Comprehensive Project - Raghu Steel Pipes Project Problem
Raghu Prasad Yadav, 24 years, was a resident of Rampur Village in Bihar. He belonged to a middle class family and did his B.Com (Hons.) from Bihar University, Patna. He wanted to be a successful businessman but was unable to decide the line of business which would best suit him.
One day, while talking to his friend, he got convinced about starting the business and started a steel pipes and angles business at a backward area of Bihar on 1 st April, 2005. He invested cash of of
70,000 in the business and opened a current a/c with the bank for
20,000. He took a loan
2,00,000 for for five years from ICICI ICICI Bank Bank @ 10% p.a. against against security security of his property. property. He
purchased iron rods from Ram & Co. worth 10,000 and small piece piece of land for
50,000 on credit, machinery
40,000, furniture
1,00,000 on the same date. Raghu withdrew goods worth
4,000 for domestic use. He hired a worker on April 1 itself and agreed to pay him wages of 5,000 p.m. On April 12, Raghu returned goods worth
2,000 to Ram and Co. being defective.
On May May 30, Raghu Raghu sold sold steel pipes to to Gupta & Co. worth steel angle worth
55,000 on credit. On On June 30, he sold
1,00,000 to Kumar & Co. who settled his payment as 25% in cash, 15%
through a cheque and drew a bill for balance for three months. However on July 4, Gupta & Co. discovered some defects in the pipes and returned the same worth
Raghu paid office and administrative administrative expenses of
2,000 and and selling and distribution distributio n expenses of
5,000 on July 6 and advertisement advertisement expenses of purchased iron rods worth
10,000.
10,000 on August 3. On September 4, he
25,000 from Khanna and Co. who drew a bill for 6 months on Raghu Rag hu
which he duly accepted. Due to a theft on October 9, goods worth insurance company paid a claim of
On December 16, he received
10,000 were lost for which
5,000. On October 17, Raghu paid Ram and Co.
30,000.
10,000 from Gupta and Co. On January 22, Raghu contributed
Page 1 For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
8,000 to the Prime Minister’s Relief Fund. A part of the machinery broke down on February 12, the expenses incurred for its repairs were
Raghu sold steel rods worth
2,000.
60,000 to Sharma and Co. on March 2 and received
20,000 in
cash and the balance was payable after 3 months. He sold steel rods to Rakesh and Co. worth 65,000 for cash on March 4. Sharma become insolvent on March 15 and Raghu received 50 Paisa in a rupee from his estate. On March 20, he purchased iron rods worth
83,000 from Shyam &
Co.
Other transactions during the year were: Wages paid
55,000 and outstanding amount
Electricity Bills Paid
7,000
Heating and Lighting Expenses Telephone Telephone Charges Carriage and Freight
5,000
5,500.
3,000 1,000
Miscellaneous Expenses
500
On 31st March 2006, Closing Closing stock was
60,000; depreciation on furniture and machinery is to
be provided @ 10% p. a.; Interest on capital to be provided @ 5% p.a. and Interest on drawings to be charged @ 2% p.a.
From the above information, (a) Pass journal entries, post the entries in the ledger and prepare a Trial Balance (b) From the prepared Trial Balance, prepare Trading and Profit & Loss A/c for the year and a Balance Sheet as at 31 st March, 2006 and analyze the profitability and the financial position of the business.
Page 2 For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
Project Solution Journal Date
Particulars
Debit
Credit
Amount
Amount
2005 April 1
Cash A/c
Dr.
70,000
To Capital A/c
70,000
(Being started business with cash) April 1
Bank A/c
Dr.
20,000
To Cash A/c
20,000
(Being cash deposited into bank) April 1
Cash A/c
Dr.
2,00,000
To Loan from ICICI Bank A/c
2,00,000
(Being loan taken from ICICI Bank) April 1
Purchases A/c
Dr.
50,000
To Ram & Co.
50,000
(Being goods purchased from Ram & Co.) April 1
Machinery A/c
Dr.
40,000
Furniture A/c
Dr.
10,000
Land A/c
Dr.
1,00,000
To Cash A/c
1,50,000
(Being fixed assets purchased) April 1
Drawings A/c
Dr.
4,000
To Purchases A/c
4,000
(Being goods withdrawn for personal use) April 12
Ram & Co.
Dr.
2,000
To Purchases Return A/c
2,000 Page 3
For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
(Being goods returned to Ram & Co.) May 30
Gupta & Co.
Dr.
55,000
To Sales A/c
55,000
(Being goods sold to Gupta & Co.) June 30
Kumar & Co.
Dr.
1,00,000
To Sales A/c
1,00,000
(Being goods sold to Kumar & Co.) June 30
Cash A/c
Dr.
25,000
Bank A/c
Dr.
15,000
Bill Receivable A/c
Dr.
60,000
To Kumar & Co.
1,00,000
(Being account settled by Kumar & Co. by cash, cheque and B/R) July 04
Sales Return A/c
Dr.
10,000
To Gupta & Co.
10,000
(Being goods returned by Gupta & Co.) July 06
Office & Administration Expenses A/c
Dr.
2,000
Selling & Distribution Expenses A/c
Dr.
5,000
To Cash A/c
7,000
(Being expenses paid) August 3
Advertisement Expenses A/c
Dr.
10,000
To Cash A/c
10,000
(Being advertisement expenses paid) Sept. 04
Purchases A/c
Dr.
25,000
To Khanna & Co.
25,000
(Being goods purchased from Khanna & Co.) Sept. 04
Khanna & Co.
Dr.
25,000
To Bills Payable A/c
25,000
(Being bill accepted, drawn by Khanna & Co.) Oct. 03
Cash A/c
Dr.
60,000
Page 4 For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
To Bills Receivable A/c
60,000
(Being bills receivable met on maturity Oct. 09
Loss by theft A/c
Dr.
10,000
The Purchases A/c
10,000
(Being goods lost by theft) Oct. 09
Insurance Co.
Dr.
5,000
To Loss by theft A/c (Being insurance Co. admitted claim of
5,000 5,000
against loss by theft) Oct. 09
Cash A/c
Dr.
5,000
To Insurance Co.
5,000
(Being claim received from insurance & Co.) Oct.17
Ram & Co.
Dr.
30,000
To Cash A/c
30,000
(Being cash paid to Ram & Co.) Dec. 16
Cash A/c
Dr.
10,000
To Gupta & Co.
10,000
(Being cash received from Gupta & Co.) Jan. 22
Charity A/c
Dr.
8,000
To Cash A/c
8,000
(Being charity give to prime minister’s relief fund) Feb. 12
Repair Expenses A/c
Dr.
2,000
To Cash A/c
2,000
(Being repair expenses of machinery paid) March 02
Sharma & Co.
Dr.
80,000
To Sales A/c
80,000
(Being goods sold to Sharma & Co.) March 02
Cash A/c
Dr.
40,000
To Sharma & Co.
40,000
(Being cash received from Sharma & Co.)
Page 5 For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
March 04
Cash A/c
Dr.
65,000
To Sales A/c
65,000
(Being goods sold for cash) March 07
Bills Payable A/c
Dr.
25,000
To Cash A/c (Being
amount
25,000
paid
against
bills
payable
on
maturity) March 15
Cash A/c
Dr.
20,000
Bad Debts A/c
Dr.
20,000
To Sharma & Co.
40,000
(Being 50 paisa in a rupee received from Sharma & Co) March 20
Purchases A/c
Dr.
83,000
To Shyam & Co.
83,000
(Being goods purchased from shyam & Co.) March 31
Wages A/c
Dr.
55,000
Electricity Expenses A/c
Dr.
7,000
Heating & Lighting Expenses A/c
Dr.
5,500
Telephone Charges A/c
Dr.
3,000
Carriage & Freight A/c
Dr.
1,000
Miscellaneous Expenses A/c
Dr.
500
To Cash A/c March 31
72,000
Depreciation A/c
Dr.
5,000
To Furniture A/c
1,000
To Machinery A/c
4,000
(Being
depreciation
provided
on
furniture
and
machinery) March 31
Interest on Capital A/c
Dr.
3,500
To Capital A/c
3,500
(Interest on capital provided @ 5% p.a.)
Page 6 For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
March 31
Capital A/c
Dr.
80
To Interest on Drawings A/c
80
(Being interest on drawings charged @ 2% p.a.) March 31
Interest on Loan A/c
Dr.
20,000
To Loan from ICICI Bank A/c
20,000
(Being interest on loan unpaid) March 31
Capital A/c
Dr.
4,000
To Drawing A/c
4,000
(Being amount of drawings charged to capital A/c) March 31
Wages A/c
Dr.
10,000
To Outstanding Wages A/c
10,000
(Being advance wages paid adjusted )
Page 7 For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
Ledger
Cash Account Date
Particulars
Amt
2005 Apr. 1 Apr. 1
Date
Particulars
Amt
2005 To Capital A/c To Loan form ICICI
70,000
April 1
By Bank A/c
20,000
2,00,000
April 1
By Machinery A/c
40,000
25,000 April 1
By Furniture A/c
10,000
60,000
April 1
By Land A/c
5,000
July 6
By Office & Administration Exp.
2,000 5,000
Bank A/c June 30 Oct. 3
To Kumar & Co. To Bills Receivable
1,00,000
A/c Oct. 9
To Insurance Co.
Dec. 16
To Gupta & Co.
10,000
July 6
By Selling & Distribution Exp.
Mar. 2
To Sharma & Co.
40,000
Aug.3
By Advertisement Exp. A/c
10,000
Mar. 4
To Sales A/c
65,000
Oct.17
By Ram & Co.
30,000
Mar. 15
To Sharma & Co.
20,000
2006 Jan. 22
By Charity A/c
8,000
Feb. 12
By Repair Exp. A/c
2,000
Mar. 7
By Bills Payable A/c
25,000
Mar. 31
By Wages A/c
55,000
Mar. 31
By Electricity Exp. A/c
7,000
Mar.31
By Heating & Lighting Exp. A/c
5,500
Mar. 31
By Telephone Charges A/c
3,000
Mar. 31
By Carriage & Freight A/c
1,000
Mar. 31
By Miscellaneous Exp. A/c
Mar. 31
By Balance c/d
4,95,000
500 1,71,000 4,95,000
2006 Apr.1
To Balance b/d
1,71,000 Page 8
For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
Bank Account Date
Particulars
Amt
Date
2005 Apr. 1 June 30
Particulars
Amt
2006 To Cash A/c
20,000
To Kumar & Co.
15,000
Mar. 31
By Balance c/d
35,000
35,000
35,000
2006 Apr. 1
To Balance b/d
35,000
Capital Account Date
Particulars
Amt
Date
2006
Amt
2005
Mar. 31
To Drawing A/c
Mar. 31
To Interest on
4,000 April 1 80
Drawing A/c Mar. 31
Particulars
To Balance c/d
1,20,000
By Cash A/c
70,000
2006 Mar. 31
By Interest on Capital A/c
Mar. 31
By P& L A/c (profit)
1,24,080
3,500 50,580 1,24,080
2006 April 1
By Balance c/d
1,25,000
Loan From ICICI Bank A/c Date
Particulars
Amt
2005 Mar. 31
Date
Particulars
Amt
2005 To Balance c/d
2,20,000
Apr. 1
By Cash A/c
2,00,000
2006 Mar. 31
By interest on Loan A/c
2,20,000
20,000 2,20,000
2006 April 1
By Balance b/d
2,20,000 Page 9
For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
Purchases Account Date
Particulars
Amt
Date
2005
Particulars
Amt
2005
Apr. 1
To Ram & Co.
50,000
Apr. 1
By Drawing A/c
Sept. 4
To Khanna & Co.
25,000
Oct. 9
By Loss by theft A/c
Mar. 15
To Shyam & Co.
83,000
2006 Mar. 31
By Trading A/c
1,58,000
4,000 10,000
1,44,000 1,58,000
Ram & Co. Date
Particulars
Amt
Date
2005 Apr. 12
2006
Amt
2005 To Purchases Return A/c
Oct. 17
Particulars
To Cash A/c To Balance c/d
Apr. 1
By Purchases A/c
50,000
2,000 30,000 18,000
Mar. 31 20,000
20,000 2006 Apr. 1
By Balance b/d
18,000
Machinery Account Date
Particulars
Amt
2005 April 1
Date
Particulars
Amt
2006 To Cash A/c
40,000
Mar. 31
By Depreciation A/c
Mar. 31
By Balance c/d
40,000
4,000 36,000 40,000
2006 April 1
To Balance b/d
36,000 Page 10
For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
Furniture Account Date
Particulars
Amt
Date
2005 April 1
Particulars
Amt
2006 To Cash A/c
10,000
Mar. 31
By Depreciation A/c
1,000
Mar. 31
By Balance c/d
9,000
10,000
10,000
2006 April 1
To Balance b/d
9,000
Land Account Date
Particulars
Amt
Date
2005 April 1
Particulars
Amt
2006 To Cash A/c
1,00,000
Mar. 31
By Balance c/d
1,00,000
1,00,000 1,00,000
2006 April 1
To Balance b/d
1,00,000
Drawings Account Date
Particulars
Amt
2005 April 1
Date
Particulars
Amt
2006 To Purchases A/c
4,000
Mar. 31
4,000 By Capital A/c
4,000
4,000
Purchases Return Account Date
Particulars
Amt
2006 Mar. 31
Date
Particulars
Amt
2005 To Trading A/c
2,000 April 12
By Ram & Co.
2,000
2,000 2,000 Page 11
For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
Gupta & Co. Date
Particulars
Amt
2005 May 30
Date
Particulars
Amt
2005 To Sales A/c
55,000 July 4 Dec. 16
By Sales Return A/c
10,000
By Cash A/c
10,000
By Balance c/d
35,000
2006 Mar. 31 55,000
55,000
2006 April 1
To Balance b/d
35,000
Sales Account Date 2006
Particulars To Trading A/c
Amt
Date
3,00,000 2005
Mar. 31
Particulars
Amt
By Gupta & Co.
55,000
May 30 June 30 2006
By Kumar & Co.
1,00,000
By Sharma & Co.
80,000
By Cash A/c
65,000
Mar. 2 Mar. 4 3,00,000
3,00,000
Kumar & Co. Date
Particulars
Amt
2005 June 30
Date
Particulars
Amt
2005 To Sales A/c
1,00,000 June 30
By Cash A/c
25,000
June 30
By Bank A/c
15,000
June 30
By Bills Receivable A/c
60,000
50,000
50,000 Page 12
For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
Bills Receivable Account Date
Particulars
Amount
2005 June 30
Date
Particulars
Amt
2005 To Kumar & Co.
60,000 Oct. 3
By Cash A/c
60,000
60,000 60,000
Sales Return Account Date
Particulars
Amount
2005 July 4
Date
Particulars
Amt
2006 To Gupta & Co.
10,000
Mar. 31
By trading A/c
10,000
10,000 10,000
Office & Administrative Expenses Account Date
Particulars
Amount
2005 July 6
Date
Particulars
Amt
2006 To Cash A/c
2,000 Mar. 31
2,000 By P& L A/c
2,000
2,000
Selling & Distribution Expenses Account Date
Particulars
Amt
2005 July 6
Date
Particulars
Amt
2006 To Cash A/c
5,000 Mar. 31
By P& L A/c
5,000
5,000 5,000
Page 13 For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
Advertisement Expenses Account Date
Particulars
Amt
Date
2005 Aug. 3
Particulars
Amt
2006 To Cash A/c
10,000
Mar. 31
By P& L A/c
10,000
10,000 10,000
Khanna & Co. Date 2005 Sept.4
Particulars
Amt
Date
To Bills Payable A/c
Particulars
Amt
2005 25,000
Sept. 4
By Purchases A/c
25,000
25,000 25,000
Bills Payable Account Date
Particulars
Amt
Date
2006 March 7
Particulars
Amt
2005 To Cash A/c
25,000
Sept. 4
By Khanna & Co.
25,000
25,000 25,000
Loss by Theft Account Date
Particulars
Amt
2005 Oct. 9
Date
Particulars
Amt
2005 To Purchases A/c
10,000
Oct. 9
By Insurance Co. A/c
5,000
By P& L A/c
5,000
2006 Mar. 31 10,000
10,000
Page 14 For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
Insurance Co. Date 2005 Oct. 9
Particulars
Amt
Date
To Loss By theft A/c
Particulars
Amt
2005 5,000
Oct. 9
By Cash A/c
5,000
5,000 5,000
Wages Outstanding Account Date
Particulars
Amt
Date
2006 Jan. 15
Particulars
Amount
2006 To Balance c/d
5,000 Mar. 31
By Wages A/c
5,000
5,000 5,000
2006 April 1
By Balance b/d
5,000
Charity Account Date
Particulars
Amt
2006 Jan 22
Date
Particulars
Amount
2006 To Cash A/c
8,000 Mar. 31
By P& L A/c
8,000
8,000 8,000
Repair Expenses Account Date
Particulars
Amt
2006 Feb. 12
Date
Particulars
Amount
2006 To Cash A/c
2,000
Mar. 31
By P& L A/c
2,000
2,000 2,000
Page 15 For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
Sharma & Co. Date
Particulars
Amt
Date
2006 March 2
Particulars
Amount
2006 To Sales A/c
60,000
March 2
By Cash A/c
20,000
March 15
By Cash A/c
20,000
March 15
By Bad Debts A/c
20,000
60,000
60,000
Bad Debts Account Date
Particulars
Amt
Date
2006 Mar. 15
Particulars
Amount
2006 To Sharma & Co.
20,000
March 31
By P& L A/c
20,000
20,000 20,000
Shyam & Co. Date
Particulars
Amt
Date
2006 Mar. 31
Particulars
Amount
2006 To Balance c/d
83,000
Mar. 20
By Purchases A/c
83,000
83,000 83,000
Wages Account Date
Particulars
Amt
2006
Date
Particulars
Amount
2006
Mar. 31
To Cash
Mar. 31
To Wages Outstanding A/c
55,000
Mar. 20
By Trading A/c
60,000
5,000 60,000
60,000
Page 16 For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
Electricity Expenses Account Date 2006
Particulars
Amt
To Cash A/c
Date
7,000 2006
Mar. 31
Particulars By P& L A/c
Amount 7,000
Mar. 31 7,000
7,000
Heating & Lighting Expenses Account Date
Particulars
Amt
Date
2006 Mar. 31
Particulars
Amount
2006 To Cash A/c
5,500
Mar. 31
By Trading A/c
5,500
5,500 5,500
Telephone Charges Account Date
Particulars
Amt
Date
2006 Mar. 31
Particulars
Amount
2006 To Cash A/c
3,000
Mar. 31
By P& L A/c
3,000
3,000 3,000
Carriage & Freight Account Date
Particulars
Amt
Date
2006 Mar. 31
Particulars
Amount
2006 To Cash A/c
1,000
Mar. 31
By Trading A/c
1,000
1,000 1,000
Miscellaneous Expenses Account Date
Particulars
Amt
Date
2006 Mar. 31
Particulars
Amount
2006 To Cash A/c
500 Mar. 31
By P& L A/c
500
500 500 Page 17
For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
Depreciation Account Date
Particulars
Amt
Date
2006
Particulars
Amount
2006
Mar. 31
To Furniture A/c
Mar. 31
To Machinery A/c
1,000
Mar. 31
By P& L A/c
5,000
4,000 5,000
5,000
Interest on Capital Account Date
Particulars
Amount
Date
2006 Mar. 31
Particulars
Amount
2006 To Capital A/c
3,500
March 31
By P& L A/c
3,500
3,500 3,500
Interest on Drawing Account Date
Particulars
Amount
Date
2006 Mar. 31
Particulars
Amount
2006 To P& L A/c
80 March 31
By Capital A/c
80
80 80
Interest on Loan Account Date 2006 Mar. 31
Particulars
Amount
To Loan from ICICI Bank A/c
Date
Particulars
Amount
2006 20,000
March 31
By P& L A/c
20,000
20,000 20,000
Page 18 For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
Trial Balance as on 31st March 2006 Particulars
Amt
Particulars
Cash A/c
1,71,000
Bank A/c
35,000
Purchases A/c
1,44,000
Machinery A/c (Less Depreciation) Furniture A/c (Less Depreciation) Land A/c
36,000 9,000 1,00,000
Capital A/c Loan from ICICI Bank A/c Ram & Co. Purchases Return A/c Sales A/c Shyam & Co.
Gupta & Co
35,000
Interest on Drawings A/c
Sales Return A/c
10,000
Wages Outstanding A/c
Office & Administrative A/c
2,000
Selling & Distribution A/c
5,000
Advertisement Exp. A/c Loss by theft A/c
Amt 69,420 2,20,000 18,000 2,000 3,00,000 83,000 80 5,000
10,000 5,000
Charity A/c
8,000
Repair Expense A/c
2,000
Bad Debts A/c
20,000
Wages A/c
60,000
Electricity Exp. A/c
7,000
Heating & Lighting Exp. A/c
5,500
Telephone Charges A/c
3,000
Carriage & Freight A/c
1,000
Miscellaneous Exp. A/c
500
Depreciation A/c
5,000
Interest on Capital A/c
3,500
Interest on Loan A/c
20,000 6,97,500
6,97,500 Page 19
For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
Trading and Profit & Loss Account For the year ended 31st March 2006 To Purchases A/c
1,44,000
Less Purchases Return
2,000
To Wages A/c
By Sales A/c 1,42,000
Less Sales Return
3,00,000 10,000
60,000 By Closing stock A/c
To heating & lighting A/c
5,500
To carriage & freight A/c
1,000
To Gross Profit c/d
To office & administrative Exp. A/c
2,000 By Gross Profit b/d
To selling & distribution Exp. A/c
5,000 By interest on drawing
5,000
To charity A/c
8,000
To repair Exp. A/c
2,000
7,000
To telephone Charges
3,000
To Depreciation A/c To interest on Loan A/c To interest on Capital A/c To Net Profit Transferred of Capital
1,41,500 80
20,000
To electricity Exp. A/c
To Miscellaneous Exp. A/c
3,50,000
10,000
To loss by theft A/c
To Bad Debts A/c
60,000
1,41,500 3,50,000
To advertisement Exp. A/c
2,90,000
500 5,000 20,000 3,500 50,580
A/c 1,41,580
1,41,580
Page 20 For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
Balance Sheet As on 31st March 2006 Liabilities
Assets
Capital
69,420
Add Net Profit
50,580
Loan from ICICI Bank
Land
1,00,000
1,20,000
Machinery (less Depreciation)
36,000
2,20,000
Furniture ( less Depreciation)
9,000
Creditors:
Stock
Ram & Co.
18,000
Shyam & Co.
83,000
Wages Outstanding
5,000
60,000
Debtors: Gupta & Co.
35,000
Cash at Bank
35,000
Cash in Hand
1,71,000
4,46,000
4,46,000
Page 21 For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
Accounting Ratios 1. Profitability Ratios
(i)
Gross Profit Ratio
=
Gross Profit Net Sales
=
1,41,500 2,90,000
× 100
× 100
= 48.79%
(ii)
Net Profit Ratio
=
Net Profit Net Sales
50,580
=
2,90,000
× 100
× 100
= 17.44%
2. Turnover Ratios (i)
Fixed Assets Turnover Ratio
=
Net Sales Fixed Assets
=
2,90,000 1,45,000
= 2 Times
(ii)
Working Capital Turnover Ratio
=
=
Net Sales Working capital
2,90,000 1,95,000
Page 22 For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
= 1.02 Times
(iii)
Total Assets to Turnover Ratio
=
=
Net Sales Total Assets
2,90,000 4,46,000
=.65 Times
3. Liquidity Ratios (i)
Current Ratio
Current Assets
=
=
Current Liabilities
3,01,000 1,06,000
= 2.83 ∶ 1
(ii)
Liquid Ratios
=
Liquid Assets Current Liabities
=
2,41,000 1,06,000
= 2.27 : 1
Comments (i)
As current ratio and liquid ratios are 2.83 : 1 and 2.27 : 1 respectively. It shows strong short-term financial position of Raghu.
(ii)
Gross profit margin on sales is 48.79% and Net profit margin on sales is 17.44%, which shows the good profitability in terms of sales.
(iii)
In terms of turnover ratios, It seems that the amount of sales is to be improved so that it improves the fixed assets turnover, working capital turnover and total assets turnover.
Page 23 For any inquiry, feel free to contact us at
[email protected] OR visit www.accountancyprojects.com
