Discover answers to your most pressing questions at Westonci.ca, the ultimate Q&A platform that connects you with expert solutions. Get precise and detailed answers to your questions from a knowledgeable community of experts on our Q&A platform. Explore comprehensive solutions to your questions from knowledgeable professionals across various fields on our platform.
Sagot :
Let's compute each of the required ratios step by step based on the given data:
1. Current Assets and Current Liabilities:
- Cash in hand: ₹30,000
- Trade Receivables: ₹15,000
- Inventory: ₹10,000
- Prepaid Expenses: ₹5,000
- Bills Payable: ₹2,000
- Creditors: ₹16,000
2. Current Assets:
[tex]\[ \text{Current Assets} = \text{Cash in hand} + \text{Trade Receivables} + \text{Inventory} + \text{Prepaid Expenses} \][/tex]
[tex]\[ \text{Current Assets} = 30,000 + 15,000 + 10,000 + 5,000 = ₹60,000 \][/tex]
3. Current Liabilities:
[tex]\[ \text{Current Liabilities} = \text{Bills Payable} + \text{Creditors} \][/tex]
[tex]\[ \text{Current Liabilities} = 2,000 + 16,000 = ₹18,000 \][/tex]
### (a) Working Capital Ratio
The Working Capital Ratio, also known as the Current Ratio, is calculated as:
[tex]\[ \text{Working Capital Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} \][/tex]
[tex]\[ \text{Working Capital Ratio} = \frac{60,000}{18,000} \approx 3.33 \][/tex]
### (b) Acid Test Ratio
The Acid Test Ratio, also known as the Quick Ratio, is calculated by excluding inventory and prepaid expenses from current assets:
[tex]\[ \text{Quick Assets} = \text{Cash in hand} + \text{Trade Receivables} \][/tex]
[tex]\[ \text{Quick Assets} = 30,000 + 15,000 = ₹45,000 \][/tex]
[tex]\[ \text{Acid Test Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}} \][/tex]
[tex]\[ \text{Acid Test Ratio} = \frac{45,000}{18,000} = 2.5 \][/tex]
### (c) Inventory Turnover Ratio
This ratio evaluates how often inventory is turned into sales. It is typically calculated as:
[tex]\[ \text{Net Purchases} = \text{Purchases} - \text{Purchases Returns} \][/tex]
[tex]\[ \text{Net Purchases} = 35,000 - 5,000 = ₹30,000 \][/tex]
Assuming the entire inventory is used up in the period:
[tex]\[ \text{Cost of Goods Sold} = \text{Net Purchases} + \text{Beginning Inventory} - \text{Ending Inventory} \][/tex]
Since Beginning and Ending Inventory are the same:
[tex]\[ \text{Cost of Goods Sold} = 30,000 \][/tex]
[tex]\[ \text{Inventory Turnover Ratio} = \frac{\text{Cost of Goods Sold}}{\text{Inventory}} \][/tex]
[tex]\[ \text{Inventory Turnover Ratio} = \frac{30,000}{10,000} = 3.0 \][/tex]
### (d) Payable Turnover Ratio
This ratio measures how quickly the company pays off its suppliers:
[tex]\[ \text{Payable Turnover Ratio} = \frac{\text{Net Purchases}}{\text{Creditors}} \][/tex]
[tex]\[ \text{Payable Turnover Ratio} = \frac{30,000}{16,000} = 1.875 \][/tex]
### (e) Average Time of Payment
The average period it takes for the company to pay off its creditors is calculated as:
[tex]\[ \text{Average Time of Payment} = \frac{365}{\text{Payable Turnover Ratio}} \][/tex]
[tex]\[ \text{Average Time of Payment} = \frac{365}{1.875} \approx 194.67 \text{ days} \][/tex]
Thus, the final computed values are:
(a) Working Capital Ratio = 3.33
(b) Acid Test Ratio = 2.5
(c) Inventory Turnover Ratio = 3.0
(d) Payable Turnover Ratio = 1.875
(e) Average Time of Payment = 194.67 days
1. Current Assets and Current Liabilities:
- Cash in hand: ₹30,000
- Trade Receivables: ₹15,000
- Inventory: ₹10,000
- Prepaid Expenses: ₹5,000
- Bills Payable: ₹2,000
- Creditors: ₹16,000
2. Current Assets:
[tex]\[ \text{Current Assets} = \text{Cash in hand} + \text{Trade Receivables} + \text{Inventory} + \text{Prepaid Expenses} \][/tex]
[tex]\[ \text{Current Assets} = 30,000 + 15,000 + 10,000 + 5,000 = ₹60,000 \][/tex]
3. Current Liabilities:
[tex]\[ \text{Current Liabilities} = \text{Bills Payable} + \text{Creditors} \][/tex]
[tex]\[ \text{Current Liabilities} = 2,000 + 16,000 = ₹18,000 \][/tex]
### (a) Working Capital Ratio
The Working Capital Ratio, also known as the Current Ratio, is calculated as:
[tex]\[ \text{Working Capital Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} \][/tex]
[tex]\[ \text{Working Capital Ratio} = \frac{60,000}{18,000} \approx 3.33 \][/tex]
### (b) Acid Test Ratio
The Acid Test Ratio, also known as the Quick Ratio, is calculated by excluding inventory and prepaid expenses from current assets:
[tex]\[ \text{Quick Assets} = \text{Cash in hand} + \text{Trade Receivables} \][/tex]
[tex]\[ \text{Quick Assets} = 30,000 + 15,000 = ₹45,000 \][/tex]
[tex]\[ \text{Acid Test Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}} \][/tex]
[tex]\[ \text{Acid Test Ratio} = \frac{45,000}{18,000} = 2.5 \][/tex]
### (c) Inventory Turnover Ratio
This ratio evaluates how often inventory is turned into sales. It is typically calculated as:
[tex]\[ \text{Net Purchases} = \text{Purchases} - \text{Purchases Returns} \][/tex]
[tex]\[ \text{Net Purchases} = 35,000 - 5,000 = ₹30,000 \][/tex]
Assuming the entire inventory is used up in the period:
[tex]\[ \text{Cost of Goods Sold} = \text{Net Purchases} + \text{Beginning Inventory} - \text{Ending Inventory} \][/tex]
Since Beginning and Ending Inventory are the same:
[tex]\[ \text{Cost of Goods Sold} = 30,000 \][/tex]
[tex]\[ \text{Inventory Turnover Ratio} = \frac{\text{Cost of Goods Sold}}{\text{Inventory}} \][/tex]
[tex]\[ \text{Inventory Turnover Ratio} = \frac{30,000}{10,000} = 3.0 \][/tex]
### (d) Payable Turnover Ratio
This ratio measures how quickly the company pays off its suppliers:
[tex]\[ \text{Payable Turnover Ratio} = \frac{\text{Net Purchases}}{\text{Creditors}} \][/tex]
[tex]\[ \text{Payable Turnover Ratio} = \frac{30,000}{16,000} = 1.875 \][/tex]
### (e) Average Time of Payment
The average period it takes for the company to pay off its creditors is calculated as:
[tex]\[ \text{Average Time of Payment} = \frac{365}{\text{Payable Turnover Ratio}} \][/tex]
[tex]\[ \text{Average Time of Payment} = \frac{365}{1.875} \approx 194.67 \text{ days} \][/tex]
Thus, the final computed values are:
(a) Working Capital Ratio = 3.33
(b) Acid Test Ratio = 2.5
(c) Inventory Turnover Ratio = 3.0
(d) Payable Turnover Ratio = 1.875
(e) Average Time of Payment = 194.67 days
We hope our answers were helpful. Return anytime for more information and answers to any other questions you may have. We appreciate your visit. Our platform is always here to offer accurate and reliable answers. Return anytime. Get the answers you need at Westonci.ca. Stay informed with our latest expert advice.
