Ratio Analysis

Problem: From the following information make out a statement of proprietors funds with as many details as possible: a)Current Ratio 2.5 b)Liquidity Ratio 1.5 c)Proprietary Ratio ( Fixed Assets to Proprietary fund) - 0.75 d)Working Capital Rs.60,000 e)Reserves and Surplus Rs.40,000 f) Bank Overdraft Rs.10,000 g)There is no long-term loan or Fictitious

Solution: 1)Calculation of Current Assets and Current Liabilities: Current Assets 2.5 Current Ratio = -------------------------------- = 2.5: 1 Current Liabilities 1 Current Assets Current Liabilities = Working Capital 2.5 1 = 1.5 1.5= Rs.60,000 2.5= ? Current Assets 2.5 x 60,000 ------1.5

Ratio Analysis

= Rs.1,00,000

Ratio Analysis

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Current Liabilities = ------ x 60,000 = Rs.40,000 (Current Liabilities) 1.5 2) Calculation of Liquid Assets and Stock 1.5 Liquid Assets L.A Liquid Ratio = ------ Liquid Ratio = --------------------------------1 Current Liabilities 40,000 1 - 40,000 1.5

Current Assets Stock = Liquid Assets or Current Assets Liquid Assets = Stock 1,00,000 - Rs.60,000 = Rs.40,000 3) Calculation of Fixed Assets and Capital Proprietary Ratio given = 0.75 Fixed Assets Proprietary Ratio = ------------------Proprietors Fund It is given that there is no long-term loan or fictitious assets Balance Sheet Equation : Total Assets = Total Liabilities Or Proprietors funds + Current Liabilities = Fixed Assets + Current Assets

Ratio Analysis
If the proprietors funds are assumed as x X + Current Liabilities = .75 + Current Assets X + 40,0000 = .75x + 1,00,000 X - .75x = 1,00,000 -40,000 .25X = 60,000 60,000 X = ---------- = Rs.2,40,000 Proprietors fund .25 Proprietors funds = Rs.2,40,000 Fixed Assets = 2,40,000 x .75 Less: Reserves and = Rs. 40,000 = 1,80,000 Surplus ----------------