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.
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 ?

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


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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"Jiyo to istarh ky log tum sy milny ko tarsy; maro to istrah k log tumharee mot par royain"

If CGS is not given in the information, we can assume sales as alternate figure,
well by using GP margin, ur answer seems logical, I will try to do this question again with the above logic.

Paper 1: Q3

Answers to missing values:

Account rcvble: 200,000
Inventory: 225,000
Net Fixed Assets: 1,020,000

Notes Payable: 160,000
Long term Debt: 600,000

Balance sheet footing: 1,500,000

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raz,

plz make me correct in case of wrong working of part 1 (V) .

200000*.65=130000-180000=50000
waiting for ur reply for this working