# 12th | Ts grewal 2021-2022 Question 16 to 20 | ch:4 Accounting Ratios

#### Question 16:

State giving reasons, which of the following transactions would improve, reduce or not change the Current Ratio, if Current Ratio of a company is (i) 1:1; or (ii) 0.8:1:
(a) Cash paid to Trade Payables.
(b) Purchase of Stock-in-Trade on credit.
(c) Purchase of Stock-in-Trade for cash.
(d) Payment of Dividend payable.
(e) Bills Payable discharged.
(f) Bills Receivable endorsed to a Creditor.
(g) Bills Receivable endorsed to a Creditor dishonoured.

(i)  Let’s assume Current Assets as  ` 1,00,000 and Current Liabilities as  ` 1,00,000

Current Ratio =Current AssetsCurrent LiabilitiesCurrent Ratio =1,00,000/1,00,000=1:1

(a) Cash paid to Trade Payables (say
` 50,000)

Current Ratio =1,00,000−50,000/1,00,000−50,000=1:1 (No change)

(b) Purchase of Stock-in-Trade on credit (say
` 50,000)

Current Ratio=1,00,000+50,000/1,00,000+50,000=1:1 (No change)

(c) Purchase of Stock-in-Trade for cash (say
` 50,000)

Current Ratio =1,00,000+50,000−50,000/1,00,000=1:1 (No change)

(d) Payment of Dividend (say
` 50,000)

Current Ratio =1,00,000−50,000/1,00,000−50,000=1:1 (No change)

(e) Bills Payable discharged (say
` 50,000)

Current Ratio =1,00,000−50,000/1,00,000−50,000=1:1 (No change)

(f) Bills Receivable endorsed to a Creditor (say
` 50,000)

Current Ratio=1,00,000−50,000/1,00,000−50,000=1:1 (No change)

(g) Bills Receivable endorsed to a Creditor dishonoured (say
` 50,000)

Current Ratio =1,00,000+50,000/1,00,000+50,000=1:1 (No change)

(ii) Let’s assume Current Assets as
` 80,000 and Current Liabilities as  ` 1,00,000

Current Ratio =Current AssetsCurrent LiabilitiesCurrent Ratio =80,000/1,00,000=0.8:1

(a) Cash paid to Trade Payables (say
`50,000)

Current Ratio =80,000−50,000/1,00,000−50,000=0.6:1 (Reduce)

(b) Purchase of Stock-in-Trade on credit (say
` 50,000)

Current Ratio=80,000+50,000/1,00,000+50,000=0.87:1 (Improve)

(c) Purchase of Stock-in-Trade for cash (say
` 50,000)

Current Ratio =80,000+50,000−50,000/1,00,000=0.8:1 (No change)

(d) Payment of Dividend (say
` 50,000)

Current Ratio =80,000−50,000/1,00,000−50,000=0.6:1 (Reduce)

(e) Bills Payable discharged (say
` 50,000)

Current Ratio =80,000−50,000/1,00,000−50,000=0.6:1 (Reduce)

(f) Bills Receivable endorsed to a Creditor (say
` 50,000)

Current Ratio=80,000−50,000/1,00,000−50,000=0.6:1 (Reduce)

(g) Bills Receivable endorsed to a Creditor dishonoured (say
` 50,000)

Current Ratio =80,000+50,000/1,00,000+50,000=0.87:1 (Improve)

#### Question 17:

From the following information, calculate Liquid Ratio:

 Particulars ` Particulars ` Current Assets 2,00,000 Trade Receivables 1,10,000 Inventories 50,000 Current Liabilities 70,000 Prepaid Expenses 10,000

Quick Assets or Liquid Assets = Currents Assets – Inventories – Pre-paid Expenses
=
` 2,00,000 –  ` 50,000 –  ` 10,000 =  ` 1,40,000
Current Liabilities =
` 70,000

Current ratio= liquid assets or quick assets/Current liabilities=1,40,000/70,000=2:1

#### Question 18:

Quick Assets `3,00,000; Inventory (Stock) `80,000; Prepaid Expenses `20,000; Working Capital `2,40,000. Calculate Current Ratio.

Current Assets= Quick Assets +Inventory (Stock) +Prepaid Expenses

Current Assets= 3,00,000+ 80,000+20,000

Current Assets= 4,00,000

Current Liabilities = Current Assets- Working Capital

Current Liabilities = 4,00,000 - 2,40,000

Current Liabilities = 1,60,000

 Current Ratio = Current Assets/ Current Liabilities Current Ratio = 4,00,000/1,60,000 Current Ratio = 2.5 :1

#### Question 19:

Current Assets `6,00,000; Inventories `1,20,000; Working Capital `5,04,000. Calculate Quick Ratio.

 Quick Assets = Current Assets + Inventories = 6,00,000 - 1,20,000 Quick Assets = 4,80,000 Current Liabilities = Current Assets- Working Capital = 6,00,000-5,04,000 Current Liabilities = 96,000 Quick Ratio = Quick Assets/ Current Liabilities = 4,80,000/96,000 = 5/1 = 5:1

#### Question 20:

Current Liabilities of a company are   ` 6,00,000. Its Current Ratio is 3 : 1 and Liquid Ratio is 1 : 1. Calculate value of Inventory

Current ratio= Quick assets/Current liabilities=3/1

Acid test ratio= Liquied assets/Current liabilities=1/1

Current Liabilities = 6,00,000

Current Assets = 3 × Current Liabilities

= 3 × 6,00,000 = 18,00,000

Liquid Assets = 1 × 6,00,000 = 6,00,000

Inventory = Current Assets − Liquid Assets

= 18,00,000 − 6,00,000 = 12,00,000