ULTIMATE BOOK OF ACCOUNTANCY

(Author: Dr. Vinod Kumar, Publisher: Vishvas Publications)

Class - XII Accountancy (Text Book Solutions)

Chapter -04 (Part – B): Accounting Ratios Par-1

Complete solutions of the very popular book

“ULTIMATE BOOK OF ACCOUNTANCY” class 12th
CBSE. This book is written by a renowned author
‘Dr.Vinod Kumar’ and strongly recommended by the
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class 12th cbse.

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PRACTICAL PROBLEMS

1. Current Ratio = Current Assets/Current Liabilities

Current Assets = Prepaid Expenses + Cash and Cash Equivalents + Trade Receivables +
Inventory (stock)
= 35,000 + 40,000 +45,000 + 30,000 = 1,50,000
Current Liabilities = Outstanding Expenses + Trade Payables
= 25,000 + 50,000 = 75,000
Current Ratio = 1,50,000/75,000 = 2:1

2. Current Ratio = Current Assets/Current Liabilities

Current Assets = Prepaid Expense + Inventories + Short term Investments + Cash and Cash
Equivalents + Trade Receivables
= 20,000 + 80,000 + 40,000 + 60,000 + 2,00,000 = 4,00,000
Current Liabilities = Trade Payables + Expenses Payable
= 1,20,000 + 80,000 = 2,00,000
Current Ratio = 4,00,000/2,00,000 = 2:1

3. Current Ratio = Current Assets/Current Liabilities

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 Current Assets = Inventory + Trade Receivable + Advance Tax + Cash and Cash Equivalents
= 1,00,000 + 1,00,000 + 8,000 + 60,000 = 2,68,000
Current Liabilities = Trade Payables + Bank Overdraft
= 2,00,000 + 8,000 = 2,08,000
Current Ratio = 2,68,000/2,08,000 = 1.29:1

4. Current Ratio = Current Assets/Current Liabilities

Current Assets = 5,00,000
Current Liabilities : Current Assets – Current Liabilities = Working Capital
5,00,000 – CL = 3,00,000
Hence, CL = CA – Working Capital
2,00,000 = 5,00,000 – 3,00,000
Current Ratio = 5,00,000/3,00,000 = 2.5:1

5. (a) Current Ratio = Current Assets/Current Liabilities

Current Assets = Sundry Debtors + Prepaid Expenses + Stock + Marketable Securities +
Cash
= 4,00,000 + 40,000 + 1,60,000 + 80,000 + 1,20,000 = 8,00,000
Current Liabilities = Bills Payable + Sundry Creditors + Outstanding Expenses
= 80,000 + 1,60,000 + 1,60,000 = 4,00,000
Current Ratio = 8,00,000/4,00,000 = 2:1

(b) Quick Ratio = Quick Assets/Current Liabilities

Quick Assets = Sundry Debtors + Marketable Securities + Cash
= 4,00,000 + 80,000 + 1,20,000 = 6,00,000
Current Liabilities = Bills Payable + Sundry Creditors + Outstanding Expenses
= 80,000 + 1,60,000 + 1,60,000 = 4,00,000
Quick Ratio = 6,00,000/4,00,000 = 1.5:1

6. Quick Ratio = Quick Assets/Current Liabilities

Quick Assets = Total Current Assets – Inventory – Prepaid Expenses
3,00,000 = 4,20,000 – 1,00,000 – 20,000
Quick Ratio = 3,00,000/3,00,000 = 1:1

7. Current Ratio = CA/CL

2.5 = 10,00,000/CL
CL = 10,00,000/2.5 = 4,00,000
Liquid Ratio = Liquid Assets/Current Liabilities
1:1 = Liquid Assets/4,00,000
Hence, Liquid Assets = 4,00,000
Inventory = Current Assets – Liquid Assets
6,00,000 = 10,00,000 – 4,00,000

8. Let the Current Liabilities = x

Current Ratio = 3.5:1
Quick Ratio = 2:1
Hence, Current Assets = 3.5x
Quick Assets = 2x

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 Liquid Assets = Current Assets – Inventory
2x = 3.5x – 60,000
2x – 3.5x = - 60,000
- 1.5x = - 60,000
X = 60,000/-1.5 = 40,000
Current Liabilities = 40,000
Current Assets = 3.5 x 40,000 = 1,40,000

9. Current Ratio = CA/CL

= Current Assets/1,20,000 = 3:1
Current Assets = 3,60,000 i.e. 1,20,000 x 3
Liquid Ratio = Liquid Assets/Current Liabilities
0.9 = Liquid Assets/1,20,000
Liquid Assets = 1,20,000 x 0.9 = 1,08,000
Inventory = Current Assets – Liquid Assets
2,52,000 = 3,60,000 – 1,08,000

10. Current Ratio = CA/CL = 3:1

Current Assets = 3 and Current Liabilities = 1
Working Capital = CA – CL
i.e. 2 = 3 – 1
Total Current Assets = 3,60,000 x 3/2 = 5,40,000
Current Liabilities = Current Assets – Working Capital
1,80,000 = 5,40,000 – 3,60,000
Quick Assets = 1,80,000 x 1.2 = 2,16,000
Inventory = CA – Quick Assets
3,24,000 = 5,40,000 – 2,16,000

11. Impact on Current Ratio :

(i) Ratio will improve because current assets and current liabilities are decreasing with the
same amount at the same time.
(ii) Ratio will improve because cash is going out and at the same time current liability is also
decreasing with the same amount.
(iii) Ratio will improve because current assets are increased but there is no change in current
liabilities.
(iv) Ratio will improve becuase cah is coming but there is no change in current liabilities.
(v) Ratio will decrease because current assets and current liabilities are increasing at the
same time by the same amount.
(vi) Ratio will improve because current assets and current liabilities are decreasing at the
same time by the same amount.

12. Effect on Ratio :

(i) There will be no change in ratio because both cash and debtors are quick assets. There is
decrease in one and increase in another at the same time. Overall there is no change in
quick assets and current liabilities.
(ii) Ratio will improve because there is an increase in quick assets but current liabilities are
same.
(iii) Ratio will improve because cash is increasing but current liabilities are same.

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 (iv) Ratio will decrease because current liabilities are increasing but quick assets are same
because we do not include goods or stock in quick assets.
(v) Ratio will decrease because cash is going out. Hence, quick assets decreasing but current
liabilities are same.

13. Current Ratio = CA/CL = 2.5:1

Working Capital = CA – CL
i.e. 1.5 = 2.5 -1
CL = 2,40,000/1.5 = 1,60,000
CA = 1,60,000 x 2.5 = 4,00,000

14. Current Ratio = CA/CL = 4.5:1

Quick Ratio = Quick Assets/CL = 3:1
Quick Assets = CA – Inventory
3x = 4.5 – 36,000
1.5x = 36,000
X = 36,000/1.5 = 24,000
Current Liabilities = 24,000
CA = 24,000 x 4.5 = 1,08,000

15. Current Ratio = CA/CL

Let us assume Current Liabilities = X
Current Ratio = 1,00,000 – 20,000/x = 2
2x = 80,000
Current Liabilities after payment = 80,000/2 = 40,000
Current Liabilities before payment = 40,000 + 20,000 = 60,000
Working Capital after payment = CA – CL
40,000 = 80,000 – 40,000

16. Current Ratio = CA/CL

= 1,00,000/CL = 2.5
CL = 1,00,000/2.5 = 40,000
Liquid Ratio = Liquid Assets/Current Liabilities
1.5 = Liquid Assets/40,000
Liquid Assets = 40,000 x 1.5 = 60,000
Inventory = CA – Liquid Assets
40,000 = 1,00,000 – 60,000

17. Quick Ratio = CA/CL

Quick Assets = CL x Quick Ratio
1,20,000 = 80,000 x 1.5
Inventory = CA – Quick Assets
80,000 = 2,00,000 – 1,20,000

18. Current Ratio = CA/CL

Working Capital = CA – CL
2=3–1
If working capital is Rs.4,00,000

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 Current Liabilities = 4,00,000 x ½ = 2,00,000
Current Assets = 4,00,000 x 3/2 = 6,00,000
Liquid Assets = CA – Inventory
3,50,000 = 6,00,000 – 2,50,000
Quick ratio = 3,50,000/2,00,000 = 7:4

19. Current Ratio = CA/CL = 3:1

= CA/37,500 = 3
CA = 37,500 x 3 = 1,12,500
Quick Assets = CA – Stock
92,500 = 1,12,500 – 20,000
Quick ratio = Quick Assets/CL
= 92,500/37,500 = 2.46:1

20. Current Ratio = CA/CL

= 6,00,000/4,00,000 = 1.5:1
Amount paid towards Current Liabilities = X
= 6,00,000 – X/ 4,00,000 – X = 2:1
4,00,000 x 2 = 8,00,000; 6,00,000 x 1 = 6,00,000
8,00,000 – 6,00,000 = 2,00,000

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