Ratio Analysis

Here's how to calculate the opening and closing inventory step-by-step:

1. Calculate the Cost of Revenue (Cost of Goods Sold - COGS):
- Gross Profit = Revenue from Operations * Gross Profit Ratio
- Gross Profit = Rs. 8,00,000 * 25% = Rs. 2,00,000
- Cost of Revenue (COGS) = Revenue from Operations - Gross Profit
- COGS = Rs. 8,00,000 - Rs. 2,00,000 = Rs. 6,00,000

2. Calculate the Average Inventory:
- Inventory Turnover Ratio = Cost of Revenue / Average Inventory
- 4 = Rs. 6,00,000 / Average Inventory
- Average Inventory = Rs. 6,00,000 / 4 = Rs. 1,50,000

3. Set up Equations for Opening and Closing Inventory:
Let:
- Closing Inventory = X
- Opening Inventory = 2X (Given: Opening inventory was 2 times the closing inventory)

Therefore:
- Average Inventory = (Opening Inventory + Closing Inventory)/2

Substitute with the given value:
Rs. 1,50,000 = (2X + X)/2
Rs. 1,50,000 = (3X)/2
3X = Rs. 1,50,000 * 2
X = Rs. 3,00,000/3
X = Rs. 1,00,000

4. Calculate the Opening and Closing Inventory:
- Closing Inventory (X) = Rs. 1,00,000
- Opening Inventory (2X) = 2 * Rs. 1,00,000 = Rs. 2,00,000

Answer:
- Opening Inventory: Rs. 2,00,000
- Closing Inventory: Rs. 1,00,000

To calculate the opening and closing trade receivables using the given information, follow these steps:

1. Calculate the Revenue from Operations (Total Revenue):
- Cost of Revenue from Operations = Rs. 6,40,000
- Gross Profit Ratio = 20%
- Cost of Revenue from Operations = Revenue from Operations * (1 - Gross Profit Ratio)
- Rs. 6,40,000 = Revenue from Operations * 0.8
- Revenue from Operations = Rs. 6,40,000 / 0.8 = Rs. 8,00,000

2. Calculate the Credit Revenue from Operations:
- Cash Revenue from Operations = (1/3) * Credit Revenue from Operations
- Total Revenue from Operations = Cash Revenue from Operations + Credit Revenue from Operations
- Rs. 8,00,000 = (1/3) * Credit Revenue from Operations + Credit Revenue from Operations
- Rs. 8,00,000 = (4/3) * Credit Revenue from Operations
- Credit Revenue from Operations = Rs. 8,00,000 * (3/4) = Rs. 6,00,000

3. Calculate the Average Trade Receivables:
- Trade Receivables Turnover Ratio = Credit Revenue from Operations / Average Trade Receivables
- 4 = Rs. 6,00,000 / Average Trade Receivables
- Average Trade Receivables = Rs. 6,00,000 / 4 = Rs. 1,50,000

4. Set up Equations for Opening and Closing Trade Receivables:
Let:
- Opening Trade Receivables = X
- Closing Trade Receivables = X + Rs. 20,000 (Given)

Therefore:
- Average Trade Receivables = (Opening Trade Receivables + Closing Trade Receivables) / 2
- Rs. 1,50,000 = (X + X + Rs. 20,000) / 2
- Rs. 3,00,000 = 2X + Rs. 20,000
- 2X = Rs. 3,00,000 - Rs. 20,000
- 2X = Rs. 2,80,000
- X = Rs. 1,40,000

5. Calculate the Opening and Closing Trade Receivables:
- Opening Trade Receivables (X) = Rs. 1,40,000
- Closing Trade Receivables = Rs. 1,40,000 + Rs. 20,000 = Rs. 1,60,000

Answer:
- Opening Trade Receivables: Rs. 1,40,000
- Closing Trade Receivables: Rs. 1,60,000

We compare each figure across years and calculate both absolute and percentage changes. This aids in understanding trends, identifying performance improvements, and areas requiring attention.

The correct answer is None of the options.

Here's why:

Understanding Quick Ratio
The quick ratio (also known as the acid-test ratio) is a liquidity ratio that measures a company's ability to meet its short-term obligations with its most liquid assets.
The formula is:

Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities

Analysis of the Options
When the quick ratio is at 1:1, the total of your quick assets (cash, marketable securities, accounts receivable) is equal to your current liabilities.

(A) Cash received from debtors: When cash is received from debtors, there is a decrease in accounts receivable and an increase in cash. This affects the numerator of the quick ratio; one liquid asset is exchanged for another. If the initial quick ratio is 1, the ratio remains 1. Therefore, there is no change.

(B) Sold goods on credit: This will increase Accounts Receivable (a quick asset) and increase Inventory (not a quick asset). Therefore, there is no change in the overall ratio.

(C) Purchased goods on credit: This will increase Inventory (not a quick asset) and increase Accounts Payable (a current liability). Therefore, there is no change in the ratio.

(D) Purchased goods on cash: This will decrease cash (a quick asset) and increase Inventory (not a quick asset). Therefore, there is no change in the ratio.

Important Considerations:The quick ratio should be more than 1 in general, suggesting that the company has enough quick assets to cover its short-term liabilities.