Theory question 109
Company AccountsThe following balances were extracted from the books of Duru Stores Limited on September 30, 2012:
Ordinary share capital: ₦150,000
6% Debentures: ₦45,000
Freehold premises (at cost): ₦127,500
Plant and machinery at cost: ₦105,900
Retained profits: ₦65,883
Provision for depreciation - plant and machinery: ₦38,100
Debtors: ₦31,664
Creditors: ₦34,730
Accrued rent: ₦2,440
Bank and cash balances: ₦22,890
Stock: ₦48,219
You are required to: (a) Prepare a Balance Sheet as at September 30, 2012. (b) Calculate the following: (i) Acid test ratio; (ii) Capital employed; (iii) Working capital; (iv) Current ratio.
Show the model answer
(a) Balance Sheet as at 30/9/2012
Fixed assets: freehold premises 127,500; plant and machinery 105,900 − 38,100 = 67,800; total 195,300
Current assets: stock 48,219; debtors 31,664; bank and cash 22,890 = 102,773
Less current liabilities: creditors 34,730; accrued rent 2,440 = 37,170
Working capital 65,603
Net assets 260,903
Financed by: ordinary share capital 150,000; retained profits 65,883 = 215,883; 6% debentures 45,000 = 260,883
(The printed balances leave a difference of ₦20, shown as a suspense balance to make the two sides agree.)
(b)(i) Acid test ratio = (102,773 − 48,219) : 37,170 = 54,554 : 37,170 = 1.47 : 1
(ii) Capital employed = fixed assets + working capital = 195,300 + 65,603 = ₦260,903
(iii) Working capital = 102,773 − 37,170 = ₦65,603
(iv) Current ratio = 102,773 : 37,170 = 2.76 : 1
Acid test leaves out stock; current ratio includes it.