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Liabilities (Rs.)
5000 equity shares Rs. 10 each - 500000
8% 2000 pre shares Rs. 100 each - 200000
9% 4000 Debentures of Rs. 100 each - 400000
Reserves - 300000
Creditors - 150000
Bank overdraft - 50000
Assets (Rs.)
Land & Building - 500000
Plant & Machinery - 600000
Debtors - 200000
Stock - 240000
Cash and Bank - 55000
Prepaid expenses - 5000
From the above particulars pertaining to Assets and Liabilities of a company calculate :
1. Current Ratio
a. 0.6 : 1
b. 0.75 : 1
c. 1.7 : 1
d. 2.5 : 1
Ans - d
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2. Liquidity Ratio
a. 0.6 : 1
b. 0.75 : 1
c. 1.7 : 1
d. 2.5 : 1
Ans - c
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3. Proprietary Ratio
a. 0.6 : 1
b. 0.625 : 1
c. 0.75 : 1
d. 2.5 : 1
Ans - b
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4. Debt-equity Ratio
a. 0.6 : 1
b. 0.625 : 1
c. 0.75 : 1
d. 2.5 : 1
Ans - a
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5. Capital Gearing Ratio
a. 0.6 : 1
b. 0.625 : 1
c. 0.75 : 1
d. 2.5 : 1
Ans - c
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Solution :
1. d
Current Ratio = Current Assets / Current Liabilities
Current Assets = Stock + Cash + Prepaid Expenses + Debtors
= 2,40,000 + 55,000 + 5,000 + 2,00,000 = 5,00,000
Current Liabilities = Creditors + Bank Overdraft
= 1,50,000 + 50,000 = 2,00,000
Current Ratio = 5,00,000 / 2,00,000
= 2.5 : 1
2. c
Liquid Ratio = Liquid Assets / Liquid Liabilities
Liquid Assets = Cash and Bank + Debtors
= 55,000 + 2,00,000 = 2,55,000
Liquid Liabilities : Creditors = 1,50,000
Liquid Ratio = 2,55,000 / 1,50,000
= 1.7 : 1
3. b
Proprietor’s Ratio = Proprietor’s Fund / Total Tangible Assets
Proprietor’s Fund = Equity Share Capital + Preference Share Capital + Reserves and Surplus
= 5,00,000 + 2,00,000 + 3,00,000 = 10,00,000
Proprietary Ratio = 10,00,000 / 16,00,000
= 0.625 : 1
4. a
Debt–Equity Ratio = External Equities / Internal Equities
External Equities = Long-term Liabilities + Short-term Liabilities
= 4,00,000 + 2,00,000 = 6,00,000
Internal Equities = Proprietor’s funds
Debt–Equity Ratio = 6,00,000 / 10,00,000
= 0.6 : 1
5. c
Capital Gearing Ratio = Fixed Interest Bearing Securities / (Equity Share Capital + Reserves)
Fixed Interest Bearing Securities = Preference Shares + Debentures
= 2,00,000 + 4,00,000 = 6,00,000
Capital Gearing Ratio = 6,00,000 / 8,00,000
= 0.75 : 1
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ABC Ltd completed the transactions listed below. State whether each of the below given transaction would cause the ratio listed opposite it to increase, decrease or remain unchanged.
1.Redeemed debentures by issuing ordinary shares - Rate of return on ordinary shareholders’ equity
a. Increase
b. Decrease
c. Remain unchanged
d. None of the above
Ans - b
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2.Purchased inventory on credit - Quick ratio
a. Increase
b. Decrease
c. Remain unchanged
d. None of the above
Ans - b
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3.Sold inventory for cash - Current ratio
a. Increase
b. Decrease
c. Remain unchanged if sales price is equal to cost. Increase if sales price is greater than cost
d. None of the above
Ans - c
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4.Issued additional ordinary shares for cash - Debt ratio
a. Increase
b. Decrease
c. Remain unchanged
d. None of the above
Ans - b
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5.Declared a cash dividend on ordinary shares - Dividend payout
a. Increase
b. Decrease
c. Remain unchanged
d. None of the above
Ans - a
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6.Paid the cash dividend - Dividend yield
a. Increase
b. Decrease
c. Remain unchanged
d. None of the above
Ans - c
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