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CAIIB - ABM- CASE STUDIES / NUMERICAL QUESTIONS

Ratio Analysis - Solvency Ratios
---------------------------------------

A company has 1,00,000 of bank lines of credit and a 5,00,000 mortgage on its property. The shareholders of the company have invested 12,00,000. Calculate the debt to equity ratio.

DER = TL / Total Equity
= (100000+500000) / 1200000
= 600000 / 1200000
= 0.5

.................................

A company has total assets at 1,50,000 and its total liabilities are 50,000. Based on the accounting equation, we can assume the total equity is 1,00,000. Find the Equity Ratio.

ER = Total Equity / TA
= 100000 / 150000
= 0.67

.................................

A company has total assets at 1,50,000 and its total liabilities are 50,000. Based on the accounting equation, we can assume the total equity is 1,00,000. Find the Debt Ratio.

DR = TL / TA
= 50000 / 150000
= 0.33

.................................

A company has 1,00,000 of bank lines of credit and a 5,00,000 mortgage on its property. The shareholders of the company have invested 12,00,000. Calculate the debt to equity ratio.

a. 0.25
b. 0.5
c. 0.75
d. 1

Ans - b

Solution :
DER = TL / Total Equity
= (100000+500000) / 1200000
= 600000 / 1200000
= 0.5
.................................

A company has total assets at 1,50,000 and its total liabilities are 50,000. Based on the accounting equation, we can assume the total equity is 1,00,000. Find the Equity Ratio.

a. 0.33
b. 0.5
c. 0.67
d. 0.75

Ans – c
Solution :
ER = Total Equity / TA
= 100000 / 150000
= 0.67
.............................................

In balance sheet, amount of total assets is Rs 10 lac, current liabilities Rs 5 lac and capital and reserves Rs 2 lac. What is the debt-equity ratio?

a. 1:1
b. 1.5:1
c. 1.75:1
d. 2:1

Ans - b

Let me Explain

As per Balance sheet rule Total assets = Total liabilities
Since total assets here is Rs 10 lac hence total liabilities must be 10 lac.
Now Long term debt = 10-(5+2) = 3 lac and capital + reserve(TNW i.e tangible net worth) = 2 lac
Since DER = TL/TNW or debt/equity or TL/equity hence 3/2 = 1.5 : 1
.............................................

DER is 3:1, the amount of total assets Rs 20 lac, current ratio is 1.5:1 and owned funds Rs 3 lac. What is amount of current assets?

a. 3 lac
b. 5 lac
c. 12 lac
d. 15 lac

Ans - c

Let me Explain

Owned fund = equity = 3 lac
Since DER = 3:1
i.e Debt : equity = 3:1
Hence Debt = 9 lac
(if we consider debt and equity as long term liabilities then term liability works out to 12(9+3 lac)
Here total assets is 20 lac
Now as per balance sheet equation total Assets = total liabilities
Hence here total liabilities will also be 20 lac.
Now as the term liabilities is Rs 12 lac, current liabilities will be Rs 8 lac (20-12=8)
CR=1.5:1, so
1.5:1=CA:8
i.e CA= 1.5×8=12 lac
.............................................

In balance sheet, amount of total assets is Rs 20 lac, current liabilities Rs 5 lac and capital and reserves Rs 2 lac. What is the debt-equity ratio?

a. 1:1
b. 1.5:1
c. 1.75:1
d. 2:1

Ans - d

Let me Explain

As per Balance sheet rule Total assets = Total liabilities
Since total assets here is Rs 20 lac hence total liabilities must be 20 lac.
Now Long term debt = 20-(5+5) = 10 lac and capital + reserve(TNW i.e tangible net worth) = 5 lac
Since DER = TL/TNW or debt/equity or TL/equity hence 10/5 = 2 : 1
.............................................

DER is 2:1, the amount of total assets Rs 40 lac, current ratio is 1:1 and owned funds Rs 10 lac. What is amount of current assets?

a. 8 lac
b. 10 lac
c. 12 lac
d. 15 lac

Ans - b

Let me Explain

Owned fund = equity = 10 lac
Since DER = 2:1
i.e Debt : equity = 2:1
Hence Debt = 20 lac
(if we consider debt and equity as long term liabilities then term liability works out to 30 (20+10 lac)
Here total assets is 40 lac
Now as per balance sheet equation total Assets = total liabilities
Hence here total liabilities will also be 40 lac.
Now as the term liabilities is Rs 30 lac, current liabilities will be Rs 10 lac (40-30=10)
CR=1:1, so
1:1=CA:10
i.e CA= 1×10=10 lac

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