Answer :
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
