Question

A Ltd. provides the following information (₹):
(i)Closing Stock 1,00,000;
(ii)Creditors 86,000;
(iii)Cash 20,000;
(iv)Bills Receivable 18,000;
(v)Sales 6,00,000;
(vi)Fixed Assets 1,20,000;
(vii)Bank 42,000;
(viii)Bank Overdraft 34,000.
You are required to calculate:
(a) Current Ratio, (b) Quick Ratio, (c) Stock Turnover Ratio, (d) Fixed Asset Turnover Ratio.

Hint:

Always classify first: Cash, Bank, B/R and Stock are Current Assets; Overdraft is a Current Liability. If COGS/opening stock aren’t provided, many exam sets accept \(\text{Stock Turnover}=\dfrac{\text{Sales}}{\text{Closing Stock}}\) as an approximation—state the assumption.

Answer 1

Step 1: Classify the items.
\emph{Current Assets} \(=\) Cash 20,000 \(+\) Bank 42,000 \(+\) Bills Receivable 18,000 \(+\) Closing Stock 1,00,000 \(=\) \(\mathbf{1,80,000}\).
\emph{Quick (Liquid) Assets} \(=\) Current Assets \(-\) Stock \(=\) \(1,80,000 - 1,00,000 = \mathbf{80,000}\).
\emph{Current Liabilities} \(=\) Creditors 86,000 \(+\) Bank Overdraft 34,000 \(=\) \(\mathbf{1,20,000}\).
\emph{Fixed Assets} \(=\) \(\mathbf{1,20,000}\). \quad \emph{Net Sales} (assumed sales) \(=\) \(\mathbf{6,00,000}\). (a) Current Ratio.
\[ \text{Current Ratio}=\frac{\text{Current Assets}}{\text{Current Liabilities}} =\frac{1,80,000}{1,20,000}=1.5:1. \] (b) Quick (Acid-Test) Ratio.
\[ \text{Quick Ratio}=\frac{\text{Quick Assets}}{\text{Current Liabilities}} =\frac{80,000}{1,20,000}=0.666\ldots \approx 0.67:1. \] (c) Stock (Inventory) Turnover Ratio.
Standard formula is \(\dfrac{\text{Cost of Goods Sold}}{\text{Average Stock}}\). As opening stock/COGS are \emph{not} given, we use the exam convention \(\dfrac{\text{Sales}}{\text{Closing Stock}}\) (when no other data are available). \[ \text{Stock Turnover}=\frac{6,00,000}{1,00,000}=6\ \text{times}. \] (d) Fixed Asset Turnover Ratio.
\[ \text{Fixed Asset Turnover}=\frac{\text{Net Sales}}{\text{Fixed Assets}} =\frac{6,00,000}{1,20,000}=5\ \text{times}. \]
Final Answer: \[ \boxed{\text{Current }=1.5:1,\ \text{Quick }\approx 0.67:1,\ \text{Stock Turnover }=6\text{ times},\ \text{Fixed-Asset Turnover }=5\text{ times}} \] % Quciktip