Draw the Balance Sheet for the following information provided by Sarawath Ltd.. a. Current Ratio : 2.50 b. Liquidity Ratio : 1.50 c. Net Working Capital : Rs.300000 d. Stock Turnover Ratio : 6 times e. Ratio of Gross Profit to Sales : 20% f. Fixed Asset Turnover Ratio : 2 times g. Average Debt collection period : 2 months h. Fixed Assets to Net Worth : 0.80 i. Reserve and Surplus to Capital : 0.50
Answer :
Here we can see the table with some formulas.
Current Ratio current assets/current liabilities 2,5
(current assets – inventory)/current
Liquidity Ratio Liabilities 1,5
Net Working Capital current assets – current liabilities 300000
Stock Turnover Ratio net sales/inventory 6
Ratio of Gross Profit to Sales (revenue – cost of goods)/net sales 0,2
Fixed Asset Turnover Ratio
Average net sales/fixed assets 2
Debt collection period (Average Debtors / Credit Sales) x 365 2
Fixed Assets to Net Worth fixed assets/(total assets – total
Liabilities) 0,8
Reserve and Surplus to Capital Reserve and Surplus to Capital 0,5
B/S Balance 1100000
Using these formulas we can calculate:
Current assets 500000
Inventory 200000
Current liabilities 200000
Net sales 1200000
Gross profit 240000
Fixed assets 600000
So, we can build the balance sheet.
Balance
Fixed assets 600000
Current assets and inventory 500000
Total Assets: 1100000
Current liabilities 200000
Capital 480000
Long-term liabilities and other 420000
Total Liabilities: 1100000
