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#13 Raz Senior Member Join Date: Sep 2007 Location: In the hearts of Friends and heads of foes. Posts: 1,855 Thanks: 2,165 Thanked 3,863 Times in 1,437 Posts            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 Solution 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 ?
Thanks a lot Irum for solving this question. Can you please re-check your formula for Inventory Turnover and calculation of Average inventory?
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Last edited by Princess Royal; Thursday, July 01, 2010 at 01:35 PM.
 The Following 3 Users Say Thank You to Raz For This Useful Post: irum (Thursday, July 01, 2010), mianzahidiqbal (Sunday, October 24, 2010)