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CAIIB - ABM- CASE STUDIES / NUMERICAL QUESTIONS

Ratio Analysis - Liquidity Ratios
-------------------------------------

Calculate Current Ratio from the following information:

Inventories - 50,000
Trade receivables - 50,000
Advance tax - 4,000
Cash and cash equivalents - 30,000
Trade payables - 1,00,000
Short-term borrowings (bank overdraft) - 4,000

a. 1:1.21
b. 1:1.29
c. 1.21:1
d. 1.29:1

Ans - d

Solution:

Current Ratio = Current Assets/Current Liabilities

Current Assets = Inventories + Trade receivables + Advance tax + Cash and cash equivalents
= Rs. 50,000 + Rs. 50,000 + Rs. 4,000 + Rs. 30,000
= Rs. 1,34,000

Current Liabilities = Trade payables + Short-term borrowings
= Rs. 1,00,000 + Rs. 4,000
= Rs. 1,04,000

Current Ratio = Rs.1,34,000/Rs.1,04,000
=1.29:1

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

Calculate the current ratio from the following information:

Total assets = Rs. 3,00,000
Non-current liabilities = Rs. 80,000
Shareholders’ Funds = Rs. 2,00,000
Non-Current Assets:
Fixed assets = Rs. 1,60,000
Non-current Investments = Rs. 1,00,000

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

Ans - d

Solution:

Total assets = Non-current assets + Current assets
Rs. 3,00,000 = Rs. 2,60,000 + Current assets
Current assets = Rs. 3,00,000 – Rs. 2,60,000 = Rs. 40,000

Total assets = Equity and Liabilities
= Shareholders’ Funds + Non-current liabilities + Current liabilities
Rs. 3,00,000 = Rs. 2,00,000 + Rs. 80,000 + Current Liabilities
Current liabilities = Rs. 3,00,000 – Rs. 2,80,000 = Rs. 20,000

Current Ratio = Current Assets/Current Liabilities
= Rs. 40,000/Rs. 20,000
= 2:1

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

Calculate quick ratio from the following information:

Inventories - 50,000
Trade receivables - 50,000
Advance tax - 4,000
Cash and cash equivalents - 30,000
Trade payables - 1,00,000
Short-term borrowings (bank overdraft) - 4,000

a. 1:0.66
b. 1:0.77
c. 0.66:1
d. 0.77:1

Ans - d

Solution:

Quick Ratio = Quick Assets/Current Liabilities
Quick Assets = Current assets – (Inventories + Advance tax)
= Rs. 1,34,000 – (Rs. 50,000 + Rs. 4,000)
= Rs. 80,000

Current Liabilities = Trade payables + Short-term borrowings
= Rs. 1,00,000 + Rs. 4,000
= Rs. 1,04,000

Quick Ratio = Rs. 80,000/Rs. 1,04,000
= 0.77:1

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

Calculate ‘Liquidity Ratio’ from the following information:

Current liabilities = Rs. 50,000
Current assets = Rs. 80,000
Inventories = Rs. 20,000
Advance tax = Rs. 5,000
Prepaid expenses = Rs. 5,000

a. 1:1.5
b. 1:1.33
c. 1:1
d. 1.33:1

Ans - c

Solution :

Liquidity Ratio = Liquid Assets/Current Liabilities
Liquidity Assets = Current assets –(Inventories + Prepaid expenses + Advance tax)
= Rs. 80,000 – (Rs. 20,000 + Rs. 5,000 + Rs. 5,000)
= Rs. 50,000

Liquidity Ratio = Rs. 50,000/Rs. 50,000
= 1:1

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

X Ltd., has a current ratio of 3.5:1 and quick ratio of 2:1. If excess of current assets over quick assets represented by inventories is Rs. 24,000, calculate
current assets and current liabilities.

a. 42000, 12000
b. 49000, 14000
c. 56000, 16000
d. 63000, 18000

Ans - c

Solution :

Current Ratio = 3.5:1
Quick Ratio = 2:1
Let Current liabilities = x
Current assets = 3.5x
and Quick assets = 2x

Inventories = Current assets – Quick assets
24,000 = 3.5x – 2x
24,000 = 1.5x
x = Rs.16,000
Current Liabilities = Rs.16,000

Current Assets = 3.5x = 3.5 × Rs. 16,000 = Rs. 56,000.

Verification :
Current Ratio = Current assets : Current liabilities
= Rs. 56,000 : Rs. 16,000
= 3.5 : 1
Quick Ratio = Quick assets : Current liabilities
= Rs. 32,000 : Rs. 16,000
= 2 : 1

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