ILLUSTRATION 1.

From the following financial data make out a statement of Proprietor's Fund'
with as many details as possible.
Proprietary Ratio Non-Current Asset (NCA) to Proprietor's Equity) 0.75
Current Ratio 2.50
Liquid Ratio 1.50
Capital Gearing (Equity Capital to Preference Capital) 2:1
Reserve & Surplus to Equity Capital 0.30
Working Capital 90,000
Bank Overdraft 20,000

There is no long-term loan on fictitious assets.

[CUB Com (Hons.) 2007]
Working Notes:
Working Capital = Current Assets (CA) - Current Liabilities (CL)
or, 90,000=CA-CL CA = 90,000+ CL
𝐶𝐴
Current Ratio=
CL
90,000+ CL
or, 2.5= or, 2.5 CL= 90,000+ CL
𝐶𝐿
90,000
or, 1.5 CL =90,000 CL= =60,000
15

Sundry Creditors= CL- Bank Overdraft = 60,000-20,000= 40,000

CA = 90,000+ 60,000 =1,50,000

CA− Stock
Liquid Ratio=
𝐶𝐿−𝐵𝑎𝑛𝑘 𝑂𝑣𝑒𝑟𝑑𝑟𝑎𝑓𝑡
1,50,000−𝑆𝑡𝑜𝑐𝑘 1,50,000−𝑆𝑡𝑜𝑐𝑘
or, 1.5= or, 1.5=
60,000−20,000 30,000

or, 60,000 = 1,50,000 – Stock or, Stock=90,000

Other Current Assets = Current Assets – Stock

=1,50,000 - 1,05,000 =60,000
 𝑁𝐶𝐴
Proprietary Ratio = [According to the problem]
Proprietor′s Equity
𝑁𝐶𝐴
0.75=
𝑁𝐶𝐴 + 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

[As there is no long-term loan on fictitious assets, proprietor's equity is equal

to sum of nca and Working Capital]
𝑁𝐶𝐴
or, 0.75=
𝑁𝐶𝐴 +90,000
or, 0.75 NCA + 67,500 = NCA
or, 0.25 NCA = 67,500
67,500
NCA = =2,70,000
0.25
So, Proprietor's Equity = 2,70,000+90,000
= 3,60,000
Proprietor's Equity = Equity Capital + Preference Share Capital
3,60,000 = Equity Capital + Preference Share Capital
Equity Capital = 3,60,000-Preference Share Capital
𝐸𝑞𝑢𝑖𝑡𝑦 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
Capital Gearing =
𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

3,60,000−𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑆ℎ𝑎𝑟𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

or, 2=
𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑆ℎ𝑎𝑟𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

or, 2 Preference Share Capital = 3,60,000-Preference Share Capital

or 3 Preference Share Capital = 3,60,000
Preference Share Capital = 1,20,000
So, Equity Capital = 3,60,000 - 1,20,000 = 2,40,000
Note: Capital gearing expresses the relation of equity capital including all
reserves to preference capital and other types of non-Current interest-bearing
loans, if any. So, the equity capital of 2,40,000 as ascertained above consists of
equity share capital and reserves & surplus.
Reserve & Surplus to Equity Capital = 0.30
Reserve & Surplus
= =0:30
𝐸𝑞𝑢𝑖𝑡𝑦 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

Or, Reserve & Surplus 2,40,000 × 0.30= 72,000

So, Equity Share Capital = Equity Capital - Reserves & Surplus
= 2,40,000-72,000= 1,68,000

SOLUTION:
Statement of Proprietor's Fund
Particular Amt Amt Amt
Equity Capital: 1,68,000
Equity Share Capital 72,000 2,40,000
Reserves & Surplus 1,20,000
Preference Share Capital 3,60,000
Proprietor's Fund
Represented by 2,70,000
Non-Current Assets
Working Capital:
Stock 90,000
Other Current Assets 60,000
1,50,000
Less: Sundry Creditors 40,000
Bank Overdraft 20,000 90,000
60,000
3,60,000

ILLUSTRATION 2.
Prepare a statement of Proprietor's Fund, as per modern approach from
following available financial records:
 Stock Velocity 6
General Reserve to Equity Capital 20%
Capital Gearing 2:3
Co's Non-Current Assets to net worth 60%
Non-Current Asset Turnover 4
Gross Profit Ratio 20%
Miscellaneous Expenses 20,000
Debtors Velocity 2 months
Deferred Expenditure 30,000
Creditors' Velocity 73 days
Gross Profit 1,20,000

Opening balance of account receivables was 20,000 in excess of closing

balance, closing stock was 10,000 in excess of opening stock.
[CUB Com (Hons.) 2009-Adapted]
SOLUTION:
1. Calculation of sales and cost of goods sold
Gross Profit 20 1,20,000
Gross Profit Ratio = = =
𝑆𝑎𝑙𝑒𝑠 120 𝑆𝑎𝑙𝑒𝑠
1,20,000 𝑥 100
Sales = = 6,00,000
20
So, Cost of Goods = Sold-Sales- Gross Profit = 6,00,000 - 1,20,000 = 4,80,000.

2. Calculation of Closing Stock

𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑
Stock Velocity=
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑆𝑡𝑜𝑐𝑘
4,80,000
Or, 6=
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑆𝑡𝑜𝑐𝑘
4,80,000
Or Average Stock= =80,000
6
𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝑆𝑡𝑜𝑐𝑘 + 𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝑆𝑡𝑜𝑐𝑘
or, Average Stock =
2
 𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝑆𝑡𝑜𝑐𝑘+ (𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝑆𝑡𝑜𝑐𝑘+10,000)
or 80,000=
2
Since, dosing stock is 10,000 more than opening stock
or, 1,60,000= 2 (Opening Stock) +10,000
1,60,000−10,000
or, Opening Stock= =75,000
2
Closing Stock=75,000+ 10,000 = 85,000

3. Calculation of Accounts Receivables

12
Debtor's Velocity = 2 months = = 6 times.
2

𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠
or 6=
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠
6,00,000
or 6=
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠

[Note: Assumed that entire sales are credit sales]

6,00,000
Average Receivables= = 1,00,000
6
𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 + 𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠
Average Receivables =
2
(𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠+20,000) + 𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠
1,00,000 =
2

or, 2,00,000 =2(Closing Receivables) +20,000.

1,80,000
Closing Receivables = = 90,000
2

4. Calculation of Sundry Creditors

365
Creditors' Velocity = 73 days = = 5 times
73

Credit Purchase
So, 5=
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑟𝑒𝑑𝑖𝑡𝑜𝑟𝑠
Credit Purchase = Cost of Goods + Increase in Stock =4,80,000+ 10,000 =
4,90,000
4,90,000
5=
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑟𝑒𝑑𝑖𝑡𝑜𝑟𝑠

4,90,000
Average Creditors = =98,000
5

Note: It is assumed that opening creditors and closing creditors are same: So
closing creditors is equal to 5 rage creditors.
Closing Creditors = 98,000.

5.Calculation of Non-Current Assets

𝑁𝑜𝑛−𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
Non-Current Assets Turnover Ratio =
𝑆𝑎𝑙𝑒𝑠
𝑁𝑜𝑛−𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
4=
4
6,00,000
Non-Current Assets = = 1,50,000
4

6. Calculation of Net Worth

𝑁𝑜𝑛−𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
= = 0.6
𝑁𝑒𝑡 𝑊𝑜𝑟𝑡ℎ
1,50,000
= = 0.6
𝑁𝑒𝑡 𝑊𝑜𝑟𝑡ℎ
1,50,000
Net Worth = = 2,50,000
0.6

7. Calculation of Capital and Reserve

Net Worth = Equity Capital+ General Reserve-Fictitious Assets
or, 2,50,000 = Equity Capital + General Reserve= 750,000
or, Equity Capital + General Reserve = 3,00,000
Note: Misc. Expenses & Deferred Expense are Fictitious Assets
General Reserve = 3,00,000 -Equity Capital
𝐺𝑒𝑛𝑒𝑟𝑎𝑙 𝑅𝑒𝑠𝑒𝑟𝑣𝑒
Given, =0.2
𝐸𝑞𝑢𝑖𝑡𝑦 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
3,00,000−𝐸𝑞𝑢𝑖𝑡𝑦 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
= = 0.2
𝐸𝑞𝑢𝑖𝑡𝑦 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

or, 3,00,000-Equity Capital =0.2 Equity Capital

or, 1.2 Equity Capital = 3,00,000
3,00,000
Equity Capital = = 2,50,000
1.2

General Reserve =3,00,000-2,50,000 = 50,000.

8. Calculation of Long-term Debt

𝐹𝑖𝑥𝑒𝑑 𝐶ℎ𝑎𝑟𝑔𝑒𝑠 𝐵𝑒𝑎𝑟𝑖𝑛𝑔 𝐹𝑢𝑛𝑑
Capital Gearing =
𝑁𝑒𝑡 𝑊𝑜𝑟𝑡ℎ

Note: it is assumed that there is no Preference Share Capital.

𝐿𝑜𝑛𝑔−𝑡𝑒𝑟𝑚 𝐷𝑒𝑏𝑡
So, Capital Gearing=
𝑁𝑒𝑡 𝑊𝑜𝑟𝑡ℎ
2 𝐿𝑜𝑛𝑔−𝑡𝑒𝑟𝑚 𝐷𝑒𝑏𝑡
= =
3 2,50,000
5,00,000
Long-term Debt= = 1,66,667
3

9. Calculation of Cash and Bank

Net Worth + Long-term Debt Creditors Non-Current Assets+ Stock + Debtors +
Cash & Bank
= 2,50,000+1,66,957+98,000=1,50,000+85,000 90,000 + Cash & Bank
= 5,14,567-3,25,000+ Cash & Bank
Cash & Bank= 1,89,867.
Statement of Proprietor's Fund
 Particular Amt Amt Amt
Proprietor's Fund:
Equity Share Capital 2,50,000
General Reserve 50,000
3,00,000
Less: Fictitious Assets:
Miscellaneous Expenses 20,000
Deferred Expenditure 30,000 50,000 2,50,000
Represented by:
Non-Current Assets
Working Capital:
85,000
Stock
90,000
Debtors
1,89,667
Cash & Bank
3,64,667
98,000 2,66,667
Less: Creditors
4,16,667
Capital Employed
1,66,667
Less: Long-term Debt
2,50,000

LUSTRATION 3.
Prepare the Balance Sheet of D & Co. as on 31.3.2009 with the help of
following information:
Non-Current Assets 6,00,000
Gross Profit Ratio 25%
Working Capital 4,00,000
Debtors Turnover 1.5 months
Working Capital Ratio 2
Creditor Turnover 2 months
Non-Current Asset Turnovers Ratio 4
Stock Turnover 2 months
Net Profit Ratio 5%

Reserve 2/3rd of net profit

Capital Gearing Ratio (long-term loan 1:1
to proprietary fund ratio)

[CUB Com (Hons.) 2010-Adapted]

SOLUTION:
1. Current Assets & Current Liabilities
Working Capital = Current Assets (CA)- Current Liabilities (CL).
4,00,000= CA-CL
CA = 4,00,000+ CL

𝐶𝐴
Working Capital ratio=
𝐶𝐿

4,00,000 + 𝐶𝐿
2=
𝐶𝐿

or, 2CL= 4,00,000 + CL

CL= 4,00,000
CA = 4,00,000 + 4,00,000= 8,00,000

2. Cost of Sales and Sales

Cost of Sales
Non-Current Asset turnover ratio=
𝑁𝑜𝑛−𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
Cost of Sales
or, 4 =
6,00,000

Cost of Sales= 6,00,000 ×4=24,00,000

𝐺𝑃
GP Ratio=
𝑆𝑎𝑙𝑒𝑠
25 𝑆𝑎𝑙𝑒𝑠−𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑
or, =
100 𝑆𝑎𝑙𝑒𝑠
𝑆𝑎𝑙𝑒𝑠−24,00,000
or, 0.25 =
𝑆𝑎𝑙𝑒𝑠

or. 0.25 Sales = Sales - 24,00,000

24,00,000
Sales= = 32,00,000
0.75

3. Debtors
Debtors Turnover = 1.5 months = 12 = 8 times
 𝑆𝑎𝑙𝑒𝑠
or =8
𝐷𝑒𝑏𝑡𝑜𝑟𝑠
32,00,000
or =8
𝐷𝑒𝑏𝑡𝑜𝑟𝑠
32,00,000
Debtors = =4,00,000
8

4. Stock
Stock Turnover = 2 months = 12 = 6 times 2
Cost of Goods
= =6
𝑆𝑜𝑙𝑑 𝑆𝑡𝑜𝑐𝑘
24,00,000
Or, = 4,00,000
6

5. Creditors
Creditors turnover = 2 months = 12/2 = 6 times
Purchase
or, =6 times
𝐶𝑟𝑒𝑑𝑖𝑡𝑜𝑟𝑠

Cost of Goods Sold = Purchase [As it is assumed that opening stock and closing
stock are equal]
24,00,000
= =6
𝐶𝑟𝑒𝑑𝑖𝑡𝑜𝑟𝑠
24,00,000
So, Creditors = =6
6

6. Net Profit and Reserve

Ratio Net
Net Profit =
𝑃𝑟𝑜𝑓𝑖𝑡 𝑆𝑎𝑙𝑒𝑠
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
or 0.05=
32,00,000

Net Profit= 32,00,000 x 0.05 =1,60,000.

Reserved= 2/3rd of Net Profit
= 2/3 x 1,60,000 = 1,06,667.
7. Long-term Loan and Capital
𝑃𝑟𝑜𝑝𝑟𝑖𝑒𝑡𝑎𝑟𝑦 𝐹𝑢𝑛𝑑
Capital Gearing Ratio =
𝐿𝑜𝑛𝑔−𝑡𝑒𝑟𝑚 𝐿𝑜𝑎𝑛
𝐿𝑜𝑛𝑔−𝑡𝑒𝑟𝑚 𝐿𝑜𝑎𝑛
or, 1=
𝑁𝑜𝑛−𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡+ 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙−𝐿𝑜𝑛𝑔−𝑡𝑒𝑟𝑚 𝐿𝑜𝑎𝑛
𝐿𝑜𝑛𝑔−𝑡𝑒𝑟𝑚 𝐿𝑜𝑎𝑛
or, 1=
6,00,000+ 4,00,000 −𝐿𝑜𝑛𝑔−𝑡𝑒𝑟𝑚 𝐿𝑜𝑎𝑛
𝐿𝑜𝑛𝑔−𝑡𝑒𝑟𝑚 𝐿𝑜𝑎𝑛
or, 1=
10,00,000 −𝐿𝑜𝑛𝑔−𝑡𝑒𝑟𝑚 𝐿𝑜𝑎𝑛

or, 10,00,000-Long-term Loan= Long-term

or, 2 Long term loan =10,00,000
10,00,000
Long-term Loan = =5,00,000
2
Proprietary Fund = Non-Current Assets + Working Capital-Long-term Loan
= 6,00,000 +4,00,000 -5,00,000 =5,00,000
Proprietary Fund Capital + Reserve
or, 5,00,000 Capital + 1,06,667
Capital= 3,93,333

D & Co.
Balance Sheet as on 31.3.2009
Liabilities Amount Assets Amount
Capital 3,93,333 Non-Current Assets 6,00,000
Reserve 1,06,667 Stock 4,00,000
Long-term Loan 5,00,000 Debtors 4,00,000
Creditors 4,00,000
14,00,000 14,00,000
ILLUSTRATION 4.
Sales, Debtors, Stock etc. are to be found out from given ratio From the
Following ratios and information relating to the activities of Bengal Traders
Lud. find (d)(a) Sales for the year 1998, (b) Sundry Debtors on 31.12.98, (c)
Sundry Creditors on 31.12.98 and (d) Closing Stock.
Debtors Velocity 3 months
Stock Velocity 6 months
Creditor’s Velocity 2 months
Gross Profit Ratio 20%

Gross Profit for the Year ended 31st December 1998 was 5,00,000. Stock as on
31st December 1998 was 20,000 higher than that of opening stock. Bills
Receivable and Bills Payable were 60,000 and 36,667 respectively at the end of
the year.
[CU B.Com (Hons) 1994]

ILLUSTRATION 5.
From the following information prepare a summarised Balance Sheet in the
books of X & Co. as at 31st December, 2019.
Liquid Ratio 1.5
Current Ratio 2.5
Asset (Non-Current) Proprietorship Fund Ratio 0.75
Working Capital 1,20,000
Reserves and Surplus 60,000
Bank Overdraft 20,000

[CUB Com (Hons.) - Adapted]