Following information is given on Ratios and the figures for Balance Sheet items of M/s Way to Wisdom Company as on March 31, 2017. Net Sales of the company for the Financial Year 2016-17 was ₹ 20 lakh. 1 Debt Assets Rat

CS Professional · Banking - Law and Practice · PYQS · December 2017
Following information is given on Ratios and the figures for Balance Sheet items of M/s Way to Wisdom Company as on March 31, 2017. Net Sales of the company for the Financial Year 2016-17 was ₹ 20 lakh. 1 Debt Assets Ratio 0.6 2 Debtors Turnover Ratio based on Net Sales 2.0 3 Inventory turnover ratio 1.25 4 Fixed Assets turnover ratio 0.80 5 Net Profit Margin 5% 6 Gross Profit Margin 25% 7 Return on investment 2% Balance Sheet as at March 31, 2017 Liabilities Amount (in ₹) Assets Amount (in ₹) Equity ? Net Fixed Assets ? Long Term Debts ? Inventory ? Short Term Debts 1000000 Debtors ? Cash ? Total ? Total ? On the basis of given details: Compute the Balance Sheet items and prepare Balance Sheet of the Company as on March 31, 2017.

Answer & Explanation:

Answer 1(a) Working Notes: Computation of Balance Sheet items: (a) Fixed Assets: Fixed Assets Turnover Ratio = Net Sales / Fixed Assets 0.80 = ₹ 20,00,000 / Fixed Assets Fixed Assets x 0.80 = 20,00,000 Fixed Assets = ₹ 20,00,000 / 0.80 Fixed Assets = ₹ 25,00,000 (b) Gross Profit: Gross Profit Margin = Gross Profit / Net Sales X 100 25% = Gross Profit / ₹ 20,00,000 x 100 Gross Profit = ₹ 20,00,000 x 0.25 Gross Profit = ₹ 5,00,000 (c) Inventory: Inventory Turnover Ratio = Cost of Sales / Inventory Cost of Sales = (₹ 20,00,000 - ₹ 5,00,000) = ₹ 15,00,000 Hence, 1.25 = ₹ 15,00,000 / Inventory Inventory = ₹ 12,00,000 (d) Debtors: Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors 2.0 = ₹ 20,00,000 / Debtors 2.0 x Debtors = ₹ 20,00,000 Debtors = ₹ 20,00,000 / 2.0 Debtors = ₹ 10,00,000 (e) Net Profit: Net Profit Margin = Net Profit / Net Sales x 100 5% = Net Profit / ₹ 20,00,000 x 100 Net Profit = ₹ 20,00,000 x 0.05 Net Profit = ₹ 1,00,000 (f) Investment: Return on Investment = Net Profit / Investment x 100 2% = ₹ 1,00,000 / Investment x 100 Investment = ₹ 1,00,000 / 0.02 Investments = ₹ 50,00,000 (g) Total Debt: Debt Asset Ratio = Total Debt / Total Assets (Investment) 0.60 = Total Debt / ₹ 50,00,000 Total Debt = ₹ 50,00,000 x 0.60 Total Debt = ₹ 30,00,000 (h) Capital (Equity): Capital = Total Assets - Total Debt Capital = ₹ 50,00,000 - ₹ 30,00,000 Capital = ₹ 20,00,000 (i) Short Term Debts: Given in the question ₹ 10,00,000 (j) Long Term Debts: Long Term Debts = Total Debts - Short Term Debts Long Term Debts = ₹ 30,00,000 - ₹ 10,00,000 Long Term Debts = ₹ 20,00,000 Balance Sheet of M/S Way to Wisdom Company As at March 31, 2017 Liabilities Amount (in ₹) Assets Amount (in ₹) Equity 20,00,000 Net Fixed Assets 25,00,000 Long Term Debts 20,00,000 Inventory 12,00,000 Short Term Debts 10,00,000 Debtors 10,00,000 Cash (balancing figure) 3,00,000 Total 50,00,000 Total 50,00,000

Topics: Financial Statement Analysis

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