D.SRINIVASAN. M.COM, M.Ed., P.G.D.C.A, P.G.D.I.T,

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1 12 ACCOUNTANCY CHAPTER 4 RATIO ANALYSIS I. LIQUIDITY RATIOS 1. Current Ratio: Current Ratio = Current Assets Current Liabilities Current Assets: Current Liabilities: 1. Cash in hand 1.Bank overdraft 2. Cash at bank 2. Sundry creditors 3. Sundry debtors 3. Bills payable 4. Bills receivable 4. Outstanding Expenses 5. Short term investment 6. Marketable securities 7. Stock 8. Prepaid expenses 2. Liquid Ratio: Liquid ratio = Liquid Assets Current Liabilities Liquid Assets: Current assets (Stock + Prepaid expenses) Current Liabilities: 1.Bank overdraft 2. Sundry creditors 3. Bills payable 4. Outstanding Expenses 3. Absolute Liquid Ratio: Absolute Liquid Assets Absolute Liquid Ratio = Liquid Liabilities Absolute Liquid Assets: Liquid Liabilities: 1. Cash Current liabilities Bank overdraft 2. Bank 3. Short term investment II. SOLVENCY RATIOS 1

2 1. Debt Equity Ratio: Debt Equity Ratio = Total long term debt Shareholders funds Total long term debt: Shareholders funds: 1. Debentures 1. Equity share capital 2. Loans 2. Preference share capital 3. Long term loans 3. Reserves and surplus 2. Proprietory Ratio: Proprietory Ratio = Shareholders funds: Shareholder funds Total tangible assets Total tangible assets: 1. Equity share capital 1. All assets (Fixed assets, Current assets) Except Goodwill, Preliminary Exp 2. Preference share capital 3. Reserves and surplus III. PROFITABILITY RATIOS 1. Gross Profit Ratio: Gross profit Gross profit ratio = 100 Gross profit: Gross profit = Cost of goods sold Cost of goods sold = Opening stock + Purchases Closing stock Cost of goods sold = Gross profit = return = Cash sales + credit sales sales return Total sales sales return 2. Net Profit Ratio: Net Profit Net Profit Ratio = 100 Net Profit: Net Profit = Gross Profit (Administration Exp, Selling Exp, Distribution Exp, Financial Exp) = return = Cash sales + credit sales sales return 3. Operating Profit Ratio 2

3 Operating Profit Operating Profit Ratio = 100 Operating Profit: Operating Profit = Net Profit + Non operating Exp Non operating Income Non-operating Expenses: = return 1. Interes on loan = Cash sales + credit sales sales return 2. Loss on sale of all assets 3. Loss on sale of Furniture Total sales sales return 4. Loss on sale of machinery 5. Loss on sale of plant 6. Loss on sale of investments 7. Financial Expenses Non-operating income: 1. Dividend 2. Interest received 3. Profit on sale of all assets 4. Profit on sale of Furniture 5. Profit on sale of machinery 6. Profit on sale of plant 7. Profit on sale of investments 8. Interest received from investments Operating Profit = Gross Profit Operating Expenses 4. Operating Ratio Cost of goods sold + Operating Exp Operating Ratio = 100 Cost of goods sold: Cost of goods sold = Opening stock + Purchases Closing stock Cost of goods sold = Gross profit Operating Expenses: = return = Cash sales + credit sales sales return 1. Administration Expenses Total sales sales return 2. Selling Expenses 3. Distribution Expenses 4. Office Expenses IV. ACTIVITY RATIOS 3

4 1. Capital Turnover Ratio: Capital turnover Ratio = Capital Employed Capital Employed: 1. Equity share capital = return 2. Preference share capital 3. Reserves and surplus = Cash sales + credit sales sales return 4. Long term borrowed funds Total sales sales return 2. Fixed Assets Turnover Ratio: Fixed Assets Turnover Ratio = Fixed Assets = Fixed Assets - Depreciation Fixed Assets Fixed Assets: 1. Land = return 2. Building 3. Machinery = Cash sales + credit sales sales return 4. Plant 5. Furniture Total sales sales return 6. Computers 3. Stock Turnover Ratio: Stock Turnover Ratio = Cost of Goods Sold Average Stock Cost of goods sold: Cost of goods sold = Opening stock + Purchases Closing stock Average Stock: Opening stock + Closing stock 2 Cost of goods sold = Gross profit 4. Debtors Turnover Ratio: 4

5 Credit Debtors Turnover Ratio = Average Debtors Credit Credit = Total sales Cash sales return Average Debtors: Opening Debtors + Closing Debtors (In case credit sales is not given, total sales can be taken as credit sales.) 2 (In case Opening debtor and closing debtor is not given, Bills receivable + sundry debtors can be taken as average debtors) 5. Creditors Turnover Ratio: Creditors Turnover Ratio = Credit Purchases Average Creditors Credit Purchases: Credit Purchases = Total Purchases Cash Purchases Purchases return Creditors Average Creditors: Opening Creditors + Closing (In case Credit Purchases is not given, total Purchases 2 can be taken as credit Purchases.) (In case Opening creditors and closing creditors is not given, Bills payable + sundry Creditors can be taken as average creditors) D.SRINIVASAN. M.COM, M.Ed., P.G.D.C.A, P.G.D.I.T., K.G.S. MATRIC HR. SEC. SCHOOL. TIRUPUR. CELL:

6 12 ACCOUNTANCY CHAPTER 6 PARTNERSHIP ACCOUNTS VALUATION OF GOOD WILL I. Average Profit Method: Calculation of Average profit method: Total Profits Average Profit = No. of. Years Calculation of good will: Average Profit No. of. Years Purchase II. Super Profit Method: Calculation of Average Profit: Total Profits Average Profit = No. of. Years Calculation of Normal Profit: Normal Profit = Capital employed Normal Rate of returns Calculation of Super Profit: Super profit = Average Profit Normal Profit Calculation of Good will : Good will = Super Profit No. of years of Purchase. INTEREST ON DRAWINGS I. Product Method: Rate of interest 1 Interest on Drawing = Total Drawings Note: - If the amount is withdrawn at irregular period of month.

7 II. Average Period Method: Rate of interest Interest on Drawing = Total Drawings Average Period: Withdrawn in the beginning of every month Average Period = = = 6½ month 2 2 = 6.5 (or) Average Period Withdrawn in the middle of every month 11½ + ½ 12 Average Period = = = 6 month 2 2 = 6 (or) Withdrawn in the End of every month Average Period = = = 5½ month 2 2 = 5.5 (or) D.SRINIVASAN. M.COM, M.Ed., P.G.D.C.A, P.G.D.I.T., K.G.S. MATRIC HR. SEC. SCHOOL. TIRUPUR. CELL:

D. SRINIVAASAN. M.Com., M.Ed., P.G.D.C.A., P.G.D.I.T., K.G.S. MATRIC. HR. SEC. SCHOOL. TIRUPUR, CELL BOOK BACK ONE MARKS 12th Standard

D. SRINIVAASAN. M.Com., M.Ed., P.G.D.C.A., P.G.D.I.T., K.G.S. MATRIC. HR. SEC. SCHOOL. TIRUPUR, CELL - 9047777116 BOOK BACK ONE MARKS 12th Standard ACCOUNTANCY Time : 01:00:00 Hrs Total Marks : 199 FILL