Mba 41 Smude

Topics: Inventory, Generally Accepted Accounting Principles, Variable cost Pages: 2 (495 words) Published: May 15, 2013
MB0041/MBABF –Financial and Management Accounting

Draw the Balance Sheet for the following information provided by Sarawath Ltd.. a. Current Ratio : 2.50 b. Liquidity Ratio : 1.50 c. Net Working Capital : Rs.300000 d. Stock Turnover Ratio : 6 times e. Ratio of Gross Profit to Sales : 20% f. Fixed Asset Turnover Ratio : 2 times g. Average Debt collection period : 2 months h. Fixed Assets to Net Worth : 0.80 i. Reserve and Surplus to Capital : 0.50 | Balance Sheet

Liabilities| Rs| Assets| Rs|
CapitalResrves and surplusLong term debtCurrent liabilitiesTotal| 5000002500001500002000001100000| Fixed AssetsInventoriesDebtorsBankTotal| 600000200000250000500001100000|

Working note
If current liabilities =1Current liabilities =2.5Working capital =1.5Therefore current liabilities (2.5/1.5) x 300000Current liabilities (1/1.5) x 300000| =300000=500000=200000|

Liquidity ratio = 1.5Current liabilities =200000Therefore liquid asset (200000x1.5)Inventories (current asset – liquid asset)| =300000=200000|

Stock turnover ratio = 6 timesCost of sales (6x200000)Gross profit ratio = 20%Gross profitIf sales is 100; gross profit is 20Hence cost of sales is (100-20) =80Therefore gross profit is (20/80)Sales (cost of sales + gross profit) | =1200000=300000=1500000|

1.It is known as full costing. Both fixed and variable are included to ascertain the cost2.Different units are obtained at different levels of output because of fixed expenses remaining the same.3.Difference between sales and total cost.(marginal cost and fixed cost)is profit4.A portion of fixed cost is carried forward to the next period because closing stock of work-in-progress and finished goods are valued at the cost of production,which is inclusive...
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