QUESTION # 01: Following items aretaken out of Balance Sheet of A&B Co Ltd. a) C

Question

QUESTION # 01: Following items aretaken out of Balance Sheet of A&B Co Ltd.

a) CashRs. 20,000

b)Account receivable Rs. 100,000

c)Account payable Rs. 350,000

d)Notes payable Rs. 250,000

e)Inventory Rs. 300,000

f) Longterm debt Rs. 500,000

g)Furniture Rs.1,500,000

h)Common Stock Rs 5,00,000

i)Retained Earnings Rs.3,20,000

j)Earning before interest and tax Rs 600,000

k)Company paid interest Rs.140,000

Fromthe given data find out following ratios:

1.Total debt ratio

2. CashRatio

3. Acidtest Ratio

4.Current ratio

5. Interest CoverageRatio

Explanation / Answer

1.total debt ratio=(totalliabilities/total assets)

                           =  1,100,000/  1,192,000

                          =  0.92

2. Cash ratio=current assets/currentliabilites

                     =(cash + short-term marketable securities )/ currentliabilities
                       =20,000/600,000
                     =0.033

3. Acid test ratio=(current assets-inventory)/currentliabilites

                           =120,000/600,000

                           =0.2

4. Current ratio=current assets/current liabilites

                      =  420,000/600,000

                     =0.07
5.interest coverage ratio =income before interest expenses andtaxes /the amount of interest paid on debt.

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