Question

From the given balance sheet of Mr. A, calculate the activity (turnover) ratios.

Balance sheet as on 31.12.2004

Additional Information: Credit purchase Rs. 5,00,000; credit sales Rs. 9,00,000

Answer 1

(a) Capital Turnover Ratio = Sales/(Capital employed)

Capital employed = Share capital + Profit and loss A/c + Reserve and surplus + debentures 

= Rs. 2,00,000 + 1,00,000 + 1,00,000 + Rs. 50,000 

= Rs.  4,50,000 

Capital turnover ratio = 9,00,000/4,50,000 = 2 times

(b) Fixed assets turnover ratio = Sales/Fixed assets

Fixed assets = Land + Buildings + Equipments + Furniture 

= Rs. 50,000 + 1,00,000 + 1,75,000 +75,000 

= Rs. 3,00,000 

Fixed assets turnover ratio = 9,00,000/4,50,000

(c) Debtors Turnover ratio = Credit Rs. 9,00,000. 

Average debtors = Closing debtors = Rs. 60,000 

Debtors Turnover Ratio = 9,00,000/60,000 

= 15 times

(d) Creditors turnover ratio = (Creadit purchage)/(Average creaditers)

Credit purchases = Rs.  5,00,000 

Average creditors = closing creditors Rs. 1,25,000 

Creditors turnover ratio = 5,00,000/1,25,00

= 4 times