The following is the information of Govind Trading Co. Ltd. : Estimated annual sales ₹20,00,000 Ratios— Sales to shareholders' fund 2.5 times Current debts (liabilities) to shareholders' fund 1 : 4 Current ratio 3.6 time

CS Executive · Corporate and Management Accounting · PYQS · December 2018
The following is the information of Govind Trading Co. Ltd. : Estimated annual sales ₹20,00,000 Ratios— Sales to shareholders' fund 2.5 times Current debts (liabilities) to shareholders' fund 1 : 4 Current ratio 3.6 times Ratio of net sales to inventory 4 times Average collection period (taking 360 days in a year) 36 days You are required to calculate : (i) Net worth or Shareholders' fund (ii) Current liabilities (iii) Current assets (iv) Inventory (v) Debtors.

Answer & Explanation:

(i) Net Worth or Shareholders' Fund = ₹8,00,000 (ii) Current Liabilities = ₹2,00,000 (iii) Current Assets = ₹7,20,000 (iv) Inventory = ₹5,00,000 (v) Debtors = ₹2,00,000 Working Notes: (i) Sales to Net Worth = Sales / Net Worth 2.5 = 20,00,000 / Net Worth Net Worth = 20,00,000 / 2.5 Net Worth = 8,00,000 (ii) Current Liabilities (Debt) = 1:4 or 25% of Net Worth = 8,00,000 * 25 / 100 = ₹2,00,000 (iii) Current Ratio = Current Assets / Current Liabilities 3.6 = Current Assets / 2,00,000 Current Assets = 2,00,000 * 3.6 Current Assets = 7,20,000 (iv) Net Sales to Inventory = Net Sales / Inventory 4 = 20,00,000 / Inventory Inventory = 20,00,000 / 4 Inventory = 5,00,000 (v) Average Collection Period = Debtors * 360 / Sales 36 = Debtors * 360 / 20,00,000 Debtors = 2,00,000

Topics: Management Accounting

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