Total Assets:
Total Asset Turnover Ratio = Sales / Total Assets
Or 1.2 = 1,800,000 / Total Assets
Total Assets : Rs. 1,500,000
Accounts Receivable:
Average Collection Period = 360 days / Accounts Receivable Turnover
Average Collection period is given in data : 40 days
Hence:
40 days = 360 days / Accounts Receivable Turnover
Accounts Receivable Turnover = 9
Accounts Receivable Turnover = Sales / Accounts Receivable
9 = 1,800,000 / Accounts Receivable
Accounts Receivable = 200,000
Inventories:
Inventroy Turnover Ratio = Cost of Goods Sold / Average Inventory
Cost of Goods Sold = Opening Stock + Purchases - Ending Stock
Or
Gross Profit = Sales - Cost of Goods Sold
Hence:
Cost of Goods Sold = Sales - GP
GP Ratio = GP / Sales * 100
GP Ratio is given in data: 25%
Sales is given in data : 1,800,000
25 = GP / 1,800,000 * 100
GP = 450,000
Hence:
COGS = Sales - GP
COGS = 1,800,000 - 450,000
COGS = 1,350,000
Inventory Turnover Ratio is given in data : 6
By putting these values in:
Inventroy Turnover Ratio = Cost of Goods Sold / Average Inventory
6 = 1,350,000 / Average Inventory
Average Inventory = 225,000
If your inventory figure comes Rs.225,000 then ultimately other figures will be different.
By taking Rs.225,000 as inventory we have following results:
Current Assets: Rs.480,000 (Current Assets = Cash + Marketable Securities + Accounts Receivable + Inventories or CA = 30,000 + 25,000 + 200,000 + 225,000)
Net Fixed Assets: Rs. 1020,000 ( Net Fixed Assets = TotaL Assets - CA or Net Fixed Assets = 1500,000 - 480,000)
Current Liabilities : Rs. 300,000 (Calculated from Current Ratio i.e. CR = CA / CL Or 1.6 = 480,000 / CL )
Notes Payable : Rs. 160,000 ( Notes Payable = CL - Accounts Payable - Accruals or Notes Payable = 300,000 - 120,000 - 20,000)
Long Term Debt: Rs. 600,000 (Long Term Debt = Total Balance Sheet Footing - CL - Stockholders's equity or Long Term Debt = 1,500,000 - 300,000 - 600,000)
Note: Purchases or Sales are assumed as net figures in this calculation.
Please members do confirm the correction of this solution.
Regards
Quote:
Originally Posted by irum
Balance Sheet as of December 31 2007
Cash $30,000
marketable securities 25,000
Accounts Receivable 200000
Inventories 3,00,000
Current Assets 555000
Net fixed assets 9,45,000
Total Assets 1500,000
Accounts Payable $120,000
Bank Loan 2,06,875
Accruals 20,000
Current Liabilities 3,46,875
Long term debts 5,53,725
Common Stock and retained earnings 600,000
Total Liabilities and Equity 1500,000
(W-1) Inventory turnover ratio=6.0
Inventory turnover ratio= sales/average inventories
6.0= 1800, 000/ average inventories
Average inventories= 1800, 000 /6.0
Average inventories= 300,000
(W-2) Average collection Period=40 days
Average collection Period=Average Account Receivable * 360 days/ sales
40 days= Average Account Receivables*360/18, 00,000
18, 00,000*40/360 = Average Account Receivables
Avg. Account Receivables = 200,000
(W-3) Total Asset Turnover Ration=1.20
1.20= sales/Total Assets
Total Asset = sales/TAT
=18, 00,000/1.20
=15, 00,000
(W-4) Fixed assets= Total Asset- Current Asset
=15, 00,000-5, 55,000
=9, 45,000
(W-5) Current Ratio= Current asset/Current Liabilities
1.60 =5, 55, 000/CL
CL= 5, 55, 000/1.60
= 3, 46,875
(W-6) Total debt = C liabilities +Long term debts
900,000 =3, 46,875 + ?
Long term Debt = 900,000 -3, 46,875
553185
(W-7)Total debt can be find out as
Total debt= Total Liabilities and Equity- Common Stock and retained earnings
900,000 =1500, 000-600,000
(W-8) Bank Loan= Current liabilities - Accounts Payable- Accruals
206875 =3, 46,875- 120,000-20,000
Provided information in question no 3, PAPER-1, are not correct, the actual data comprises as under (SOURCE Financial Management by Gitman)
Complete the 2007 balance sheet for Premier Industries using the information that follows it.
Balance Sheet as of December 31 2007
Cash & marketable securities 55,000
Accounts Receivable
Inventories
Current Assets
Net fixed assets
Total Assets
Accounts payable $120,000
Bank Loan ?
Accruals 20,000
Current Liabilities ?
Long term debts ?
Common Stock and retained earnings 600,000
Total Liabilities and Equity ?
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Thanks a lot Irum for solving this question. Can you please re-check your formula for Inventory Turnover and calculation of Average inventory?