20,000
= ₹ 1,20,000

∴ Current Ratio = 200000 ÷ 120000

(3) Current ratio = Current Assets ÷ Current Liabilities

∴ Current Ratio = 5 ÷ 3
∴ Current Ratio = 5:3

Practical problem | Q 12 | Page 379

Current Assets of Company ₹ 6,00,000 and its Current Ratio is 2:1

Find Current Liabilities

Solution:

Current Ratio = Current Assets ÷ Current Liabilities

2 ÷ 1 = 600000 ÷ Current Liabilities

2 × Current Liabilities = 600000 × 1

∴ Current Liabilities = 600000 ÷ 2

∴ Current Liabilities = ₹ 300000

Practical problem | Q 13 | Page 379

Current Liabilities = ₹ 3,00,000

Working Capital = ₹ 8,00,000
Inventory = ₹ 2,00,000
Calculate Quick Ratio.

Solution:

Current assets = Current liabilities + Working capital

= 3,00,000 + 8,00,000
= ₹ 11,00,000
Quick assets = Current assets – Inventory
= 11,00,000 – 2,00,000
= ₹ 9,00,000
Quick liability = Current liabilities – Bank O / D
= ₹ 3,00,000

∴ Quick Ratio = 900000 ÷ 300000

Quick ratio = Quick Assets ÷ Quick Liabilities

∴ Quick Ratio = 3 ÷ 1
∴ Quick Ratio = 3:1

Practical problem | Q 14 | Page 379

Calculate the Gross Profit Ratio

Sales ₹ 2,70,000
Net purchases ₹ 1,50,000
Sales Ratio ₹ 20,000
Closing Stock ₹ 25,000
Operating Stock ₹ 45,000

Solution:

Net sales = Sales – Sales return

= 2,70,000 – 20,000
= ₹ 2,50,000
Cost of goods sold = Opening stock + Net purchase – Closing stock
= 45,000 + 1,50,000 – 25,000
= ₹ 1,70,000
Gross profit = Net sales – Cost of goods sold
= 2,50,000 – 1,70,000
= ₹ 80,000

∴ Gross Profit Ratio = (80000 ÷ 250000) × 100

Gross Profit ratio = (Gross Profit ÷ Net Sales) × 100

∴ Gross Profit Ratio = 32%

Practical problem | Q 15 | Page 379

Calculate Net Profit Ratio from the following
Sales ₹ 3,80,000
Cost of good sold ₹ 2,60,000
Indirect Exp ₹ 60,000
Solution:
Sales ₹ 3,80,000
Less: Cost of goods sold ₹ 2,60,000
Gross profit ₹ 1,20,000
Less: Indirect expense ₹ 1,60,000
Net profit ₹ 1,60,000

∴ Net Profit Ratio = (60000 ÷ 380000) × 100

Net Profit Ratio = (Net Profit ÷ Sales) × 100

∴ Net Profit Ratio = 15.79 %

Practical problem | Q 16 | Page 379

Calculate Operating Ratio

Cost of good sold ₹ 3,50,000
Operating Exp. ₹ 30,000
Sales ₹ 5,00,000
Sales Return ₹ 30,000

Solution:

Net sales = Sales – Sales return

= 5,00,000 – 30,000
= ₹ 4,70,000

∴ Operating Ratio = [(350000 + 30000) ÷ 470000] × 100

Operating ratio = [(Cost of Goods Sold + Operating Expense) ÷ Net Sales ] × 100

∴ Operating Ratio = (380000 ÷ 470000) × 100

∴ Operating Ratio = 80.85 %

Practical problem | Q 17 | Page 379

Calculate
1) Current Assets ₹ 3,00,000
2) Current Liabilities ₹ 1,00,000
What is current Ratio.
Solution:

∴ Current Ratio = 300000 / 100000

Current Ratio = Current Assets / Current Liabilities

∴ Current Ratio = 3 / 1
∴ The Current Ratio is 3:1