Question 22 Chapter 4 of +2-B - USHA Publication 12 Class

Question 22 Chapter 4 of +2-B

I. Liquidity Ratios

22. (Calculation of Current assets) A company’s inventory turnover id 5 times. Inventory at the end
of the year is ₹ 4,000 more than the inventory at the beginning of the year. Sales (Revenue from Operation) during the year (all credit) were ₹ 3,00,000. The rate of gross profit on the sale is 20%. Current liabilities at the end of the year were ₹ 60,000. The quick ratio is 1: 1.
Calculate the Current assets at the end of the year.

The solution of Question 22 Chapter 4 of +2-B: –

Current Assets	=	Quick Assets + Closing inventory
Current Liabilities	=	₹ 60,000
Quick ratio	=	1 : 1
Quick Assets	=	₹ 60,000
Inventory turnover ratio	=	5 times
Sales	=	₹ 3,00,000
Rate of gross profit on sale	=	20%
Cost of goods sold	=	₹ 2,40,000

Inventory turnover ratio	=	Cost of goods sold
		Average Inventory

5 times	=	Cost of goods sold
		Average Inventory

Let assume that opening inventory	=	x
	=	X + ₹ 4,000

5 times	=	₹ 2,40,000
5 times	=	x + (x + ₹ 4,000)
		2

5 times	=	₹ 2,40,000
5 times	=	2x + ₹ 4,000)
		2

Inventory turnover ratio	=	₹ 2,40,000
		x + ₹ 2,000)

5 (x + ₹ 2,000)	=	₹ 2,40,000
5x + ₹10,000	=	₹ 2,40,000
5x + ₹10,000	=	₹ 2,40,000 – ₹ 10,000
5x	=	₹ 2,30,000

X	=	₹ 2,30,000
		5

x	=	₹ 46,000
Opening Inventory	=	₹ 46,000
Closing Inventory	=	₹ 46,000 + ₹ 4,000
Closing Inventory	=	₹ 50,000
New Current Assets	=	Quick Assets + Closing Inventory
	=	₹ 60,000 + ₹ 50,000
	=	₹ 1,10,000

What are Liquidity Ratios – Formulas and Examples

Comment if you have any question.

End of Solution

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