Question

(a) A firm has the following current assets Cash Rs. 1,05,000, inventories Rs. 5,60,000 and debtors Rs. 4,20,000. If the current ratio of the firm is 2:1, calculate its current liabilities.

(b) A company has closing inventory worth of Rs. 1,50,000 and cost of goods old Rs. 9,75,000. If the company’* turnover ratio is 5, determine the opening balance of inventory.

Answer 1

(a) Computation of Current Assets

| Cash | 1,05,000 |
| Stock | 5,60,000 |
| Debtors | 4,20,000 |
| Total current assets | 10,85,000 |

Current Ratio = Current Assets / Current Liabilities

2 = 10,85,000 / Current Liabilties

Current liabilities = 10,85,000 / 2

Current liabilities = Rs. 5,42,500

(b) Stock Turnover Ratio = Cost of goods sold / average inventory Where, Average inventory = (opening stock + closing stock) /2

= (opening stock + 1,50,000) /2

5 = 9,75,000 / [(opening stock + 1,50,000) /2]

5 = 19,50,000 / (opening stock + 1,50,000)

5(Opening stock + 1,50,000) = 19,50,000

5 × Opening stock + 7,50,000=19,50,000

Opening stock = (19,50,000–7,50,000) / 5

Opening stock = Rs. 2,40,000