Question

Balance Sheets
Liabilities	R.A Ltd.	A.R Ltd.	Assets	R.A Ltd.	A.R Ltd.
Share Capital	£    600,000	£       800,000	Land and Building	£    500,000	£    800,000
Reseve and Surplus	£    150,000	£       350,000	Plant and Machinery	£    300,000	£    700,000
14% Debentures	£    400,000	£    1,000,000	Furniture	£    200,000	£    400,000
Mortgaged Loan	£    100,000	£       500,000	Office Equipments	£    110,000	£    230,000
Sundry Creditors	£    200,000	£       300,000	Stock	£    300,000	£    500,000
Bills Payable	£    100,000	£       250,000	Sundry Debtors	£    150,000	£    300,000
Bank Overdraft	£      50,000	£                 -	Cash and Bank	£      30,000	£    150,000
Outstanding Expenses	£      10,000	£         20,000	Bills Receivables	£      20,000	£    140,000
Sales during the year - R.A Ltd. - £ 1,000,000
Sales during the year - A.R Ltd. - £ 1,500,000
Goods are sold by both the companies @ 25% gross profit.
Current Ratio
Debt - Equity Ratio
Inventory Turnover Ratio
Fixed Assets Turnover Ratio

Answer 1

1) Current Ratio = Current Assets / Current Liabilities Stock Sundry Debtors Cash and Bank Bills Receivables Current Assets R.A Ltd. A.R Ltd. £300,000 £500,000 £150,000 £300,000 £30,000 £150,000 £20,000 £140,000 £500,000 £1,090,000 --> (A) £300,000 £250,000 Sundry Creditors Bills Payable Bank Overdraft Outstanding Expenses Current Liabilities £200,000 £100,000 £50,000 £10,000 £360,000 £20,000 £570,000 --> (B) Current Ratio 1.39 1.91 --> (A)/(B)

2) Debt-Equity Ratio = (Total Liabilities / Stockholders' Equity) x 100 14% Debentures Mortgaged Loan Current Liabilities Total Liabilities R. A Ltd. A.R Ltd. £400,000 £1,000,000 £100,000 £500,000 £360,000 £570,000 (As calculated in Part-1] £860,000 £2,070,000 --> (A) Share Capital Reseve and Surplus Stockholders' Equity £600,000 £800,000 £150,000 £350,000 £750,000 £1,150,000 --> (B) Debt-Equity Ratio 114.67% 180.00% --> [(A)/(B)] x 100

3) Inventory Turnover Ratio = Cost of Goods Sold / Stock reported Here, Cost of Goods Sold = Sales x (1 - Gross Profit %) R.A Ltd. £1,000,000 Sales during the year Gross Profit % Cost of Goods Sold A.R Ltd. £1,500,000 25% £1,125,000 --> (A) = £1000000 x (1-25%) = £750000; £1500000 x (1-25%) = £1125000] 25% £750,000 Stock £300,000 £500,000 --> (B) Inventory Turnover Ratio 2.50 2.25 --> (A)/(B) 4) Fixed Assets Turnover Ratio = Sales / Fixed Assets R.A Ltd. £1,000,000 A.R Ltd. £1,500,000 --> (A) Sales during the year Land and Building Plant and Machinery Furniture Office Equipments Fixed Assets £500,000 £300,000 £200,000 £110,000 £1,110,000 £800,000 £700,000 £400,000 £230,000 £2,130,000 --> (B) Fixed Assets Turnover Ratio 0.90 0.70 --> (A)/(B)