Assingment: Financial Information of Vijay Merchant Company
Q-1 Selected financial information about Vijay merchant company is given below: Particulars | 2010 (Rs.) | 2009 (Rs.) | Sales | 69,000 | 43,000 | Cost of Goods Sold | 57,000 | 32,500 | Debtors | 7,200 | 3,000 | Inventories | 11,400 | 5,500 | Cash | 1,500 | 800 | Other Current Assets | 4,000 | 2,700 | Current Liabilities | 16,000 | 11,000 |
Compute the current ratio, quick ratio, and average debt collection period and inventory turnover for 2009 and 2010- State whether there is a favorable or unfavorable change in liquidity from 2009 to 2010. At the beginning of 2009, the company had debtors of Rs.2500 and inventory of Rs.3000.
Answer: For 2009
a. Current Ratio = Current Assets/Current Liabilities
Total Current Assets = Debtor + lnventory + Cash + Other Current Assets Current Ratio = C.A. /C.L.= (3000 + 5500 + 800 + 2700)/ 11000 = 1.09:1
b. Quick Ratio = (Current Assets - lnventory - Prepaid Expenses)/Current Liabilities
Quick Ratio = (3000 + 800 + 2700) / 11000 = 0.59:1
c. Average Collection Period = Number of Days in a year / Debtors turnover Ratio
Debtors Turnover Ratio = Net Credit Sales / Average Debtors
Average Debtors = (Opening Debtors + Closing Debtors) / 2
Average Debtors = (2500 + 3000) / 2 = 2750
Debtors Turnover Ratio = 43OO0 / 27 50 = 15.64
Average Collection Period = 365 / 15.64 = 23 Days
d. lnventory Turn Over Ratio = Cost of Goods Sold / Average lnventory
Average lnventory = (Opening lnventory + Closing lnventory) / 2
Average lnventory = (3000 + 5500) / 2 = 4250 lnventory Turn Over Ratio = 32500 / 4250 = 7.6 times.
For 2010 a. Current Ratio = current Assets/current Liabilities
Total Current Assets = Debtor + lnventory + Cash + Other Current Assets
Current Ratio = C.A. /C.L. = (7200 + 11400 + 1500 + 4000) / 16000 = 1.51:1
b. Quick Ratio = (Current Assets = Inventory = Prepaid Expenses)/Current Liabilities
Quick Ratio = (7200 + 1500 + 4000)/ 16000 = 0.79:1
Compute the current ratio, quick ratio, and average debt collection period and inventory turnover for 2009 and 2010- State whether there is a favorable or unfavorable change in liquidity from 2009 to 2010. At the beginning of 2009, the company had debtors of Rs.2500 and inventory of Rs.3000.
Answer: For 2009
a. Current Ratio = Current Assets/Current Liabilities
Total Current Assets = Debtor + lnventory + Cash + Other Current Assets Current Ratio = C.A. /C.L.= (3000 + 5500 + 800 + 2700)/ 11000 = 1.09:1
b. Quick Ratio = (Current Assets - lnventory - Prepaid Expenses)/Current Liabilities
Quick Ratio = (3000 + 800 + 2700) / 11000 = 0.59:1
c. Average Collection Period = Number of Days in a year / Debtors turnover Ratio
Debtors Turnover Ratio = Net Credit Sales / Average Debtors
Average Debtors = (Opening Debtors + Closing Debtors) / 2
Average Debtors = (2500 + 3000) / 2 = 2750
Debtors Turnover Ratio = 43OO0 / 27 50 = 15.64
Average Collection Period = 365 / 15.64 = 23 Days
d. lnventory Turn Over Ratio = Cost of Goods Sold / Average lnventory
Average lnventory = (Opening lnventory + Closing lnventory) / 2
Average lnventory = (3000 + 5500) / 2 = 4250 lnventory Turn Over Ratio = 32500 / 4250 = 7.6 times.
For 2010 a. Current Ratio = current Assets/current Liabilities
Total Current Assets = Debtor + lnventory + Cash + Other Current Assets
Current Ratio = C.A. /C.L. = (7200 + 11400 + 1500 + 4000) / 16000 = 1.51:1
b. Quick Ratio = (Current Assets = Inventory = Prepaid Expenses)/Current Liabilities
Quick Ratio = (7200 + 1500 + 4000)/ 16000 = 0.79:1