Financial Accounting Ratio 2

Note: Students to open their text book, Essential Financial Accounting to page 619, fifth edition, question 37:6A
Students using any other edition should go to the content page and look for lnterpretation of accounts using simple ratio.

Solution:
(1) Fixed assets
Premises 10,000
P & M. 8,000
F & F 2,000
Total = # 20,000

(2) Current assets
Stock on hand 12,000
Trade debtors 9,000
Rates prepaid 100
Total = # 21,100

(3) Current liabilities.
Fixed loan int. 800
Bank overdraft. 1,200
Creditors 10,500
Exps. Accrued 250
Total = # 12,750

(4) Working capital =
Current assets less Current liabilities.

Current assets
Stock on hand 12,000
Trade debtors 9,000
Rates prepaid 100
Total = # 21,100

Current liabilities
Fixed loan int. 800
Bank overdraft 1,200
Creditors 10,500
Exps. accrued 250
Total = # 12,750

Current assets less Current liabilities
= #21,100 – #8,350
= #8,350

(5) Capital Employed
= Total assets less Current liabilities.
While:
Total assets = Fixed assets plus Current assets.

Fixed assets
Premises 10,000
P & M 8,000
F & F 2,000
Total = # 20,000

Current assets
Stock 12,000
Debtors 9,000
Rates 100
Total = # 21,100

Total assets = Fixed assets plus Current assets.
#20,000 + #21,100
= # 41,100

Current liabilities
Fixed loan 800
Bank Overdraft 1, 200
Creditors 10,500
Exps. accrued 250
Total = # 12,750

Capital employed =
Total assets less Current liabilities
=#41,100 – #12750
=#28,350.