Question

From the given information, calculate: (a) Quick Ratio (b) Inventory Turnover Ratio Particulars: \[ \begin{array}{|l|r|} \hline Particulars & Amount (\rupee)
\hline \text{Current Assets} & 4,00,000
\hline \text{Inventory} & 1,00,000
\hline \text{Current Liabilities} & 2,00,000
\hline \text{Net Profit Before Tax} & 72,000
\hline \text{Revenue from Operations} & 10,00,000
\hline \text{Gross Profit Ratio} & 20\%
\hline \end{array} \] \vspace{0.5cm}

Hint:

1. The quick ratio excludes inventory and prepaid expenses while calculating liquidity. 2. Inventory turnover ratio measures the efficiency of inventory management in generating sales.

Answer 1

(a) Quick Ratio: \[ \text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}}. \] Quick Assets are calculated by subtracting Inventory from Current Assets. \[ \text{Quick Assets} = \text{Current Assets} - \text{Inventory} = \rupee4,00,000 - \rupee1,00,000 = \rupee3,00,000. \] Current Liabilities are provided as \rupee2,00,000. \[ \text{Quick Ratio} = \frac{\rupee3,00,000}{\rupee2,00,000} = 1.5 : 1. \] \vspace{0.5cm} (b) Inventory Turnover Ratio: \[ \text{Inventory Turnover Ratio} = \frac{\text{Cost of Goods Sold (COGS)}}{\text{Average Inventory}}. \] The Cost of Goods Sold (COGS) is determined using the following formula: \[ \text{COGS} = \text{Revenue from Operations} \times (1 - \text{Gross Profit Ratio}). \] \[ \text{COGS} = \rupee10,00,000 \times (1 - 0.2) = \rupee10,00,000 \times 0.8 = \rupee8,00,000. \] Average Inventory is given as \rupee1,00,000. \[ \text{Inventory Turnover Ratio} = \frac{\rupee8,00,000}{\rupee1,00,000} = 8 \text{ times}. \] \vspace{0.5cm} Summary Table for Inventory Turnover Ratio: \[ \begin{array}{|l|r|} \hline \textbf{Particulars} & \textbf{Amount (\rupee)}
\hline \text{Revenue from Operations} & 10,00,000
\hline \text{Gross Profit Ratio} & 20\%
\hline \text{Cost of Goods Sold (COGS)} & 8,00,000
\hline \text{Average Inventory} & 1,00,000
\hline \text{Inventory Turnover Ratio} & 8 \text{ times}
\hline \end{array} \] \vspace{0.5cm}