b) The following data are from the [tex]$r$[/tex] days:

[tex]$\left.\frac{\text{Shareholders' Funds}}{\text{Outside Liabilities}}=1.4:1\right]$[/tex]
\begin{tabular}{l|r|l|l}
\hline
& ₹ & & \\
Cash in hand & 30,000 & Bills Payable & ₹ \\
Trade Receivables & 15,000 & Sales & 2,000 \\
Inventory & 10,000 & Purchases & 50,000 \\
Prepaid Exp. & 5,000 & Purchases Returns & 35,000 \\
Creditors & 16,000 & & 5,000 \\
\hline
\end{tabular}

On the basis of the above information, compute the following:

(a) Working Capital Ratio
(b) Acid Test Ratio
(c) Inventory Turnover Ratio
(d) Payable Turnover Ratio
(e) Average Time of Payment

[Ans. (a) [tex]$3.33:1$[/tex], (b) [tex]$2.5:1$[/tex], (c) 5 times, (d) [tex]$1.67:1$[/tex], (e) 219 days]



Answer :

Sure, let's go through the calculations step-by-step based on the data provided:

1. Given Data:
- Cash in Hand = ₹30,000
- Trade Receivables = ₹15,000
- Inventory = ₹10,000
- Prepaid Expenses = ₹5,000
- Creditors = ₹16,000
- Bills Payable = ₹5,000 (assuming from the table's context)
- Sales = ₹2,000
- Purchases = ₹50,000
- Purchases Returns = ₹35,000

### (a) Working Capital Ratio
Working Capital Ratio = Current Assets / Current Liabilities

- Current Assets:
- Cash in Hand = ₹30,000
- Trade Receivables = ₹15,000
- Inventory = ₹10,000
- Prepaid Expenses = ₹5,000

Total Current Assets = 30,000 + 15,000 + 10,000 + 5,000 = ₹60,000

- Current Liabilities:
- Creditors = ₹16,000
- Bills Payable = ₹5,000 (assuming from the given context)

Total Current Liabilities = 16,000 + 5,000 = ₹21,000

Working Capital Ratio = ₹60,000 / ₹21,000 ≈ 3.75

### (b) Acid Test Ratio
Acid Test Ratio = (Current Assets - Inventory) / Current Liabilities

- Current Assets - Inventory:
- Cash in Hand = ₹30,000
- Trade Receivables = ₹15,000
- Prepaid Expenses = ₹5,000

Total Current Assets excluding Inventory = 30,000 + 15,000 + 5,000 = ₹50,000

- Current Liabilities:
- Creditors = ₹16,000
- Bills Payable = ₹5,000

Total Current Liabilities = 16,000 + 5,000 = ₹21,000

Acid Test Ratio = ₹50,000 / ₹21,000 ≈ 3.125

### (c) Inventory Turnover Ratio
Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

- Cost of Goods Sold (COGS):
- Purchases = ₹50,000
- Purchase Returns = ₹35,000

COGS = ₹50,000 - ₹35,000 = ₹15,000

- Average Inventory:
- Inventory = ₹10,000 (assuming average inventory is the given inventory)

Inventory Turnover Ratio = ₹15,000 / ₹10,000 = 1.5

### (d) Payable Turnover Ratio
Payable Turnover Ratio = Purchases / Average Creditors

- Purchases:
- Purchases = ₹50,000

- Average Creditors:
- Creditors = ₹16,000 (assuming average creditors is the given creditors)

Payable Turnover Ratio = ₹50,000 / ₹16,000 ≈ 3.125

### (e) Average Time of Payment
Average Time of Payment = (365 days) / Payable Turnover Ratio

- Payable Turnover Ratio: ≈ 3.125

Average Time of Payment = 365 / 3.125 ≈ 116.8 days

### Final Answer Summary:
(a) Working Capital Ratio: 3.75

(b) Acid Test Ratio: 3.125

(c) Inventory Turnover Ratio: 1.5

(d) Payable Turnover Ratio: 3.125

(e) Average Time of Payment: 116.8 days

These results align with the calculations based on the provided data.