# 12th | Ts grewal 2021-2022 Question 31 to 35 | ch:4 Accounting Ratios

#### Question 31:

Venus Limited's Inventory is  `3,00,000. Total Liquid Assets are  `12,00,000 and Quick Ratio is 2:1. Work out Current Ratio.

#### Answer:

Quick ratio = Quick Assets/Current assets=2:1

Quick Assets = 12,00,000

Current liabilities Quick assets/2=12,00,000/2=6,00,000

Current Assets = Quick Assets + Stock

= 12,00,000 + 3,00,000 = 15,00,000

Current ratio= Current assets / Current liabilities=15,00,000/6,00,000=2.5:1

#### Question 32:

Total Assets  `11,00,000; Fixed Assets  `5,00,000; Capital Employed  `10,00,000. There were no Long-term Investments.
Calculate Current Ratio.

#### Answer:

Current Assets = Total Assets − Fixed Assets

Fixed Assets = 5,00,000

Total Assets = 11,00,000

Current Assets = 11,00,000 − 5,00,000 = 6,00,000

Current Liabilities = Total Assets − Capital Employed

= 11,00,000 − 10,00,000 = 1,00,000

Current ratio= Current Assets/ Current liabilities=6,00,000/1,00,000=6:1

#### Question 33:

Capital Employed  `20,00,000; Fixed Assets  `14,00,000; Current Liabilities  `2,00,000. There are no Long-term Investments. Calculate Current Ratio.

#### Answer:

Capital Employed = 20,00,000

Fixed Assets = 14,00,000

Current Assets = Capital Employed + Current Liabilities − Fixed Assets

= 20,00,000 + 2,00,000 − 14,00,000 = 8,00,000

Current ratio= Current Assets/ Current liabilities=8,00,000/2,00,000=4:1

#### Question 34:

From the following calculate: (i) Current Ratio; and (ii) Quick Ratio:

 ` ` Total Debt 12,00,000 Long-term Borrowings 4,00,000 Total Assets 16,00,000 Long-term Provisions 4,00,000 Fixed Assets (Tangible) 6,00,000 Inventories 1,90,000 Non-current Investment 1,00,000 Prepaid Expenses 10,000 Long-term Loans and Advances 1,00,000

#### Answer:

(i)                 Current ratio

Current RatioCurrent Assets=Total Assets-Fixed Assets-Non-Current Investment - Long term Loans and Advances

=16,00,000-6,00,000-1,00,000-1,00,000= ` 8,00,000

Current Liabilities=Total Debt - Non-Current Liabilities

=12,00,000-4,00,000-4,00,000= ` 4,00,000

Current Ratio=Current AssetsCurrent Liabilities

=8,00,000/4,00,000=2:1

(ii)              ​ Quick Ratio

Quick Assets=Current Assets-Stock-Prepaid Expenses

=8,00,000-1,90,000−10,000= ` 6,00,000

Quick Ratio=Quick Assets/Current Liabilities

=6,00,000/4,00,000=1.5:1

#### Question 35:

Following is the Balance Sheet of Crescent Chemical Works Limited as at 31st March, 2021:

 Particulars Note No. ` I. EQUITY AND LIABILITIES : 1. Shareholder's Funds : (a) Share Capital 70,000 (b) Reserves and Surplus 35,000 2. Non-Current Liabilities : Long-term Borrowings 25,000 3. Current Liabilities : (a) Short-term Borrowings 3,000 (b) Trade Payables (Creditors) 13,000 (b) Short-term Provisions: Provision for Tax 4,000 Total 1,50,000 II. ASSETS : 1. Non-Current Assets (a) Fixed Assets (Tangible) 45,000 (b) Non-current Investments 5,000 2. Current Assets (a) Inventories (Stock) 50,000 (b) Trade Receivables (Debtors) 30,000 (c) Cash and Cash Equivalents 20,000 Total 1,50,000

Compute Current Ratio and Liquid Ratio

#### Answer:

Current Assets = Inventory + Trade Receivables + Cash and Cash Equivalents

= 50,000 + 30,000 + 20,000 = 1,00,000

Current Liabilities = Short-term Borrowings + Trade Payables + Provision for Tax

= 3,000 + 13,000 + 4,000 = 20,000

Quick Assets = Trade Receivables + Cash and Cash Equivalents

= 30,000 + 20,000 = 50,000

Current ratio= Current Assets/ Current liabilities=1,00,000/20,000=5:1

Quick ratio= Liquid Assets/ Current liabilities=50,000/20,000=2.5:1

Comments:

1. Ideal Current Ratio for a business is considered to be 2:1. But in this case the ratio is quite high i.e. 5:1. This may be due to the following reasons:

(i) Blockage of Funds in Stock

(ii) High Amount outstanding from Debtors

(iii)            Huge Cash and Bank Balances

2. Ideal Quick Ratio of a business is supposed to be 1:1. This implies that Liquid Assets should be equal to the Current Liabilities. But in the given case Quick Ratio is 2.5 : 1 which indicates that the Liquid Assets are quite high in comparison to the Current Liabilities.